Exit and Growth Strategies for Middle Market Businesses

Print & Packaging Industry Update

By Anthony Contaldo | Jul 01, 2015

Colour bar off cuts thrown into the recycle cage...According to data from the Interindustry Economic Research Fund (IERF), revenue for US print & packaging providers is forecast to grow at an annual compounded rate of 3.5 percent between 2015 and 2019. In addition, Freedonia Group, a global research group, projects worldwide demand for corrugated boxes to rise more than 4 percent per year through 2017.

In recent years the population at large has placed greater importance on “green” business practices and packaging has been at the forefront. According to a recent survey conducted by Asia Pulp & Paper, more than half of Americans (56%) indicate they’d like to see more sustainable packaging when they purchase products. In addition, 42% of Americans replied that they’d be open to paying more for products if the packaging options were more environmentally friendly. As such, packaging manufacturers have enforced manufacturing greener products by creating lighter weight products and have favored the use of recycled materials.

To remain competitive in 2015, commercial printers may seek to acquire or enhance their ability to offer data analytics services and to market innovative printed materials to B2B customers. Printers are expected to increasingly embrace data analytics and micro-targeting services to enhance their offerings to customers.

  • US nondurable goods manufacturers’ shipments of printed goods, an indicator of demand for commercial printing, rose 3.4% year-to-date in March 2015 compared to the same period in 2014.
  • US nondurable goods manufacturers’ shipments of paper products, an indicator of converted paper product demand, rose 0.7% year-to-date in March 2015 compared to the same period in 2014.

Posted by Anthony Contaldo.

Read the Entire Print & Packaging 2nd Quarter Newsletter Here

Due Diligence – Who is in Control?

By Terry Fick | Jun 29, 2015

ControlThe answer to that is actually in the hands of the business seller. How can that be?  Well, the seller that looks through the eyes of the buyer early in the sale process and does something with that perspective will control the process. Those that don’t let the buyer control the process.  So who cares?  The seller should care the most because elongated due diligence always costs the seller money and far too often, the entire deal.

If due diligence starts with the LOI, the buyer is in charge.  If the seller has prepared in advance, and the buyer knows this, the seller is in charge.  By having already pointed out the warts, or perceived warts, you steal the buyer’s thunder.  By presenting an indexed data room with all of the information you believe the buyer will ask, the seller takes control.  Sure, the buyer will always have more questions, but they will be minor. Read more »

Metal Fabrication M&A News

By Robert Contaldo | Jun 25, 2015

Metal to metal weldingMetal Fabrication: US industrial production by machine shops increased nearly 5 percent in 2014 compared to the previous year and has continued into 2015. Strong production growth by some key machine shop customer groups may have contributed to the industry’s gains in 2014. US production of motor vehicles and parts rose 8 percent in 2014 compared to the prior year; machinery production climbed more than 7 percent. Manufacturers of metal fabrication products saw production grow more than 5 percent, and production of aerospace products and parts increased 2.2 percent.

US industrial production of fabricated metal products increased about 4 percent in December 2014 compared to the same period a year earlier. Forgings and stampings saw some of the largest gains, with growth of more than 10 percent. Improving US construction spending likely contributed to a 6 percent increase in architectural and structural metals production. Fabricated metal product manufacturers also likely benefited from increased production in some key end-use OEM markets. US machinery production rose 12 percent in December 2014, and production of motor vehicles and parts grew 7 percent. Production of aerospace products and parts increased about 4 percent.

Global demand for machine tools is expected to reach more than $140 billion by 2020 amid a steady rise in manufacturing activity, according to a recent report by Global Industry Analysts. US manufacturers are forecast to continue to re-shore some operations amid higher labor costs in China, high transportation costs, and the difficulties of maintaining far-flung supply chains.

US capital spending for machine tools is forecast to rise 37 percent in 2015 compared to 2014, according to a recent survey by Gardner Business Media. High rates of capacity utilization by machine shops and other heavy users of machine tools, including metalworking machinery, suggest companies may have to invest in capital equipment purchases to keep up with new orders.

Posted by Bob Contaldo.

Read the Entire Metal Fabrication 2nd Quarter Newsletter Here

When Selling Your Business, Planning is Critical

By Marc Borrelli | Jun 22, 2015

Business PlanWe have all heard Alan Lakein’s quote “Failing to plan is planning to fail.”  However, the problem today is that many middle market entrepreneurs selling their businesses without proper planning for the sale event and thus leave millions on the table.

I am sure that many of these entrepreneurs would say that they did plan to sell, hired an investment banker, and went through a process. However, this is the end part of the process and planning needs to start 3+ years in advance to be truly effective. In the sub $100MM market, to maximize the value of a business is not hoping some banker knows a buyer that will pay substantially more, but rather properly preparing the company for sale.

The lack of planning I believe is due to two issues: (i) entrepreneurs don’t fully realize the benefits of planning, and (ii) they don’t look at their business with external objectivity. Read more »

Industrials M&A News

By John Hammett | Jun 19, 2015

industrials-1Industrials M&A: US industrial production in  of several types of industrial chemicals increased in December 2014 compared to same period a year earlier. Production of basic chemicals rose nearly 4 percent. Industrial gases saw production grow more than 9 percent, while basic inorganic chemicals saw an increase of more than 8 percent. Organic chemical production increased just over 2 percent. Overall, US industrial production, a general indicator of demand for industrial chemicals, grew more than 4 percent in 2014 compared to the prior year.

Slowing growth in the oil production sector could reduce demand for some industrial equipment wholesalers. Oil production and prices have boomed in recent years, particularly in the US, but Brent crude spot prices recently hit a six-year low. Falling oil prices are expected to slow production growth over the next two years among non-OPEC suppliers, a key customer segment for industrial equipment dealers. US crude oil production, which rose 16 percent in 2014, is projected to grow 8 percent in 2015 and 2 percent in 2016, according to the US Energy Information Administration’s Short-Term Energy Outlook for February 2015.

The best post-recession year for machine tool consumption could be ahead in the remainder of 2015, according to the Gardner Research Capital Spending Survey and Forecast. Metal cutting machine tool consumption is expected to grow by close to 40 percent and reach $8.8 billion by the end of the year. Gardner predicts that the US could become the top consumer of CNC machine tools in 2015, for the first time since 2000. Top industries for machine tools in 2015 include job shops, machinery and equipment manufacturers, and automotive in Industrials M&A.

Posted by John Hammett.

Read the Entire Industrials M&A 2nd Quarter Newsletter Here

Middle Market Businesses and the Shark Tank Phenomenon

By Cliff Kendel | Jun 17, 2015

SharkTankShark Tank has exposed Main Street businesses to finding equity capital for business concepts.

Main Street is warming up to partnering with savvy professional investors through creating a salient story/elevator pitch by having committed experienced management paired with a financial venture partner.  The venture partner helps refine the concept, focus the team, and elevate the business to a higher level of success.

Middle market investment bankers assist Main Street businesses enhance their “story” presented in a ninety second(or less) elevator pitch that:

• Quickly and succinctly articulates the Investment opportunity
• Explains why the management team is uniquely qualified to execute the plan
• Understand the financial history and plan for the future

Then, the investment banker conveys the story to  targeted groups that have the knowledge and desire to be in the industry “space” that the Company is operating; vets the prospective investor; and facilitates a mutually beneficial economic transaction.

Corporate Finance Associates investment bankers are a diversified team of experienced financial and operating executives, who have run businesses, been CFOs and senior operating executives of various types of businesses, sold businesses for Clients and their own account, and developed real estate and senior living concepts for clients and their own account.  How can we help you with your business?

Posted by Cliff Kendel.

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Aviation Industry M&A News

By Joe Contaldo | Jun 11, 2015

Jet EngineAs manufacturing continues to gain steam across North America, M&A activity in the aviation industry space is expected to remain strong as larger companies look to gain capabilities and accelerate growth. In addition, mega deals in the cyber security space remain a topic of conversation as the aforementioned Raytheon acquisition of Websense and Bain Capital’s acquisition of Blue Coat Systems foretell the importance of staving off cybercrime.

According to data from rom the Interindustry Economic Research Fund (IERF), revenue for US aerospace manufacturing is forecast to grow at an annual compounded rate of 5 percent between 2015 and 2019.

Aerospace has been a major factor behind increased manufacturing activity in the United States. The global aerospace industry is increasingly opting to situate manufacturing operations in the US instead of low-cost rivals such as China and Mexico, according to new data from ICF International reported by Reuters. Between 2000 and 2012, aerospace manufacturing investments were strongest in China, Mexico, India, and Brazil. Since 2012, more investment has been returning to the US amid rising wages in the developing world. Robotic automation has helped manufacturers in developed countries become more competitive with low-cost producers. Boeing has moved more production in-house as it has reduced outsourcing of work on its 787 Dreamliner. Airbus’s decision to build a plant in Mobile, Alabama, is also attracting aerospace supplier investment to the region.

Aircraft makers based in China and Japan are taking on longtime incumbents Embraer and Bombardier in the regional jet market. Mitsubishi Aircraft expects to begin test flights of a 76 to 88-seat regional jet in the second quarter of 2015, with deliveries beginning in 2017. The company has set the goal of attaining 50 percent of the global market for regional jets over the next 20 years, according to The Wall Street Journal.

Posted by Joe Contaldo.

Read the Entire Aviation, Aerospace & Defense M&A 2nd Quarter Newsletter Here

Still a Sellers’ Market, But Not Forever

By Eduardo Berdegué | Jun 09, 2015

watch on armOn June 1st, Ferrellgas Partners (NYSE:FGP) announced the acquisition of Bridger Logistics LLC for $837 million, a valuation representing 8.3 times future EBITDA of the Dallas-based crude oil hauler. The transaction is further evidence that activity in the energy sector is healthy despite the dramatic reduction, and subsequent less dramatic though reassuring re-bouncing in the price of oil that has impacted the sector over the past several months.

The transaction also illustrates that, despite a moderate decrease in middle-market M&A activity in 1Q2015 compared with the record-breaking trends of 2014, we are still in a sellers’ market…for now.

Yes, Ferrellgas is a NYSE traded company implementing an aggressive diversification strategy; yes, the transaction was structured to include a mix of cash and stock; and yes, Bridger Logistic has experienced extraordinary growth (the company was named Inc. Magazine’s fastest growing energy company in 2013), but with only 5 years in existence, Bridger has yet to prove its model in a non-boom environment.

Valuations are high because cash is plenty available in the coffers of strategic acquirers and of Private Equity groups which held close to a record $1 trillion in dry powder in 2014 fully cognizant that, if not deployed dry power gets wet. Cost of borrowing is at record lows, and many lenders are increasingly willing to tolerate higher leveraged deals. Quality targets are aggressively pursued by competing investors, especially in the middle and upper middle-markets, but with 800-900 quarterly PE-backed transactions between 3Q2013 and 4Q2014, quality is becoming increasingly scarce.

This situation clearly represents a window of opportunity for sellers getting ready to go to market, and for would-be sellers to join them. However, the rate at which Private Equity is raising new funds is slowing down, which could be read as either a saturated, or a fatigued environment, both of which may translate into an end of the current cycle and its fat valuations.

Posted by Eduardo Berdegué.

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Engineering and Construction M&A Industry News

By Jeff Johnson | Jun 05, 2015

EngineeringThe leveling off of housing starts could force many would-be buyers in the engineering and construction space to play it safe as they look for a trend in the market to solidify. However, with financing still historically cheap and cash-rich balance sheets at the ready, buyers remain anxious to put their capital to work. In addition, a decline in construction activity could lead savvy buyers to become as aggressive as multiples begin to tail off.

According to data published by the Interindustry Economic Research Fund, Inc. (IERF), revenue (in current dollars) for US engineering and R&D services is forecast to grow at an annual compounded rate of 8 percent between 2015 and 2019 while the value of US new public and private construction spending is forecast to grow at an annual compounded rate of 7 percent. The construction sector is growing, and many firms are increasingly optimistic about their revenue and hiring forecasts for the next year and beyond. A new report from the US Bureau of Labor Statistics predicts the industry will add 1.6 million jobs through 2022.

The value of US nonresidential construction spending, an indicator of the health of the construction market, rose 3.5 percent year-to-date in February 2015 compared to the same period in 2014. The value of US residential construction spending, an indicator of the health of the construction market, fell 0.8 percent year-to-date in February 2015 compared to the same period in 2014. US steel mill product prices, an indicator of commodity steel product costs used in construction, fell 4.8 percent in March 2015 compared to the same month in 2014.

The US is one of the top 10 most attractive national markets for investment in infrastructure, according to a recent report by engineering firm ARCADIS. But while the US needs to rehabilitate $3.6 trillion in existing infrastructure, government budgets are forecast to fund only about $2 trillion of this need by 2020, based on estimate by American Society of Civil Engineers. To fill the gap, investors and governments are exploring public-private partnerships (P3s) models that combine public money with private investment to fund needed infrastructure.

Posted by Jeff Johnson.

Read the Entire Engineering and Construction M&A 1st Quarter Newsletter Here



Do 70% of all Acquisitions Fail?

By Doug Nix | Jun 04, 2015

FailureDo 70% of all acquisitions really fail?

How many times have you heard that “70% of all acquisitions fail”? When most people hear this, they immediately conclude that it is an irrefutable fact that 70% of all acquisitions are catastrophic failures.

With statistics like that it is surprising that there are 10’s of thousands of acquisitions reported every year.

So let’s dig a little deeper into the statement. For privately owned companies, the comment is most often based on academic studies around the answer to the question – “How well did the acquisition meet the acquirer’s initial objectives and targets?”

The studies treated an acquisition as a failure if it did not fully meet all of the initial objectives and targets.  That would mean that if the acquisition met every initial target, except that it generated an ROI of 22% when the target ROI was 23%, then it was a failure. Does that sound like a catastrophic failure to you? It doesn’t to me either.

The real observation should not be that “70% of all acquisitions fail”, but that “70% of acquisitions in some studies didn’t meet all of the initial acquisition objectives and targets.”  A very big difference, and one that hopefully reduces the high anxiety levels management teams must deal with when they start considering an acquisition program.

Posted by Doug Nix.

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