InSight

Exit and Growth Strategies for Middle Market Businesses

M&A Quarterly News In The Aviation, Aerospace and Defense Industry Sector

By Daniel Sirvent | Jan 14, 2020

The report below gives a good overview of the fourth quarter M&A activity in the Aviation, Aerospace and Defense Industry Sector. M&A activity for North American based target companies in the Aerospace and Defense sector for Q3 2019 included 13 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions in the sector was announced in July when Kellstrom Defense Aerospace, Inc., a subsidiary of Kellstrom Defense, Inc., ultimately owned by The Merex Group, acquired Tavco, Inc. for an undisclosed amount. The transaction would enhance Kellstrom Defense Aerospace’s customer service capabilities. Tavco manufactures and distributes defense aircrafts. The company is headquartered in Chatsworth, CA.

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IS THE COMPETITIVE BIDDING PROCESS THE RIGHT PATH TO SELL YOUR COMPANY?

By Terry Fick | Dec 19, 2019

You may have heard it called the “Auction Process” which in an of itself carries a negative connotation.  It sounds like a program to sell distressed companies or properties. It is just the opposite. This is a process conducted by professional Investment Bankers (Bankers) to deliver your value proposition to multiple prospective buyers at the same time pitting them against each other in an effort to extract the best price from the best buyer.

 

The key word here is “Competitive” because this competition accomplishes three things:

  1. Buyers are aware that others are interested and that they need to offer a premium price to beat out the competition.
  2. In the end, it assures you that the value of your business has been set by multiple, knowledgeable buyers.
  3. It should allow you to select your favorite buyer whether or not his offer is the highest.

Everyone would probably agree that these are all important objectives when selling a company.

This is not  an “Auction” whereby your name and information are posted somewhere with bidders in a room raising a flag to outbid the last offer until the hammer comes down. Properly conducted, your information is tightly controlled and protected, only allowing serious, capable prospects that you have approved and have signed a Non-Disclosure Agreement to have access to your identity and/or information. None of these know who the other bidders are or how high their bids may be. Properly executed, it is possible to have only one bidder, but extract a great offer from him because he doesn’t see the other horses in the race but he definitely hears the hoofbeats!

While most Investment Bankers believe there is no better way to maximize your value, there are those owners that prefer to minimize their effort and time when selling by avoiding that process and simply wait for the right buyer to come along. That can be a long wait and if that buyer comes along, he knows there is no competition and makes his offer accordingly. Sometimes this preference is based on a business owner friend’s horror tale of a “Busted” auction that did not result in a sale. You minimize that risk by making sure the information you provide is complete and accurate and hire the most professional Banker you can find.

Along these lines, let me interject a big red flag here. I am quite sure you get calls and letters from Business Brokers and some Investment Bankers touting that they represent the perfect buyer for your company.  You should first ask them to name this buyer and tell you why they are interested.  If they won’t do this and send you an NDA signed by this buyer, then politely take a pass.

Sometimes we hear “Bring me one buyer”. That approach (or something close) can result in a good transaction if properly managed. Your Investment Banker should scour the same list they might have invited to an auction for a handful that they believe would be front runners.  From this handful, they try to find the one that is definitely interested in your company.  The buyer knows you have hired a Banker to maximize your outcome, so he will assume there is competition (hearing hoofbeats) and makes an appropriate offer. Hopefully, all ends in a good transaction for you. Two things to consider if this is your preferred approach.  One is that you and your Banker must assemble the same information for this process that you do for an auction.  You simply cannot solicit a valid offer until the buyer knows what he is getting. The other is that there is a much greater risk that this one buyer does not complete the acquisition and you must start this whole process over again.

So, there are pros and cons to the Competitive Bidding process. It is hard work and takes some time and a little money. As mentioned above, there are alternatives to the Competitive Bidding process and if that is your strong preference, be sure to let prospective Investment Bankers know this when interviewing them and see how they would plan to implement your chosen process.


M&A Quarterly News In The Transport, Logistics and Supply Chain Industry Sector

By Peter Heydenrych | Dec 11, 2019

The report below gives a good overview of the fourth quarter M&A activity in the Transport, Logistics and Supply Chain Industry Sector. M&A activity for North American based target companies in the Transportation and Logistics sector for Q3 2019 included 47 closed deals, according to data published by industry data tracker FactSet.
One of the notable middle market transactions in the sector was announced in August when AIT Worldwide Logistics, Inc. acquired Unitrans International Corp, a subsidiary of Unitrans, Inc. ultimately owned by Q International Courier LLC for an undisclosed amount. The transaction enables AIT Worldwide Logistics to enhance its existing business. Founded in 1997, Unitrans International is located in Inglewood, California and provides logistics solutions.

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M&A Quarterly News In The Consumer Retail Industry Sector

By Joe Sands | Dec 11, 2019

The report below gives a good overview of the fourth quarter M&A activity in the Consumer Retail Industry Sector. M&A activity for North American based target companies in the Consumer and Retail sector for Q3 2019 included 91 closed deals, according to data published by industry data tracker FactSet.
One of the notable middle market transactions in the sector was announced in August when Etsy, Inc. acquired Reverb.com LLC, a portfolio company of FJ Labs, Inc., Lightbank LLC and Summit Partners LP, for US$275 million in cash, subject to adjustments. The acquisition expands the market presence of Etsy. Founded in 2013, Reverb.com is located in Chicago, Illinois and retails musical instruments through an online platform.

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M&A Quarterly News In The Engineering and Construction Industry Sector

By Peter Heydenrych | Dec 09, 2019

The report below gives a good overview of the fourth quarter M&A activity in the Engineering and Construction Industry Sector. M&A activity for North American based target companies in the Engineering & Construction sector for Q3 2019 included 76 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions in the sector was announced in August when Sterling Construction Co., Inc. acquired Plateau Excavation Inc for US$400 million in cash, stock and seller notes. Plateau Excavation is located in Austell, Georgia and provides construction services. Plateau Excavation full-year 2018 revenues were approximately US$290 million.

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M&A Quarterly News In The Food and Beverage Industry Sector

By Terry Fick | Dec 05, 2019

The report below gives a good overview of the fourth quarter M&A activity in the Food and Beverage Industry Sector. M&A activity for North American based target companies in the Food and Beverage sector for Q3 2019 included 49 closed deals, according to data published by industry data tracker FactSet.
The Hershey Co acquired One Brands LLC, formerly known as Oh Yeah! Nutrition and a portfolio company of CAVU Venture Partners LLC, for US$397 million in cash, subject to certain adjustments. The acquisition complements The Hershey Co’s existing Oatmega business. The transaction is expected to be accretive to the earnings per share of The Hershey Co. Founded in 1999, One Brands is located in Charlotte, North Carolina and manufactures protein bars.

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M&A Quarterly News In The Technology, Media and Telecom Industry Sector

By Dan Vermeire | Nov 27, 2019

The report below gives a good overview of the fourth quarter M&A activity in the Technology, Media and Telecom Industry Sector. M&A activity for North American based target companies in the Technology, Media and Telecom sector for Q3 2019 included 409 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions in the sector was announced in September when Commvault Systems, Inc. acquired Hedvig, Inc. for US$225 million in cash, contingent and future payout, subject to customary transaction adjustments. Hedvig is a portfolio company of Atlantic Bridge Ventures, Redpoint Ventures, True Ventures LLC, HC Capital Management LLC, Hewlett Packard Ventures LLC, Oman Investment Fund and EDB Investments Pte Ltd. Founded by Avinash Lakshman in 2012, Hedvig Inc is located in Santa Clara, California and provides software defined storage solutions.

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M&A Quarterly News In The Plastics and Rubber Industry Sector

By Jim Zipursky | Nov 27, 2019

The report below gives a good overview of the fourth quarter M&A activity in the Plastics and Rubber Industry Sector. M&A activity for North American based target companies in the Plastics and Rubber sector for Q3 2019 included 19 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions in the sector was announced in July when HEXPOL AB acquired Preferred Compounding Corp, a portfolio company of Audax Private Equity, for approximately US$232 million in cash. The transaction expands the business portfolio of HEXPOL AB. With 540+ employees, Preferred Compounding Corp is located in Copley, Ohio and manufactures organic rubber compounds.

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Are You Running Your Business as a Lifestyle or as an Investment?

By Robert St. Germain | Nov 26, 2019

As M&A advisors to privately held businesses in the lower middle market, we see companies generally divided into two camps i.e. those being operated as “lifestyles” and those being operated as “investments”.

Wikipedia describes a lifestyle business as “[one] set up and run…..primarily with the aim of sustaining a particular level of income and no more; or to provide a foundation from which [the owner can] enjoy a particular lifestyle.” Key indicators of such a business are sequential P&L statements showing little or no growth in revenues over an extended period of time. Businesses operated as investments, on the other hand, tend to have P&Ls showing a consistent upward trajectory in revenues over time.

How owners choose to operate their businesses is entirely their choice and for which there is no right or wrong answer. However, that choice should be informed and made with a full understanding of its potential implications in light of the fact that all business owners will eventually exit their businesses…..it is only a question of how and when.

Given that an exit is inevitable, an important consideration in how one chooses to run a business is how much value one wants to extract from or build up in the business over the owner’s tenure in preparation for that exit. Lifestyle businesses often have value depressing characteristics e.g. little/no revenue growth as cited above; focus on organic growth only; owners operating in the business and not on the business; underinvestment to increase cash flow to the owner; reliance on a concentrated set of customers/clients; contentment with being a “me too” enterprise; etc.

Businesses operated as investments typically have value enhancing characteristics e.g. consistent growth over time as noted above; focus on growth via both organic and non-organic means; strong second tier management teams; debt and/or equity infusions as required to maintain growth; broad customer/client diversity; niche leadership; etc.

Just as these two types of businesses are differentiated by their operating characteristics, so are their outcomes at the time of exit. The lifestyle business may have been very lucrative for the seller; but its very nature represents a risk to the follow-on buyer who will have to scale from a sub-optimized platform to generate an acceptable ROI. All other things being equal, that risk will be reflected in a lower valuation than that for the business run like an investment where the latter’s attributes make it more readily scalable and more likely to generate an acceptable ROI for the buyer.

Again, there is no right or wrong answer to the question of how, between the lifestyle or investment paths, owners should run their businesses. However, they should fully understand the implications of their choice. An investment banker can provide an objective view of the business by examining it as through the eyes of a buyer to help in that choice and advise on mid-course corrections to meet the owner’s objectives for the inevitable exit.


M&A Quarterly News In The Metal Fabrication Industry Sector

By Jim Zipursky | Nov 22, 2019

The report below gives a good overview of the fourth quarter M&A activity in the Metal Fabrication Industry Sector. M&A activity for North American based target companies in the Metal Fabrication sector for Q3 2019 included 44 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions in the sector was announced in September when a private group led by KCM Capital Partners LLC, Five Points Capital Inc, PNC Mezzanine Capital Corp and management of Industrial Valve Sales & Services, Inc., acquired Industrial Valve Sales & for an undisclosed amount in cash. The transaction enhances Industrial Valve Sales & Services’ service opportunities. Founded in 1975, Industrial Valve Sales & Services is located in Alabama and provides valve services and products.

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