InSight

Exit and Growth Strategies for Middle Market Businesses

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

By Peter Heydenrych | Dec 06, 2018

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 and Construction sector for Q3 2018 included 97 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions was closed in September when Infrastructure & Energy Alternatives, Inc. acquired American Civil Constructors, Inc., a portfolio company of Insight Equity Holdings LLC, for US$145 million. Included in the transaction is American Civil’s subsidiary Saiia Construction Co. LLC. The acquisition would expand Infrastructure & Energy’s capabilities in the engineering sector. American Civil Constructors is located in Phoenix, Arizona and provides construction services and supplies construction materials.

Housing starts in the US increased 1.5 percent from September to an annualized rate of 1,228 thousand in October of 2018, compared with market expectations of a 1.6 percent rise.

Industry Indicators

  • US corporate profits, an indicator of corporate demand for construction services, rose 7.7% in the second quarter of 2018 compared to the same period in 2017.
  • The value of US nonresidential construction spending, a demand indicator for heavy construction, rose 5.0% year-to-date in September 2018 compared to the same period in 2017.
  • US steel mill product prices, an indicator of commodity steel product costs used in construction, rose 18.2% in October 2018 compared to the same month in 2017.

Posted by Peter Heydenrych.

Read the Entire Engineering & Construction 4th Quarter Newsletter Here


M&A News In The Consumer Retail Industry Sector

By Joe Sands | Dec 05, 2018

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 Retail sector for Q3 2018 included 107 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions was announced in July when Canopy Growth Corp acquired Hiku Brands Co Ltd for CAD546.7 million (US$417.5 million) in stock. The transaction allows Canopy Growth Corp to further strengthen its retail and brand portfolio. Hiku Brands Co. Ltd. operates clothing stores. It focuses on building a portfolio of engaging cannabis brands, unsurpassed retail experiences and handcrafted cannabis production. It also operates a network of retail stores selling coffee, clothing and curated accessories, across British Columbia, Alberta and Ontario.

Although retail store openings continue to grow year over year the openings have not kept up with the store closings.
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Middle Market M&A

By Robert St. Germain | Nov 30, 2018

Business PlanningThe National Center for the Middle Market (NCMM), which is a collaboration between The Ohio State University’s Fisher College of Business, SunTrust Banks Inc., Grant Thornton LLP, and Cisco Systems, conducted a study in late 2017 that reported on the state of M&A within the middle market.
For the reader’s frame of reference, the NCMM defines the middle market as both privately and publicly held companies that generate between $10 million and $1 billion in annual revenues, of which, there are approximately 200,000 such companies in the U.S. In aggregate, they generate $10 trillion in annual revenues and account for one-third of private sector GDP and employment.
The stated purpose of this report was “…to inform both middle market executives and their external advisors and consultants in order to facilitate more successful deals in the future.” Its findings were quite illuminating:

  1. 60% of study participants said that inorganic growth plays an important role in their company’s growth strategy.
  2. Every year, roughly 20% of middle market companies complete an acquisition and about 5% of those companies sell to or merge into another business.
  3. Among companies that had completed a purchase in the previous three years, for 29%, it was their first deal while another 41% had limited previous experience.
  4. Among sellers in the previous three years, for 46%, it was their first deal and only one in 10 companies had significant previous experience with sale transactions.
  5. Middle market leaders said that finding the right target or buyer was one of the most confusing aspects of M&A.
  6. On the front end of an acquisition or sale, 41% of buyers and 43% of sellers found it difficult to assess the value of the business they were buying or selling.

In spite of the above findings, however, the study also found:

  1. Both buying and selling companies tend to rely mostly on their internal executives and top managers when searching for companies to buy or to whom to sell.
  2. Only about a third of buyers consulted an external law firm, and even fewer talked to consultants or investment bankers.
  3. Sellers were even less likely to bring in external advisors as part of their search for the right buyer.

The study did not provide any deal specific details (e.g. transaction prices as a function of a financial metric); but juxtaposing the first set of findings with the second set would lead one to infer that the deals generally referenced in the study were likely sub-optimal in outcome.

That inference comes from the companies’ cited paucity of deal making experience, as well as their general avoidance of using outside M&A experts to complement their relatively inexperienced internal resources.

So, one major take-away from this NCMM study is for buyers and sellers to first build a high quality deal team that certainly includes their appropriate insiders, but, importantly, also includes outside experts with deep and current M&A experience. Among those outside M&A experts should be an attorney, a CPA and an investment banker.

The investment banker on the team will add significant value by running a sophisticated buy-side or sell-side process in accordance with expected market protocols. That process will naturally include finding the right target or buyer, as well as assessing the value of the business being bought or sold, which were two of the weaknesses cited in the study when companies used internal resources only.
Investment bankers also add significant value by allowing management to keep their focus on the business while the buy/sell process is run in parallel; and, most importantly, by negotiating on behalf of management the best price and deal terms to optimize deal outcome.


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

By Terry Fick | Nov 28, 2018

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 2018 included 45 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions was announced in September when The Hershey Co. acquired Pirate Brands, LLC from B&G Foods, Inc. for US$420 million in cash, subject to adjustments. The Hershey Co. engages in the manufacture and marketing of chocolate and sugar confectionery products. Pirate Brands operates as a natural snack food maker. Its products include baked, fried and air popped snacks. The company offers its products through stores in the US, Canada, Europe and Asia. The company was founded in 1987 and is headquartered in Sea Cliff, NY.

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

By Peter Heydenrych | Nov 28, 2018

The report below provides 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 2018 included 59 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions was announced in September when General Logistics Systems BV, a subsidiary of Royal Mail Group Ltd, ultimately owned by Royal Mail Plc, acquired Dicom Transportation Group Canada, Inc., a portfolio company of Wind Point Advisors, LLC, for CAD360 million (US$276.1 million) in cash, on a cash-free debt-free basis. The acquisition allows Royal Mail to further expand and diversify its existing business operations. Dicom Transportation Group Canada is located in Montréal, Québec and provides business to business transportation services. It generated revenue of approximately CAD233 million (US$178.7 million) for the year ended June 30, 2018.

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

By Dan Vermeire | Nov 20, 2018

The report below provides 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 2018 included 429 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions was announced in September when GrubHub, Inc. acquired Tapingo, Inc., a portfolio company of Viola Ventures Ltd, Khosla Ventures LLC, Shanghai Fosun Kinzon Equity Investment Management Co Ltd, QUALCOMM Ventures and Doll Capital Management, Inc., for US$150 million in cash, subject to standard closing conditions. Founded in 2012, Tapingo is located in San Francisco, California and offers a mobile shopping application.

Software, hardware and platforms are migrating to the cloud at a rapid rate as on-premise solutions phase out.

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M&A News In The Plastics and Rubber Industry Sector

By Jim Zipursky | Nov 19, 2018

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 2018 included 25 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions closed in July when Mueller Industries, Inc. acquired ATCO Rubber Products, Inc. for US$163.4 million in cash and contingent payout. The acquisition would allow Mueller Industries to expand its climate products businesses. ATCO Rubber Products is located in Fort Worth, Texas manufactures flex duct systems for residential and commercial heating, ventilation and AC applications. It generated revenue of US$166 million for the fiscal year ended December 31, 2017 and has 800 employees.

End-use markets continue to grow year over year as more products in the U.S. are manufactured out of plastic and rubber materials.

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M&A News In The Print and Packaging Industry Sector

By Jeff Wright | Nov 19, 2018

The report below gives a good overview of the fourth quarter M&A activity in the Print and Packaging Industry Sector. M&A activity for North American based target companies in the Print and Packaging sector for Q3 2018 included 25 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions was announced in July when Ahlstrom-Munksjö Oyj acquired Expera Specialty Solutions, LLC from KPS Capital Partners LP for US$615 million in cash, subject to an agreed post completion adjustment. The transaction would allow Ahlstrom-Munksjö Oyj to expand its operations in North America and strengthens its services offerings. Founded in 2013, Expera Specialty Solutions is located in Kaukauna, Wisconsin and manufactures and converts lightweight packaging, pressure sensitive and industrial papers.

Board and paperboard (corrugated, folding carton stock and liquid paperboard) is the largest packaging material type according to a recent study conducted by Smithers Pira. It accounts for 35.7% of world packaging consumption followed by flexible packaging (plastic, paper and foil) with 23.3%, rigid plastic packaging with 18.2% and metal with 12.2%.

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Selling Your Business Is Not An Event… It Is A Strategic Process – Part III

By Terry Fick | Nov 15, 2018

Part III

Remember,
Selling your business is not an event… It is a strategic Process.

More Conversations
Now that the prospective buyers have reviewed the information in the Data Room,

  • Be prepared to answer questions that stem from their review of the information supplied.
  • There may be another round of Q&A.
  • Ask what information he needs to be able to at least discuss a value range (IOI). DO NOT let him corner you into giving him a price!

With their NDA in place and having received his request for information for their IOI,

  • Populate the data room with the additional data requested, as long as it does not reveal truly sensitive information. You might segment the Data Room to manage the release of that data.
  • Once you have made the decision to give the buyer access to the data room. If there is a broker on their side, do not directly give him access to any of this information.
  • Answer questions about the data provided and wait for his indication of value.

Controlling the Negotiations

Assuming you get multiple indications of interest (IOI’s)in the right range, you will want to orchestrate this process so that visits by these prospects are around the same time. That should lead to getting multiple LOI’s at about the same time, so you can compare them before accepting one LOI.

LOI’s

  • Solicit multiple initial LOI’s before negotiating a final agreement
  • You are exclusive with one party while under LOI
  • LOI’s are mostly non-binding, but:
    • Price and Terms are obviously spelled out in detail.
    • Capital Structure to be employed
    • Your and maybe some of your management team’s roles and compensation should be addressed.
    • Structure of the transaction (stock or asset), how your debt will be eliminated, working capital, escrows
    • Timeframes, 90 days?
    • No Break Up fees!
  • Full disclosure after agreement

Suggestions:

  • Involve your CFO very early in the process. He or she can often access and provide the information needed more efficiently than the owner.
  • Involve your other top-level managers when you start to have substantial calls or visits with potential buyers. They will be important to the buyer. Let those managers know you plan to find a deal that is good for them. Before that, you may want to consider if and how you might want to reward them when a deal closes.
  • Think one step ahead so you can be prepared to give timely responses to questions, offers, situations and obstacles.
  • Do not be afraid to identify your company’s “shortcomings or issues”. If you identify them, they are just warts, if they find them, they are cancers.

Summarizing Some Do’s and Don’ts:

Do’s:

  • Have an idea of what your company is worth before you even start responding.
  • Make sure you are talking to an actual buyer, not a “broker” on a fishing trip.
  • Qualify the buyer before you start giving up information.
  • Always get an NDA in place prior to giving up information.
  • Create a sense of competition even if you are only talking to one party.
  • Make sure to spend some time preparing. Get your information ready and organized.
  • It’s more than OK to brag about your business and talk about your plans for growth. That is what all buyers are interested in.

Don’ts:

  • Never give a price or directly state the value you expect.
  • Don’t Let a broker gather information to “give to his client” unless his client directly asks you to do so.
  • Don’t give out competitively sensitive information like customer names until you are under LOI.
  • As earlier suggested, talk to multiple buyers at one time rather than one at a time sequentially.
  • Try to avoid bi-lateral NDA’s. You gain nothing by signing one.
  • Do not sign an LOI until you get legal advice. While they are non-binding for the most part, a well written LOI can save much time and aggravation down the line. It gives you the chance of previewing how a buyer will negotiate.

In Summary:

  • Take control of the process. By simply responding to all of their questions and demands, you lose that.
  • Keep thinking like the buyer. It is like selling your product or service, always determine what they want/need before you start your sales pitch.
  • I would assume this would be the largest financial transaction of your life, don’t take it lightly.
  • Remember:

  Selling your business is not an event… It is a strategic Process.


Selling Your Business Is Not An Event… It Is A Strategic Process – Part II

By Terry Fick | Nov 14, 2018

Part II

Remember,

Selling your business is not an event… It is a strategic Process.

Like most successful outcomes, selling your company starts with the right preparation!

  • Set your expectations of value.
  • Prepare an NDA so it is ready at the appropriate step below.
  • Set up a virtual data room and populate it with the basic information anyone will need to see. Since you may present your information to multiple parties, this eliminates a duplication of efforts, creates an air of professionalism and gives the impression you are, or plan to, talk to more than one party. Your Attorney or Investment Banker will manage this if you prefer.
  • Look at your company through the eyes of a buyer. Ask yourself what aspects of this company would be attractive to you and what aspects would give you pause. Plan to accentuate the positives and minimize any negatives.
  • Develop a growth plan. Always sell the Future!

Now, prepare some more!

Are you ready to answer the typical questions they will ask?

  • Are your financial reports up to a buyer’s standards? If you aren’t sure what is expected, ask a professional.
  • Can you answer questions about your market position, your customer concentration, your competition (and how you stack up), which of your products are the most profitable, what are your strengths in the Marketplace, What role you want after a transaction, etc.?
  • Who would take your place if you are ready to retire?
  • Prepare a supportable projection for 3-5 years.
  • The list goes on, but a little preparation will give you a significant advantage.

Dealing with buy-side Brokers

They may or may not be credible.

  • Ask them to name their client
    • If they will not, politely tell them you are moving on.
    • Caveat: If they say they will if you give them some info, tell them your revenues and what you sell to who. Period.
  •  Only talk directly with their buyer. If they want the broker on the phone, O.K.
  • Do not give the broker any more information until the buyer signs your NDA and says the broker is covered.
  • DO NOT allow the broker to introduce you to more buyers Be adamant!

Talking with the prospective Buyer

Once you are talking directly to the decision maker at a buyer, then pay attention. Let them know you are considering your options and are discussing those options with your professionals. This gives them the impression they may have competition. Not being objective, we suggest you engage an Investment Banker to either work on just one prospective deal, or to assist you on any contact and create real competition. Qualify that buyer by determining if he can make an acquisition this size (without giving up your desired value.) Pose questions like,

  • What do know about my company?
  • Why are you interested in my company?
  • What other acquisitions have you made? Be industry specific with a PEG.

Now it is time to get your NDA signed before giving any more information

Creating Competition

  • Now, hopefully you still have more than one viable dog in the hunt and you have established the appropriate sense of competition. As you move forward, note the following:
    • Always let the elephant in the room be “other buyers”, but never name those buyers.
    • Never reveal specifically what other offers or value discussions may be.
    • Never let a buyer tell you that you should only be talking to him. It is perfectly ethical and appropriate to talk to multiple parties at once prior to your signing an LOI.

Hiring Professionals

It is obviously hard for me to stay objective when discussing this option because it involves employing an intermediary. Some form of an M&A professional whether it is an Investment Banker, a Business Broker or an M&A attorney. An Investment Banker can manage your process whether you choose to speak with one or multiple prospects and he will be able to bring even more buyers to the table.
An Investment Banker will:

  • Give you a realistic valuation
  • Respond and cull the herd without those parties knowing you might consider a sale.
  • Create a credible environment of competition
  • Be in a better position to look at your business through the eyes of the buyer.
  • Bring “Been there and Done that” expertise to the table
  • Save you and your team countless hours
  • Bring even more valid buyers to the table
  • Negotiate as a third party, preserving the relationship with the buyer
  • SELL your company so you don’t have to sound braggadocios.

Moving Forward

  • With their NDA in hand, have another informal phone call and answer most of their questions. The caveat is making sure you do not give specific customer or employee names. You can also avoid giving up any IP.
  • Let them know you have a data room prepared and that many of their answers will be there.
  • Be prepared to give up fairly detailed financial information, customer information (no names), growth plans, management staff, etc.
  • Talk about his plans for you. Would he want you to stay or phase out?
  • Now you give him access to the data room and give him some time to review that information before moving forward.

To be continued in Part III of this three-part post.