Exit and Growth Strategies for Middle Market Businesses

Printing & Packaging Industry M&A News Update

By Anthony Contaldo | Jul 21, 2016

Printing & PackagingM&A activity for North American based target companies in the Printing & Packaging sector for Q1 2016 included 66 closed deals, according to data published by industry data tracker FactSet.  The average transaction value was $100 million.

Pulp and paper commodity pricing tailed off significantly in the first quarter lowering manufacturing costs and providing a great opportunity for box manufacturers to hedge their bets on raw materials.

Global demand for security printing services is forecast to increase nearly 6% per year between 2015 and 2020, according to a recent report by Smithers Pira. Security printing uses overt and covert print-based features to deter counterfeiting while providing a means of in-field authentication. Security printing techniques include watermarking, holograms, magnetic inks, optically variable color changing inks, and RFID. Brand protection is expected to be a strong growth segment for security printing in industries including pharmaceutical packaging, and tobacco and alcoholic beverage labels as companies seek compliance with government regulations and to protect against counterfeiting. Other top security printing market segments include checks, ticketing, payment cards, and stamps. Read more »

M&A News – Aviation, Aerospace and Defense Industry

By Joe Contaldo | Jul 14, 2016

Aviation, Aerospace and Defense IndustryIllustrating increased competition in a key market segment in the aviation, aerospace and defense industry, Boeing, in March 2016, struck a deal for United Airlines to order 25 737-700 single-aisle jets, beating out smaller rivals Bombardier and Embraer. The agreement followed a similar deal in January, when United agreed to buy 40 737-700s. The airline is working to replace its aging fleet of smaller, 50-seat aircraft. The competition for the United orders was fierce as Bombardier hoped a win would help boost demand for its CSeries narrow-body jets, the company’s first product that aims to compete directly with Boeing. Executives at other airlines were said to watch the United decision closely, and are expected to weigh the outcome when considering the Bombardier CSeries as a potential part of their own narrow-body strategies, according to The Wall Street Journal. Single-aisle jets are expected to account for more than 70% of global new aircraft deliveries through 2034, according to a recent Airbus market report. 

Global shipments of general aviation aircraft fell more than 6% in the first nine months of 2015 compared to the same period in 2014, according to the General Aviation Manufacturers Association (GAMA). Industry watchers suggest demand for US-made general aviation aircraft may have been harmed when Congressional authorization for the US Export-Import Bank lapsed in July 2015. The Export-Import bank provides financing to US export manufacturers who are unable to secure financing in the private sector. The Export-Import Bank was reauthorized in December 2015. Worldwide shipments of business jets were a bright spot, which increased more than 4%. However, shipments of piston aircraft in the first nine months of 2015 dropped nearly 11% and turboprop aircraft deliveries were off more than 9%. Overall, rotorcraft shipments were down nearly 6%; a 1% rise in piston rotorcraft shipments was more than offset by an 8% fall in turbine rotorcraft deliveries.

Posted by Joe Contaldo.

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

Keys to a Successful Acquisition Search

By Brian Ytterberg | Jul 13, 2016

successful acquisition searchesA successful acquisition search can be a long and arduous process.  Many buyers become frustrated as they encounter a number of starts, stops and dead-ends along the way.  Many eventually give up as they do not find a suitable target in a reasonable amount of time, or worse, they miss out as their competitors acquire one of their potential targets.

We have noticed a few keys that to successful middle market acquisition searches which include the following:

  • Review your strategic plan.  Where do you want to be in three or five years?  How can an acquisition help you realize your long-term goals?
  • Know your capabilities, strengths and weaknesses. What size acquisition can you handle?  What amount of leverage can you sustain?  Do you have the management team and depth to pursue an acquisition? Read more »

M&A News in the Transportation & Logistics Industry

By Doug Nix | Jul 07, 2016

transportation & logisticsTransportation & Logistics sector gained steam as the quarter closed.

A growing number of technology companies in the US are setting their sights on streamlining the local trucking industry. Similar to the popular ride-sharing app Uber, new on-demand trucking services connect shippers and local truckers through smartphone apps. By eliminating broker fees and reducing carriers’ reliance on phone conversations, faxes, and emails, such services promise to reduce administrative costs for carriers and make it easier for shippers to quickly find trucks and track shipments on their smartphones. Two companies offering on-demand local trucking apps, Cargomatic and Convoy, have already raised significant funding that should help them expand operations. Cargomatic, which operates in California and New York, raised $8 million in Series A funding in 2015; Convoy, which currently operates in Oregon and Washington, raised $16 million in Series A funding in March 2016. Read more »

BREXIT on Display at the Farnborough International Airshow

By Daniel Sirvent | Jun 30, 2016

Commercial Aerospace “Supercycle”?Front Row Seats for the End of the Commercial Aerospace “Supercycle”?

It goes without saying that Britain’s vote to exit the European Union, or the now familiar BREXIT, has had the media buying ink by the containership as opposed to the proverbial barrel.  Wall Street analysts, corporate forecasters and a fresh wave of armchair economists are all weighing in on what BREXIT will mean for global trade, U.S. interest rates and their retirement portfolios.

The Economics of Commercial Aircraft Orders

While it may appear overly simplistic the principle remains fundamental; a stronger dollar drives dollar-denominated commodity prices lower. The aerospace industry is aware not only of the sharp contraction in crude oil prices since the Thanksgiving Massacre in 2014 (who could miss the relentless media attention), but also of the nearly silent decline in jet fuel prices which has gone virtually unnoticed in the headlines.  As those lower prices have eased a major cost pressure, operators have drawn back the throttle and next generation aircraft and engine acquisitions driving slowdown in new order velocities. Read more »

Buyers & the Sell-Side Process

By Steve Hauser | Jun 27, 2016

sell-side processThe M&A environment in the U.S. is as heated as ever; and, while those of us in Middle Market Investment Banking more often than not represent sellers, we relish working with buy-side clients with well-defined missions and criteria.

We understand that the Holy Grail for any buyer is the one-on-one “negotiated” deal with a seller, where there is no sell-side advisor, no competition from other buyers, no hard-and-fast timetables, and the due diligence routine is very accommodating to the buyer.  However, though these “proprietary” deals do exist, they are uncommon, especially for those sellers at or exceeding $5 million in EBITDA. Instead, the buyer should expect that any well-run, solidly profitable Middle Market company will be represented by an Investment Banker and sold through what we call in the industry, “the Process”.

The M&A market in the U.S. has been and continues to be fueled by very low “real” interest rates, exceptional amounts of cash in PE firms, hedge funds, and large corporations, and moderate-at-best macroeconomic (i.e. organic) growth prospects.  Demand for good deals exceeds the available supply of good targets, and the sell-side auction-like process is an entrenched feature of our M&A market.  Prospective buyers, particularly bargain hunters from offshore, can find the experience to be a challenge, wishing they had more control, less pressure to modify their offers, and general freedom from the constraints of “the Process”. Read more »

M&A Industry News – Technology, Media & Telecom

By Dan Vermeire | Jun 23, 2016

M&A Industry News - Technology, Media & Telecom Technology giant Facebook had a very strong first quarter as earnings jumped 52% amounting to $5.4 billion. Approximately 82% of the growth came from the company’s mobile advertising platform. The website’s monthly active users jumped 21% year-over-year to 1.65 billion users per month.

One of the largest M&A deals of the quarter in the sector was information provider IHS (IHS) announcing plans to acquire its London-based rival Markit (MRKT), in a deal valued at $13 billion. The new company – IHS Markit – will have combined revenues of $3.3 billion and more than 50,000 customers globally, including 75% of the Fortune 500. This could have a large impact on the financial data sector, which is currently dominated by Thomson Reuters.

The biggest telecom announcement of the quarter was Vodafone, the world’s second-largest mobile operator by subscribers after China Mobile Ltd. Vodafone said it would pay €1 billion ($1.12 billion) to Europe-focused Liberty Global as part of the deal to combine their businesses in the Netherlands. Led by social media powerhouses Facebook and LinkedIn, North American technology equities had a very strong Q1.

The growing popularity of virtual reality (VR) systems such as Oculus Rift, Sony’s PlayStation VR, Microsoft’s HoloLens, and HTC’s Vive is creating demand for development of new 3D software. Shipments of virtual reality headsets are forecast to jump from just 140,000 in 2015 to 1.4 million in 2016 and up to 6.3 million in 2017, according to Gartner. Software for VR headsets primarily includes games and other consumer content for entertainment. However, an emerging opportunity comes from academic and business applications for training, simulation, and equipment troubleshooting. Examples include allowing medical students to explore human anatomy in 3D and helping companies attract potential customers through interactive product demos.

Industry Indicators

  • US retail sales for electronics and appliance stores, a potential measure of demand for computer software, decreased 2.2% in the first three months of 2016 compared to the same period in 2015.
  • Total US revenue for computer systems design and related services rose 1.8% in the fourth quarter of 2015 compared to the previous year.

Posted by Dan Vermeire.

Read the Entire Technology, Media and Telecom 2nd Quarter Newsletter Here

Letter of Intent – The Start of a Beautiful Relationship?

By Craig Allsopp | Jun 22, 2016

Letter of IntentOne of the major milestones in the purchase or sale of a business is securing a Letter of Intent. Though not as sparkly as an engagement ring, a signed LOI represents the intentions of a buyer and a seller to march down the aisle together.

At the same time, the LOI serves as something like a pre-nuptial agreement – spelling out the general terms and conditions that govern the relationship necessary for a buyer to consummate a transaction.

Like most things marital, things can get a little sticky when discussing the particulars. Some deal principals and their advisors leave no stone unturned in crafting an LOI, while others prefer a simpler approach – a basic letter that covers important terms such as the purchase price and closing conditions while leaving most of the other details for the final sales agreement. Read more »

M&A News – Industrials Industry

By John Hammett | Jun 16, 2016

industrials industryM&A activity for North American based target companies in the Industrials industry for Q1 2016 included 216 closed deals, according to data published by industry data tracker FactSet.  The average transaction value was $126 million.

US production of manufactured goods increased 1.8% in February 2016 compared to the same month a year earlier. February’s rise represented the third consecutive monthly gain in US manufacturing output, which some economists are viewing as a sign that the sluggishness of the US manufacturing sector may be easing, according to the Wall Street Journal. US manufacturing growth has been hindered in recent months by weak global demand, a strong dollar that makes US goods more expensive in overseas markets, and low oil prices. The February gains in manufacturing production were led by motor vehicles and parts, which saw a 9.1% rise compared to February 2015. Growth in other key segments of the US manufacturing sector was muted in February. Consumer goods production rose 1.1%, while that of computer and electronic products saw a 1.5% gain. Production of industrial equipment declined 3.7%. Continued soft demand for US exports may prompt manufacturers to reduce their inventories, which could create further ripples of demand weakness within the overall manufacturing sector.

Industry Indicators

  • Total US manufacturers’ shipments, which indicate manufacturing sector activity, fell 2.2% year-to-date in February 2016 compared to the same period in 2015.  In combination with the increase in production (see above), this indicates a significant increase in inventories in the sector.  If this isn’t followed by a pickup in shipments in the coming months, industrial producers will have to cut back on production again. Total US wholesale sales of durable goods, a potential measure of industrial demand, rose 1.5% in November 2015 compared to the same month in 2014.
  • The spot price of crude oil, which indicates energy prices paid by manufacturers, fell 29.1% in the week ending April 8, 2016, compared to the same week in 2015.

Posted by John Hammett.

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

Canada M&A | Record Breaking 2015

By Kim Levin | Jun 14, 2016

Canada M&AIn 2015, Canada dominated the field of US cross border transactions, so we’re keeping a watchful eye on our neighbor to the north. One measure of Canada M&A health is private equity (PE) deal volume and value, which were at record breaking levels in 2015.  Buyers spent nearly $49 billion last year across 283 completed deals, according to Pitchbook, a private equity and venture capital database.

2016 is off to a slow start, as we have seen volume drop by 33% and value down nearly 16%.  This decline is not a signal of any fundamental shift in Canadian PE dynamic, but is, rather, a typical progression as fund managers swing from racing to complete deals by year’s end to deal sourcing anew, with the cycle coming full circle.

Like the United States, Canada is experiencing a trend toward smaller deals.  As we’ve mentioned before, financial buyers first look to large, well-managed companies with unique product offerings or niche markets to add to their portfolios as long as the price is right.  Over the past few years, competition for those prized companies has pushed prices to the stratosphere. As a result, many private equity investors have begun to focus on companies that have many prized company attributes but are smaller in size and fit their price objectives. In 2015, 61% of all transactions were smaller, add-on deals and as of the first quarter of 2016 that number is up to 68%.  Looking back, before the M&A bubble burst in 2008, 68% of investments were in larger, platform-size transactions so we’ve seen a huge shift in investment focus.

From a lending standpoint, Canadian banks are well capitalized and are aggressively lending to sponsors.  In addition, when compared with transactions in the US, the size of most Canadian deals are smaller, and thus less risky for lenders.

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