Exit and Growth Strategies for Middle Market Businesses

Archive for 2012

CFA Advised Reedy Industries, Inc. on Successful Acquisition of Monroe Mechanical, Inc.

By Kim Levin | Dec 13, 2012

Reedy Industries acquired Monroe MechanicalCorporate Finance Associates, an international investment banking services firm providing merger and acquisition, business valuation, capital resource and financial advisory services, announced that it was the advisor to Reedy Industries, Inc. in its acquisition of Monroe Mechanical, Inc.

Established in 1968, Reedy Industries is a third-generation family-owned collection of companies providing commercial and industrial mechanical services, food equipment repair, and food equipment parts distribution. For nearly a century the Reedy name has been the standard bearer for exceptional service and support. Based in Glenview, Illinois, Reedy Industries is passionately committed to expanding its family of companies and their suite of services via organic growth and strategic acquisitions. The acquisition of Monroe Mechanical marks the 15th successful transaction in the company’s history.

Monroe Mechanical (MMI), founded in 1954, is a third-generation family-owned mechanical services firm providing HVAC, refrigeration, and other energy-saving mechanical services to commercial and industrial customers throughout Ohio and Northern Kentucky. MMI boasts a diverse customer base that includes Fortune 100 clientele. MMI’s superior customer service and integrity has earned them an impeccable reputation with customers and community members alike.

“Culture integration is critical in every transaction, but even more so when you are dealing with two third-generation family businesses,” commented Anthony Contaldo, Director at Corporate Finance Associates’ Chicago office. “It was exciting to see how well the two cultures meshed—a perfect fit. We are honored and pleased to have played a role in the storied histories of both companies.”

Something About a “Fiscal Cliff”

By David DuWaldt | Nov 19, 2012

Walking off a cliffNow that the election is over, the President and members of Congress are, once again, having discussions about the fiscal cliff which the United States will soon face unless new legislation is passed. The term, “fiscal cliff,” was first introduced by Federal Reserve Chairman, Ben Bernanke, to describe changes that are scheduled to take place after 2012. 

Beginning in January of 2013, certain provisions of the Budget Control Act of 2011 will take effect and bring about a substantial reduction in government spending. At the same time, the Bush-era tax cuts are scheduled to expire. So what does this mean for the economy? Many economists believe that increases in tax and reductions in government spending will have a negative effect upon an economy that is still trying to recover. Read more »

CFA Advisor to Ergo-Mechanical Industrial in Majority Sale

By Kim Levin | Nov 15, 2012

Corporate Finance Associates, an international investment banking services firm providing merger and acquisition, business valuation, capital resource and financial advisory services, announced that it was the exclusive advisor to Ergo-Mechanical Industrial in its majority sale to Arch Equity Partners.

Ergo-Mechanical Industrial (EMI) operates two subsidiaries Ergonomic Material Handling Systems (EMH) and Tennessee Valley Industrial (TVI) that engineer, design, integrate and install a wide variety of custom material handling and ergonomic equipment for Fortune 500 OEMs.

EMH is a full systems integrator specializing in the design, installation, project management, and overall integration of custom material handling and ergonomic equipment for OEMs. EMH operates out of its Decatur, IL facility with equipment such as operator lift platforms, conveyors, overhead rail, assist arms, pallet changers, dollies, and other custom equipment.

TVI specializes in mechanical installation and turnkey projects. Based in Georgetown, Kentucky, TVI’s project experience includes the installation of roller, belt, slat, power and free chain and electrified monorail systems. In addition, TVI performs rigging and installation of machine centers, overhead steel, demolition, relocation services, equipment refurbishing, painting and scheduled maintenance.

In most cases, EMH provides the design and products, while TVI provides the critical project management and installation that are a core requirement of its customers. Customers include Toyota, Nissan, Honda, Caterpillar, and John Deere.

“From the first meeting it was evident that EMI’s dynamic management team and the principals of Arch Equity shared the same vision for the company’s future. The tremendous growth opportunities on EMI’s horizon coupled with Arch Equity’s access to capital made this a clear match,” said Anthony Contaldo, Director of Corporate Finance Associates’ Chicago Office.

St. Louis, Missouri based Arch Equity Partners was formed in 2008 as a private equity firm that concentrates on investments for companies in the lower middle market. The private equity group actively partners with management teams to ensure they have a meaningful ownership position, targeting management team ownership of 15-25%.

Coming Attraction for 2013 – The New Medicare Taxes

By David DuWaldt | Oct 29, 2012

Money BlocksAs part of the health care legislation that passed back in 2010, certain provisions were included which impose additional Medicare taxes on certain types of income. Beginning in 2013, salaries, wages and self-employment income above $200,000 will be subject to an additional .9% Medicare tax. In the case of married individuals filing jointly, the wage or self-employment income level is $250,000, and for married individuals filing separately, the wage or self-employment income level is $125,000. Also beginning in 2013, certain unearned income of individuals will be subject to a new 3.8% Medicare contribution tax when modified adjusted gross income (“MAGI”) exceeds $200,000. In the case of married individuals filing jointly, the MAGI level is $250,000, and for married individuals filing separately, the MAGI level is $125,000. 

The new Medicare contribution tax on unearned income also applies to trusts and estates with adjusted gross income (“AGI”) above the dollar amount in which the highest tax bracket applies for that tax year. For 2013, the AGI threshold is $11,950 so income above this level could be subject to the Medicare contribution tax. Bear in mind that income distributed to beneficiaries is usually a deduction to the trust or estate for purposes of deriving AGI. However, capital gains are generally treated as part of principal rather than income depending on how it is defined in the trust instrument and applicable state law. In such a case, the capital gains could be subject to the Medicare contribution tax for a trust or an estate (unless it is the final return for an estate since gains are passed through to the beneficiaries on a final return).  Read more »

CFA Exclusive Advisor to R&D Enterprises in Sale to Resilience Capital Partners

By Kim Levin | Oct 25, 2012

Resilience Partners Acquires R&D EnterprisesCorporate Finance Associates, an international investment banking services firm providing merger and acquisition, business valuation, capital resource and financial advisory services, announced that it was the exclusive advisor to R&D Enterprises in its sale to Resilience Capital Partners.

R&D Enterprises, founded in 1974, is an original equipment manufacturer of highly-engineered heat exchange and cooling products serving the off-road, marine, on-highway and industrial end markets. Based in Plymouth, Michigan, R&D Enterprises’ fluid cooling products, ranging in size from small oil coolers for low horsepower engines to coolers for 10,000 horsepower engines, are used in recreational boats, commercial marine vessels, industrial equipment, trucks, automobiles and agricultural equipment. The Company is a Tier 1, ISO 9001:2000 certified supplier.

R&D Enterprises is Resilience Capital Partners’ first add-on acquisition by its Thermal Solutions Manufacturing investment platform, which it acquired in February 2012. Thermal Solutions Manufacturing is an aftermarket manufacturer of heavy duty and light truck heat exchange products serving the off-road, on-highway and industrial end markets through its 25 distribution locations in North and Central America.

“It was a pleasure working with the management team at R&D Enterprises.  It was clear from early on in the process that the team at Resilience were true professionals and that R&D Enterprises and Thermal Solutions were a very good fit,” said Bob Contaldo, Managing Director & Principal, CFA Chicago.

Established in 2001, Resilience Capital Partners is a leading private equity firm headquartered in Cleveland, Ohio. Since its inception, Resilience Capital Partners has invested in 24 companies under 18 platforms, together representing over $2 billion in revenues and over 5,000 employees. Resilience Capital Partners manages multiple private equity funds with capital under management in excess of $320 million.

LOI – The Engagement Ring of the M&A World

By David Hulett | Oct 16, 2012

Shaking HandsYou were introduced by mutual acquaintances and have been “dating” for a while now.  Via probing questions and answers you realize you are compatible, synergistic and seemingly a perfect fit.  It’s time to move to the next step… the engagement ring?  No… the letter of intent, or LOI.

In the mergers and acquisitions world, the LOI is a legal document which spells out the initial price and terms upon which a buyer acquires a company.  In M&A, rarely is the balance of power between a buyer and seller even.  Prior to the signing of an LOI, the seller is more in control of the process.  They are negotiating for the best possible price and deal terms and are usually speaking with more than one potential suitor.  With competitive bidding underway, the seller has the ability to negotiate his sale price upward.  Favorable deal terms are part of this negotiating process.  However, once the buyer has been selected and a letter of intent signed, power shifts.

Exclusivity is a normal component of the LOI.  Once a letter of intent has been signed, the seller is no longer allowed to engage in dialog with other potential suitors.  This exclusivity lasts from 30 to as long as 90 days, during which the buyer and his legal team begin the due diligence process.  During this process, the buyer makes certain that representations about the company are true and complete.  During due diligence, the buyer isn’t necessarily looking for more “good stuff”, but generally seeks out that which may have a negative impact on the acquisition, deal terms and purchase price.  The buyer usually has more control during this phase of the M&A process.  You’ll rarely see the purchase price negotiated up during due diligence.

Do all engagements end in marriage? No.  Do all LOI’s end in closed M&A transactions?  No.  LOIs give both the buyer and the seller time to decide “should we make the commitment final?”

Posted by David Hulett.

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Private Equity Deal Flow

By Kim Levin | Oct 12, 2012

Middle Market PulsePrivate Equity is a major source of funding for middle market business acquisitions and recapitalizations. We take notice when PE statistics are released, as they are a good measure of the private capital markets. Private Equity deal data for the first half of 2012 is in and the numbers aren’t pretty for the private equity firms, but the underlying message is good for private company owners.

Despite beginning the year on an optimistic note, PE deal volume is down 17% in the second quarter compared to Q1 2012 and when compared to last year, the number of deal closings are down a disappointing 39%. Private equity buyers aren’t happy about this. Their job, after all, is to buy or recapitalize companies now for a future return a few years out.

Private equity firms have $405 billion in idle cash that they need to invest. That’s more than they have invested over the last six quarters combined. We are seeing this demand for deals by increasing contact from private equity firms contacting CFA offices asking about our new clients. We interpret the current market as a “sellers’ market” where we get multiple bidders on companies that we are selling.

Q2 also saw the continued use of add-on investment strategies by PE firms. Firms are looking to make add-on deals because there is a lack of new investment opportunities. Nearly half of all PE deal flow in the first six months of 2012 has been in the add-on space and we see this trend continuing to play an integral role through year’s end.

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CFA Advises Designed Conveyor Systems, Inc. and Express Installation, Inc.

By Kim Levin | Sep 25, 2012

CFA Advises Designed Conveyor Systems, Inc. and Express Installation, Inc.Corporate Finance Associates (CFA), an international middle-market investment banking services firm providing merger and acquisition, business valuation, capital resources, and financial advisory services, announced it advised in the management recapitalization of Designed Conveyor Systems, Inc. and Express Installation, Inc. by Ambassador Enterprises, LLC.

Employing over 75 full time employees, Designed Conveyor Systems and Express Installation, Inc. specialize in the design, manufacture and installation of world-class conveyor systems and material handling solutions for the parcel and distribution industries. Founded on a culture of collaboration and team work, Designed Conveyor Systems prides itself on its long-standing customer relationships, many of which have been in place for more than a decade.  From project inception to completion, Designed Conveyor Systems has industry-leading engineering, project management, fabrication, installation and ongoing support – all under one roof.

When the management team at Designed Conveyor Systems decided to seek a growth partner, Greg McKinley of CFA Nashville led the search for a company whose culture and dedication mirrored that of Designed Conveyor Systems and found such a partner in Ambassador Enterprises.  With Ambassador’s resources and managerial and corporate development capabilities, Designed Conveyor Systems and Express Installation, Inc. are better positioned for future growth.

“I have thoroughly enjoyed working with Ken Wood and the Designed Conveyor Systems management team.   They have built an exceptional business in which both customers and employees are at the top of their priority list,” said Greg McKinley, Managing Director of Corporate Finance Associates in Nashville and lead advisor in the transaction.


CFA Announces Sale of Qualified Innovation, Inc. to PolyFirst Packaging, Inc.

By Kim Levin | Sep 13, 2012

QI - PolyFirstCorporate Finance Associates, an international investment banking services firm providing merger and acquisition, business valuation, capital resource and financial advisory services, announced that it advised Qualified Innovation, Inc. in the successful sale to PolyFirst Packaging, Inc.

Qualified Innovation, Inc., founded in 1989, has grown to become a leading manufacturer and converter of cohesive cold seal paper, film, and foam packaging. The Company’s products include cohesive coated Kraft paper, linerboard, plastic film, and foam.  The Company’s products are manufactured in-house at their Sugar Grove, Illinois facility and sold in custom sized rolls or sheets.  Customers use the coated rolls or sheets to wrap/package products by hand or using automated equipment for rapid packaging of various items. Qualified Innovation has become an innovator in the industry by their custom product development, expertise with complicated coating materials, short run capabilities, and outstanding quality and service.

PolyFirst Packaging, Inc. extrudes, prints and converts at its 50,000 square foot state-of-the-art facility located in Hartford, Wisconsin. The Company specializes in pre-opened bags on a roll for automatic packaging equipment. Established in 1998 (originally as Advance Bag), PolyFirst Packaging has an in house extruding department and print capability up to 8 colors. The Company’s products include wicket bags, zipper bags, poly stretch sleeves, perfed bags on a roll, die-cut handle bags, patch handle bags, printed roll stock, and adhesive closure bags. The Company is ISO 9001:2000 certified.

“It was important to the Qualified Innovation team that any potential buyer be as focused on quality and customer service as they were, and we found that to be the case with PolyFirst Packaging” said Bob Contaldo of CFA Chicago, lead advisor in the transaction.

CFA Announces Sale of RT Associates, Inc. to The Segerdahl Group

By Kim Levin | Aug 30, 2012

Segerdahl acquires RT AssociatesCorporate Finance Associates, an international investment banking services firm providing merger and acquisition, business valuation, capital resource and financial advisory services, announced that it advised RT Associates, Inc. in the successful sale to The Segerdahl Group.

RT Associates, Inc., established in 1983, has grown to become one of the most technologically sophisticated marketing services providers in the Midwest. Based in Arlington Heights, Illinois, RT Associates offers a full suite of marketing campaign management tools as well as digital and offset printing (including large format) and fulfillment services. The Company uses six sigma lean manufacturing protocol, state-of-the-art digital technology and also provides a broad range of in-house bindery services (including folding, stitching, and shrink wrapping).

The Segerdahl Group is an employee-owned, leading integrated graphics solutions company headquartered in Wheeling, Illinois. Segerdahl provides tight control and consistency over every phase of the creative, printing, logistics and fulfillment process, leading to exceptionally efficient, accountable and cost-effective results. Segerdahl partners with many of the world’s largest and savviest marketers, providing the highest quality, delivering measurable ROI and helping their clients attain their critical business goals. Segerdahl is ISO 9001 certified.

“Corporate Finance Associates worked hard to find the right fit that would allow me and my employees to continue to excel in the field we love. They truly understood it was not just a deal, but it must be the right deal and made sure I understood the entire opportunity,” commented Bob Radzis, President and CEO of RT Associates.

When asked about the transaction, Bob Contaldo of CFA Chicago responded, “It was a pleasure working with Bob (Radzis) and his team and I was impressed with the deep commitment to both his clients and employees.  It is very gratifying to help clients find solutions where both parties to the deal are so satisfied.”