Exit and Growth Strategies for Middle Market Businesses

Archive for 2013

Engineering & Construction M&A Activity Update

By Kim Levin | Dec 27, 2013

Building ConstructionM&A activity in the North American construction and engineering sector in the third quarter of 2013 was strong with 60 deals announced or closed in the period according to data provided by S&P Capital IQ. The most active construction subsector included infrastructure-related companies focused on construction of transportation-related projects. The engineering subsector was led by surveying companies focused on industrial and infrastructure-related projects.

Read the Entire Engineering & Construction 4th Quarter Newsletter Here

How do Private Equity Groups Assess Potential Investments?

By David Sinyard | Dec 23, 2013

Business Meeting with PaperThe Role of Management and a Focus on Family Owned Businesses

Before Private Equity Groups (PEGs) invest, they review a significant number of proposals hoping to find that diamond in the rough, that perfect addition to their investment portfolio.  Three a day is not unheard of, so the annual volume can easily be 700-1000 proposals.  Of these, the majority of PEGs typically close on 2-4 deals per year.  There is a great deal of time and work involved in reviewing and ultimately deciding which deals to pursue. How do PEGs decide which deals to pursue?  Their due diligence costs often exceed $100,000 per transaction.  Before they commit the time and money, they have to be convinced that this is a company that they want to own.

The review procedures utilized by PEGs differ significantly and range on a continuum from a very formal process to an informal review practice.   When PEGs follow a formal process they may have evaluation criteria and will use a checklist for each submission they review.  It is scored and in order to move to the next step in the process, a company would need a minimum score to advance.  The majority of PEGs use an informal review process and based on  time and experience, the business development officers will “know” whether it’s something of interest.  Evaluations of specific criteria appear to exist for every deal and most PEGs tend to look for strong, stable cash-flow, low debt levels, leading market positions,  and niche products or services.  But one variable stands out to separate the proposals into “yes” and “no” piles – the management team. Read more »

Energy M&A Activity Update

By Kim Levin | Dec 20, 2013

Oil PumpM&A activity in the North American energy sector in the third quarter of 2013 was active with 222 deals announced or closed in the period according to data provided by S&P Capital IQ. The most active energy subsector included oilfield services and midstream assets as new pipelines, oil terminals and crude-by-rail infrastructure grew to accommodate the mounting levels of US oil production and incremental demand for gas.

Read the Entire Energy 4th Quarter Newsletter Here

Getting the Moons to Line Up – When is the Right Time to Sell?

By Dan Vermeire | Dec 17, 2013

moonsBusiness owners often ask us “When is the right time to sell?”  To answer, we need to look at the question in several parts.  When is the right time… For the economy?  For the financial markets?  For your industry?  For your business?  And for you? When will all these moons line up?  Maybe right now.

Economy – May Be Hard to Believe, but We’re Back

It is always better to sell into a good economy.  If you look at any current measurement – housing, GDP, manufacturing, employment, or others – you’ll see that the US economy is now back to pre-recession levels.  But, the glacial-speed recovery has taken 5 years, rather than 2 years of previous recessions, so we’re a bit numb.  Most businesses are now reasonably healthy and have growth prospects – an indicator of a good time to sell. Read more »

Aviation, Aerospace & Defense M&A Activity Update

By Kim Levin | Dec 13, 2013

Nose WheelM&A activity in the North American Aerospace and Defense (A&D) industry for Q3 2013 was slow with only 19 deals under $1 billion announced or closed. The quarter’s largest disclosed deal was Directional Aviation Capital’s $190 million purchase of Bombardier Aerospace Corporation. The A&D industry is becoming more global due to heightened competition, growing travel demands, and increased security requirements in emerging markets.

Read the Entire Aviation, Aerospace & Defense 4th Quarter Newsletter Here

Succession Planning for Business Owners

By David Sinyard | Dec 11, 2013

Passing the BatonBusiness owners face three alternatives as they approach retirement: pass on both the management and ownership of the business to the next generation, pass on the shares but bring in professional managers, or sell the business. The results of a PricewaterhouseCoopers Family Business Survey conducted in 2012 indicate that 41% of the respondents intended to convey their stock and management of the business to their children.  More than half of these respondents were unsure whether the next generation had the requisite skills for this to successfully occur.  Twenty-five percent planned to bring in professional managers due to the perceived lack of skill of the next generation.  Twelve percent were undecided and the remaining 17% planned to sell the business.  With results such as these, it is no surprise that succession planning in family firms has received significant attention.

So what options are available to the retiring business owner?  It would appear from the PwC data that alternatives to passing the controls to the next generation need to be examined.  One viable option is to sell to a private equity group.  Not only can private equity investors enable the resolution of succession problems, their involvement can lead to improved operating efficiencies in the firm.  Private equity provides capital in exchange for an equity stake in a potentially high growth company.  While the family may cede control, private equity can provide significant support to help grow the business as well as providing liquidity for those retiring.  The process of identifying and selecting the correct private equity group requires time and the expertise of trusted advisors.

Posted by David Sinyard.

7 Step Guide to Business Exit Planning

The Perfect Gift

By Jim Gerberman | Dec 09, 2013

Gift BoxesAs we approach this season of giving, each of us can relate to the challenge and occasional angst that we may feel in searching for “the perfect gift” for our loved ones. Although we’ll “know it when we see it”, the process of searching for “it” is seldom clear or obvious.

Many of you are familiar with O. Henry’s classic story, “The Gift of the Magi”, first published in December 1905. For those unfamiliar with the story, I apologize in advance for spoiling the surprise ending. The story involves a young couple – Jim and Della, struggling to find Christmas gifts that would adequately express their love for each other. Due to their modest means, any gift would seem to require money that they don’t have. Each has one possession that they highly treasure – Della’s long flowing hair and Jim’s shiny gold watch. Della decides to sell her beautiful hair so that she can buy a platinum fob chain for Jim’s watch. When she excitedly presents her “perfect gift” to him she’s aghast to find that he has sold his watch in order to buy his “perfect gift” – a set of brushes and combs for her hair. Though they are left with gifts that neither can use and they no longer have the one possession that they had treasured, the moral of the story demonstrates their willingness to sacrifice in showing their love for each other. Read more »

Transport, Logistics and Supply Chain M&A Update

By Kim Levin | Dec 06, 2013

TruckAccording to data collected by Ernst & Young, there has been a consistent trend throughout global M&A over the past three years associated with declining deal conversion rates and a longer average time to completion. Although these trends do not seem favorable, they may be attributed to an increase in pending bids caused by a more optimistic lending environment. Since September 2010, there have been 82 transactions under $1 billion in the transportation & logistics (“T&L”) industry within North America, totaling almost $6.5 billion in aggregate value.

Read the Entire 3rd Quarter Transport, Logisitics and Supply Chain Newsletter

EBITDA – A Misunderstood Proxy

By Marc Borrelli | Dec 03, 2013

There are many methods of calculating the value of the business; however, many in the mergers and acquisitions field believe that the discounted cash flow (“DCF”) method is commonly considered the best, recognizing the problems of dealing with the future. As the prominent physicist Niels Bohr said, “Prediction is very difficult, especially about the future”.

This methodology looks at the free cash flow (“FCF”), which is the operating profit of the company with non-cash costs, i.e. depreciation and amortization added back for the business for each year into the future.   The FCF is critical as that is the cash that is available to the providers of capital to the company – both debt and equity. A business’ value is calculated by estimating the future FCFs and discounting them back by the company’s weighted average cost of capital (“WACC”) as shown below:

figure1 Read more »

The Baby Boom is Coming – Can You Beat the Crowd?

By Jeff Wright | Nov 25, 2013

Crowd of PeopleAfter World War II ended, returning GIs began a binge of family formation at a rate not previously seen in American history. Over 77 million babies were born in the US between 1946 and 1964, the generally excepted definition of the baby boom. Much has been written about the attitudinal and cultural traits of this generation. One thing is for sure: Boomers were entrepreneurial and formed businesses at an unprecedented rate. Over half the businesses in the US are owned by boomers, upwards of 10 million businesses.

Boomers are aging, with an average age of almost 60 years old and the oldest boomers almost 68. While it’s true that boomers think of themselves as younger than they are, this is still an age when many people look to retire. Or perhaps with boomers, re-invent. And this trend will continue for many years as the younger end of the boomer cohort ages and moves into retirement years. The number of people in the US in the 55 to 65 age range will continue to increase though 2018.

This means that is possible that there will be a flood of companies coming on to the market in the next several years. Based on 2010 census data, SME Research estimates that, excluding solo practices, the number of companies owned by someone 55 and older was about 2.7 million. PricewaterhouseCoopers in their recent Trendsetter Barometer Survey of Business Owners, estimates that 51% of owners over age 45 planned to sell their companies to other companies. Fewer than 18% planned to pass the business on to a family member and even less would consider selling it to their employees. Read more »