Exit and Growth Strategies for Middle Market Businesses

Archive for 2013

Affect Heuristics and Private Equity Investment Decisions

By Kim Levin | Nov 22, 2013

Business ChartDavid Sinyard, Managing Director and Principal in the CFA Atlanta office, recently wrote a newsletter article based on his doctoral work done at Georgia State University discussing affect heuristics and the role it plays when private equity investors make decisions.  Interestingly, the article was referred to in a recent blog article written by a private equity investor.  Check out David’s newsletter article on private equity decision making…


How do Private Equity Groups Assess Potential Investments?

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. Read more »

Technology M&A Update

By Kim Levin | Nov 15, 2013

BinaryAccording to a report from global consulting firm PwC, closed software transactions in the second quarter declined over the previous quarter as well as year-over-year. However, an uptick in announced and rumored deals points to a rise in M&A activity for the remainder of the year. Private equity buyers took a more active role in software M&A with deals announced across the spectrum of deal size, including some of the largest transactions announced so far this year.

Read the Entire Technology 3rd Quarter Newsletter Here


Pointers on Successful Acquisitions – Reducing Risk

By Peter Heydenrych | Nov 12, 2013

Business ChartFor the past 4 years most business owners and executive teams included acquisitions as part of their strategic plan, but a funny thing happened on the way to the forum – very few of these companies were able to cross this item off their to-do list. Setting aside the frenzy of the capital gains tax-incented divestitures in late 2012, there has been lethargy in the market since 2008. We have also seen a marked decrease in transaction volumes through the first half of 2013.

Why is that? There a few things that have got in the way of a robust period of corporate M&A. These include the obvious – a consistent climate of business uncertainty. No sooner does the world stop talking about the pending collapse of the Eurozone, than our eyes are refocused on the prospects of the US government shutting down all non-essential spending and dark clouds looming around the possibility of it also defaulting on its debt. Hardly the type of news to inspire confidence in the predictability of the future. Read more »

Plastics & Rubber M&A Update

By Kim Levin | Nov 08, 2013

Plastic BottlesAccording to data from S&P Capital IQ, transactional activity in plastics and rubber manufacturing since the end of 2010 has benefited from improving financing conditions, stable business growth and narrowing gaps in business valuations. In 2012, financial and strategic buyers became more active, resulting in an increase in the number of deals completed by approximately 3%. Plastics M&A volume increased more than 25% in 2012, with the highest amount of activity generated by plastic packaging and industrial plastics transactions. Many private equity began liquidating their holdings in the space, due to increasing multiples in 2012. 2013 is expected to see a slight increase in M&A activity for the plastics and rubber manufacturing industry in North America, mainly driven by sellers looking to take advantage of high valuation multiples and favorable access to capital.

Read the Entire Plastics & Rubber 3rd Quarter Newsletter Here

Congratulations! You Sold Your Company. So, How Much Money Did You Leave on the Table?

By Robert St. Germain | Nov 05, 2013

Money BlocksIt was certainly flattering when you received that unsolicited call from the CEO of one of the major players in your industry. Maybe he remembered you granting him that one foot “gimme” putt at the trade association golf tournament two years ago. In any case, during the call, he said some very nice things about your company and how teaming up with his would be a “win-win” situation for both of you.

During the discussion, he offered a price that seemed fair; and, in short order, you signed an LOI that took you off the market for 90 days while all the final details got worked out. Sure enough, he kept his word; paid his price on the designated close date; and you are now golfing near full time while regularly granting one foot “gimme” putts in anticipation of more good karma in the future.

So, looking back, have you ever wondered how much money you left on the table by accepting that seemingly “fair” price from that single offer? Actually, you will never know because you fell into the all too common trap of voluntarily binding yourself into a non-competitive process that, by design, was to the clear advantage of the buyer and to the distinct disadvantage of you, the seller. Read more »

Metal Fabrication M&A Update

By Kim Levin | Nov 01, 2013

MFIPG-Metal PartM&A activity in the metal fabrication space continued on an upward trend in 2012, finishing the year with 38 transactions in the 4th quarter alone. Over the last 36 months, we have seen aggregate deal values rise with increasing leverage while equity contributions are on the decline.  As cited in a report by Capstone Partners, the jump in M&A activity in 2012’s 4th quarter can be attributed to closing transactions strategically before tax hikes were implemented in January 2013. Though tax effects had a strong role, consolidation in metal fabrication has benefited from increasing demand in a recovering economy as well as healthy balance sheets for strategic buyers. Companies are now looking to take advantage of improving economic conditions through acquisitions in the sector. Middle market M&A activity in the industry has been mainly driven by strategic acquirers who have continued to drive up multiples and valuations. As Brown Gibbons Lang & Company notes in their “Metals Insider” Report, Private equity groups have hesitated to be involved in companies with less than $250 million EBITDA, as their main interest is large companies with stable cash flows. Nevertheless, private equity firms have high amounts of un-invested cash and are attracted to the sector’s consistent demand and growth, while they are also intrigued by opportunities for consolidation.

Read the Entire Metal Fabrication 3rd Quarter Newsletter Here

The Standards of Value

By David DuWaldt | Oct 28, 2013

Money GraphIn his blog post of September 30, 2009, Lee Crawley did a great job of clarifying the business valuation process and he made reference to the fine business valuation article written by Gary Parker. Lee touched on the standard of value by raising an important initial question in a business valuation engagement: What is its purpose?

It may seem odd to some readers that you can value the same stock of a company and arrive at very different results just by a change in the standard of value. The standards of value include fair market value, fair value, investment value, liquidation value, marital value, intrinsic value, etc. For this blog post, I will address the three common standards of value – fair market value, fair value and investment value. Read more »

2013 Middle Market M&A Debt Levels

By Kim Levin | Oct 25, 2013

Most middle market M&A transactions are financed using a combination of equity and debt contributions. Within the debt contribution, a deal may have multiple types of debt in the mix, both senior and junior, or mezzanine debt. Debt has a lower cost of capital than equity, so the return on equity increases as the percentage of debt in the deal goes up. The challenge is to use as much debt as reasonable, without hitting the point where cash flow from the entity cannot service the debt. It’s a balancing act so credit statistics and cash flow modeling are a guide when arranging M&A financing.

Read more »

Industrials M&A Activity Update

By Kim Levin | Oct 22, 2013

Industry on misty nightAccording to data published by PwC US, financial investors in the industrial manufacturing space renewed their M&A appetites in 2013, increasing deal activity by approximately 40 percent year over year. Strategic investors continued to close the most transactions, but the rise in activity by financial investors is a signal that dry powder sitting on the sidelines for so long is finally getting to work. The majority of deals in 2013 have fallen into the middle market category (transactions worth $50 million to $250 million) with North American companies being the most active.

Read the Entire Industrials 3rd Quarter Newsletter Here

Establishing Unique and Proprietary Products and Services

By Kim Levin | Oct 18, 2013

exit_signWhen you finally decide to sell the business you’ve dedicated your life’s work to create, one critical component will be sought after by every potential buyer… your differentiation. If you are that company in your industry that has a product or service so proprietary and so unique that it cannot be replicated, you move miles ahead of your peers when investors are considering a purchase. But, that differentiation doesn’t just happen over-night. It takes vision, strategic planning and time to create a proprietary base that is highly sought after by others. Read more »