Exit and Growth Strategies for Middle Market Businesses

Archive for 2014

Q2 Healthcare Mergers & Acquisitions Update

By Kim Levin | Jun 06, 2014

HEIPG-Doctor and xraysM&A activity in the Healthcare sector for North American based target companies in Q1 2014 included 313 closed deals according to data provided by S&P Capital IQ. According to a report from PriceWaterhouseCoopers, an international consulting firm, deal activity in the first quarter of 2014 was relatively consistent with the same period in 2013. However, the value of announced deals showed a sharp uptick indicating growth in multiples and demand for health-related companies as technology evolves and the Boomer Generation ages.

Read the Entire Healthcare 2nd Quarter Newsletter Here

Stay Hungry, Stay Foolish

By Jim Gerberman | Jun 02, 2014

Diploma handsIt’s that time of year for commencement speeches as new graduates across the country face “the next step”. Advice is given freely. I’m reminded of the old adage: “You get what you pay for.” For that matter, the following words are surely no exception.

I’m reminded of a certain commencement ceremony that my wife and I attended along with family members for our son, Steven. On that day, little did we know that the 2005 class of Stanford University would be addressed by none other than Steve Jobs. His speech that day has been heralded as one of the best ever…no argument from me. In fact, the speech was published in its entirety a few months later in Fortune magazine. I have shamelessly used (and respectfully acknowledge Mr. Jobs) the title of that speech for the title of this article. For a complete text of the speech, click here.
Read more »

Q2 Food & Beverage M&A Update

By Kim Levin | May 30, 2014

SundaeM&A activity in the Food and Beverage sector for North American based target companies in Q1 2014 included 54 closed deals according to data provided by S&P Capital IQ. Approximately 80% of targets were acquired by strategic acquirers with the remained purchased by increasingly active private equity buyers. There continues to be a strong appetite among financials buyers to acquire organic branded food products along with vitamins and nutraceuticals.

Read the Entire Food & Beverage 2nd Quarter Newsletter Here

How to Manage and Maximize the Real Value of Earnouts

By Terry Fick | May 27, 2014

While earnouts can be an excellent tool to bridge the value gap and maximize an owner’s take home value, the concept does not ring well with most owners…unless they and their advisor know how to use the tool.

In order to know when and how to use the tool we should first look at how and when NOT to employ this strategy.

Don’t use an earnout:

  1. As part of the core value of a company that is based on current and past earnings.
  2. To help a weak buyer “finance” your company.
  3. In general, if you will not keep running the company during the earnout period.

There is also one situation where an earnout is a great piece of the pie. That is when the buyer is paying a high value for the company before you tack on the earnout. It is then Gravy on an already good deal.

Answering the question of when to use an earnout is not so black and white. Earnouts come in all shapes and sizes and can be tightly managed or simply something thrown against the wall. Remember when negotiating an earnout, or whether to use one at all, the major question is “Is there a deal out there that pays me as much without the use of an earnout?” Earnouts should be a valid way to maximize what you are being paid for the future by allowing the buyer to share some of that risk with you. This goes back to the tenet of valuation, “Lower the buyer’s risk, and you raise your reward”. Read more »

Q2 Industrials Mergers & Acquisitions Update

By Kim Levin | May 23, 2014

Ind. FactoryM&A activity in the Industrials sector for North American based target companies in Q1 2014 included 549 closed deals according to data provided by S&P Capital IQ. Activity was largely driven by the successful completion of several mega deals, or transactions worth more than $1 billion, according to published by consulting firm PwC US. According to PwC, strategic buyers continued to be the most active buyers, accounting for more than 80 percent of total deal activity. However, financial buyers remain active in the space as their limited partners put pressure on them to put capital to work.

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

Q2 Engineering & Construction Mergers & Acquisitions Update

By Kim Levin | May 16, 2014

ENCIPG-Building ConstructionM&A activity in the Construction and Engineering sector for North American based target companies in Q1 2014 included 58 closed deals according to data provided by S&P Capital IQ. According to a report from international consulting firm PriceWaterhouseCoopers, construction and engineering M&A activity has rebounded somewhat after a number of down years following the global recession in 2008. Strategic and financial buyers with ample cash on their balance sheets are looking to broaden their offerings by acquiring a wide range of specialty contractors. Traditional strategic purchasers like EMCOR and Mastec remain active in their pursuit of a growth through acquisition strategy.

Read the Entire Engineering & Construction M&A 2nd Quarter Newsletter Here

Q2 Aviation, Aerospace & Defense Mergers & Acquisitions Update

By Kim Levin | May 09, 2014

Jet EngineM&A activity in the Aerospace and Defense sector increased for North American based target companies in Q1 2014 according to data provided by S&P Capital IQ. This activity in the period follows a lackluster 2013, which was driven in part by the Federal government’s sequestration. Overall, valuations have held steady, which could support a strong aerospace deal market for the remainder 2014. This, in addition to the availability of cash with attractive terms, provides strategic and private equity buyers with numerous opportunities to recapitalize balance sheets and pursue liquidity events.

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

How Much Runway is Left to Sell Your Business?

By John Hammett | May 07, 2014

Airplane RunwayI am often hired to help owners sell their companies at the end of their careers. These people are in their 50s and 60s and they are ready to get a pile of cash, invest it, and live a risk-free life without worry.

Private company ownership is inherently risky. Value can be disrupted by things like changes in interest rates, loss of a big customer, loss of an important supplier, departure of key employees, government regulation, international affairs, availability of bank loans, and many others.

When I meet with owners who are thinking of selling in the future, I often talk about their personal “runway”. That means, when something happens to drop your company’s earnings, how much time do you have for the company to recover back to the value you had before? The next, more important question is “Is that longer than you were planning on working?” Read more »

Selling Your Middle Market Company

By Kim Levin | May 06, 2014

Subscribe to the Middle Market Pulse

Andy Greenberg, G.F. Data’s CEO, recently penned an article “Where Have all the Sellers Gone?” shining a spotlight on the lackluster volume in middle market business sales. His ultimate point was many middle market business owners don’t find the need to sell, instead choosing to continue to run their businesses long after the typical age of retirement and continue investing in the business and industry they know best, resulting in low inventory of companies on the auction block.

This may be only part of the story. This premise focuses on closed transactions and does not take into account the total pool of middle market businesses for sale today. Maybe the questions shouldn’t be “where have all the sellers gone?”…but rather what buttons need to be pushed for middle market business buyers to say “I’ll take it?”

We know that above average performing companies with management continuity plans post sale tend to reap higher valuation rewards. But what hasn’t been clear is how many middle market companies on the market today aren’t being sold because they just don’t hit all the buttons.   Private equity firms review marketing materials on hundreds of companies each year, yet select very few for their own portfolios. So what about those companies with less than above-average financials…what happens to them? The business may indeed sell, but likely not at the asking price. Or, the business may sell to a different type of buyer. Strategic buyers, management buy outs and employee stock ownership plans all fill a nice niche when private equity buyers do not come knocking. Then again, the business sale may be put on hold while the company is “revitalized.”   Given sufficient time and resources, this may be the best strategy to prepare a business for sale in the hopes that when it does go to market, all the buttons are pushed regardless of the buyer.

Subscribe to the Middle Market Pulse


Q2 Energy Mergers & Acquisitions Update

By Kim Levin | May 02, 2014

Solar PanelsM&A activity in the Energy sector for North American based target companies in Q1 2014 included 161 closed deals according to data provided by S&P Capital IQ. Despite the flurry of activity, M&A in the energy sector has declined year-on-year since 2012 according to data published by industry tracker MergerMarket. The total deal value of $15 billion in Q1 2014, was the lowest valued quarter since Q3 2009 ($13.3 billion) and was a 57% decrease from Q1 2013 ($36.3billion). According to a report from international consulting firm PriceWaterhouseCoopers, after a slow year in the energy sector for M&A in 2013, deal activity should surge in 2014 driven by improved technology, greater financing capabilities and political sentiment moving toward a greener world. According to a report from British Petroleum, primary energy demand is expected to increase by 41% between 2012 and 2035, which should spark continued M&A as companies vie for market share.

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