Exit and Growth Strategies for Middle Market Businesses

Archive for 2015

M&A News From Media, Technology & Telecom

By Dan Vermeire | Dec 31, 2015

Techonology, Media & TelecomMajor growth in Media, Technology & Telecom is forecast for the use of 3D printing in a variety of business applications, raising a host of data protection issues for IT professionals, according to a recent report in InformationWeek. IT workers will likely be called upon to address issues related to theft of intellectual property and to prevent counterfeit products from entering the market. For example, manufacturing companies may need to protect pictures and drawings of product designs to prevent unauthorized 3D printing of goods. Related IT tasks may include securing files and their transit over corporate networks, as well as limiting or blocking file sharing and the end user’s 3D printing of the files.

The recent launch of a wearable computing device by Apple could jumpstart the smartwatch category, creating new opportunities for software developers. The company launched a line of Apple Watches in nine countries in April 2015. Combining the functionality of a timepiece with communication capabilities and health-related applications, the devices will compete against offerings from LG, Pebble, Samsung, and Sony, among others. The burgeoning list of applications for the Apple Watch already includes business, home automation, music, news, sports, and travel apps, and the device’s long-awaited debut is expected to spur development efforts across the market. Good Technology, Microsoft, and are among the companies developing collaboration, productivity, and sales apps for the Apple Watch, according to Network World. Game makers are also targeting the Apple Watch and other wearables, despite the challenge presented by the devices’ small screen size.

  • Total US revenue for computer systems design and related services rose 6.2 percent in the second quarter of 2015 compared to the previous year.
  • Total US revenue for software publishers rose 2.8 percent in the second quarter of 2015 compared to the previous year.

Posted by Dan Vermeire.

Read the Entire Technology, Media and Telecom 4th Quarter Newsletter Here

Metal Fabrication Industry News

By Robert Contaldo | Dec 23, 2015

Metal FabricationNew orders for metal fabrication products declined 1% in the first five months of 2015 compared to the same period a year earlier; shipments rose less than 2%. Some fabricated metal product manufacturers may be seeing reduced orders from key customer groups that are experiencing drops in demand. New orders for machinery dropped nearly 9% in the first five months of 2015; shipments were down nearly 2%. Sharp order declines for nondefense and defense aircraft (25% and 17%, respectively) drove a 4% drop in new orders for transportation equipment. However, motor vehicles and parts remain a bright spot in the transportation equipment sector; motor vehicles and parts new orders and shipments both rose more than 8%.

  • US durable goods manufacturers’ shipments of fabricated metal products, an indicator of fabricated metal parts production, rose 0.5 percent year-to-date in August 2015 compared to the same period in 2014.
  • According to data from the Interindustry Economic Research Fund, Inc. (IERF), an economic research group, revenue for the US manufacturing sector is forecast to grow at an annual compounded rate of 5% between 2015 and 2019, based on changes in physical volume and unit prices.
  • US steel mill product prices, an indicator of commodity steel costs for industrial machinery manufacturers, fell 14.1 percent in August 2015 compared to the same month in 2014.

Posted by Robert Contaldo.

Read the Entire Metal Fabrication 4th Quarter Newsletter Here

Using Systems in Your Business

By George Walden | Dec 17, 2015

I was recently interviewed by Texas Business Radio, a program focused on business best practices.  I wanted to share my thoughts about raising the value of a company.  Click on the video below to watch my interview.

Posted by George Walden.

M&A News From the Energy Industry

By Roy Graham | Dec 10, 2015

energy industryThe US Interior Department recently removed some of the remaining obstacles to Arctic drilling, albeit with a few caveats. Arctic oil drillers must keep active rigs at least 15 miles from wildlife, which could make transport between drilling sites more burdensome. The Arctic contains about 20% the world’s undiscovered oil and gas reserves. Companies, like Shell Oil, can drill into Arctic oil-bearing zones, but not until spill response equipment is available. The equipment needed is currently undergoing repairs and may not be ready until after the arctic drilling season ends. Shell needs spill prevention equipment like a capping stack before the company can drill into the deeper formations, according to The Guardian.

A number of Wall Street analysts are predicting that crude oil is set to stay below $60 a barrel through next year as the market and energy industry struggles to recover from over supply. A survey of 13 investment banks by The Wall Street Journal cut their average forecast for Brent crude, the international price gauge, by $9 to $58.70 a barrel, compared with last August’s survey. For West Texas Intermediate, the U.S. oil marker, the average forecast is for $54.40 a barrel, also down $9 from August.

Industry Indicators

  • The average US retail price for diesel and regular gas, which influences profitability for oil and gas companies, fell 30.9 percent and 27.13 percent, respectively, in the week ending October 13, 2015, compared to the same week in 2014.
  • The spot price of crude oil, which affects profitability for oil and natural gas operations, fell 45 percent in the week ending October 9, 2015, compared to the same week in 2014.
Posted by Roy Graham.

What Business Owners Must Know About Private Equity

By Roy Graham | Dec 08, 2015

Private EquityThe PE community has established an impressive record of success in both partnering with business owners to grow the value of their businesses and in returning high rates of returns to their own investors.  Private equity recapitalizations have proven in the aggregate to be a valuable vehicle by which a business owner can capture a portion of his business’s value today while bringing in a savvy business partner who can help create greater business value going forward.  However for a business owner to reap the greatest benefit from private equity it is essential to understand how private equity operates and to use this knowledge to determine how best to find a PE partner.

A paper published earlier this year by Harvard Business School and authored by Gompers, Kaplan and Mukharlyamov provides interesting insight into the operations of private equity via an extensive survey of 79 private equity investors.  When we study these findings, we can glean some valuable takeaways that can help business owners learn how to smartly capitalize on PE investment. Read more »

M&A News From the Aviation Industry

By Joe Contaldo | Dec 03, 2015

Fighter JetA bid by Airbus to increase its US presence will fuel competition between the Netherlands-based company and its archrival Boeing. Airbus opened its first US commercial aircraft manufacturing plant in Mobile, Alabama, in September 2015. The facility is slated to deliver its first commercial aircraft in the spring 2016 and produce between 40 and 50 single-aisle aircraft per year by 2018. Having a US plant should help Airbus win more contracts with airlines based in North America, where the company expects most jets built at the plant will be delivered. Airbus, which already employs 1,400 workers in the US for other activities such as helicopter manufacturing and flight training, could also increase its capacity to build military aircraft, according to The Wall Street Journal. Among the factors that attracted Airbus to Mobile were the city’s easy port access and nonunion labor force.

Airbus’s establishment of a major manufacturing plant in Alabama increases competition in the North American market and further shifts the US airliner manufacturing industry to southern states. Boeing, which is responsible for Washington state’s traditional pre-eminence in the market, has increased production at its Charleston, South Carolina-based plant in recent years.

  • US durable goods manufacturers’ shipments of military aircraft and parts, an indicator of demand for aerospace products and parts for military use, rose 0.4 percent year-to-date in August 2015 compared to the same period in 2014.
  • US durable goods manufacturers’ shipments of nondefense aircraft and parts, an indicator of demand for aerospace products and parts in the aviation industry, rose 15.5 percent year-to-date in August 2015 compared to the same period in 2014.

Posted by Joe Contaldo.

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

5 Key Techniques of Successful M&A

By Dan Vermeire | Dec 01, 2015

successful M&AHow to get a Premium Value with Less Risk

Today’s market has brought many sellers off the sidelines – and for good reasons.  Cash is plentiful and buyers are aggressive.  If you’re thinking of jumping in, you need to know how to get a premium price, and how to lower the risk in a successful transaction.  Knowing these 5 Key Techniques will help.

  1. Know How to Manage Confidentiality – Attention to confidentiality can make a big difference in how your business survives the M&A process.  Imagine if your customers, employees, suppliers and competitors all knew the details of your business and that you were seeking a transaction.  You’d have some ‘splaining to do.  A good M&A process is designed to protect confidentiality, and for Investment Bankers in the Middle Market, it is paramount.  Strangely, most business brokers do not protect confidentiality and often post information on the internet.  Be sure you have the right process and control the information flow. Read more »

M&A News from the Print and Packaging Industry

By Anthony Contaldo | Nov 25, 2015

Print & PackagingGlobal demand for digital printing of packaging materials is expected to experience strong growth over the next five years, according to a recent report by Smithers Pira, a packaging consulting group. The volume of digitally printed packaging products is forecast to increase by more than 16% per year through 2020. Labels continue to be the segment’s primary product, but new digital printing applications for cartons, corrugated containers, flexible packaging, rigid plastics, and metal decorating are forecast to experience rapid growth. Other key drivers of demand include improving economic conditions and a trend toward shorter print runs, for which digital technology can be more cost-effective than traditional print and packaging techniques.

The Asia Pacific region is forecast to be the chief demand driver for folding cartons as the global market rises from $87 billion in 2014 to $106 billion by 2020, according to a recent report by Smithers Pira. Global demand is expected to increase 5% in 2015, then slow to 3.5% per year through 2020. The Asia-Pacific region’s share of global folding carton consumption is forecast to rise from 52% in 2014 to more than 60% in 2020. China’s share of world consumption is expected to increase from 31% in 2010 to 39% in 2020. The Indian sub-continent is expected to be the second-largest market, accounting for 6% of global consumption. The top folding carton end-use markets are health care products, tobacco, household care, hardware and electrical products, and dry foods. Amid pressure from brand owners that wish to differentiate their products from competitors, folding carton manufacturers will be challenged to invest in innovative new products and carton printing techniques.

Posted by Anthony Contaldo.

Read the Entire Print & Packaging 4th Quarter Newsletter Here

M&A News From the Healthcare Industry

By Peter Heydenrych | Nov 19, 2015

healthcare industryMedical practices across the US began adding new medical codes after the new ICD-10 medical coding system finally took effect October 2015. The new system of diagnostic and procedural codes is more complex and represents a significant increase in the number of codes used by physicians to get paid by insurers. Codes now number about 70,000 compared to about 14,000 codes used in the old ICD-9 system, which was established in 1979. Hospital codes also increased from 4,000 to 72,000. Healthcare industry experts worry that claims denials could double in number as providers and payers adjust to the more specific codes, according to the Wall Street Journal.

Health insurers struggle to attract millennials, some of whom believe they are too young and too healthy to need insurance. Marketing departments are working to create communications geared to these younger consumers, people who often research health conditions online and may be equipped with inaccurate information, according to Modern Medicine. Experts recommend focusing on young families experiencing life transitions such as relocation, employment, or childbirth. Social media campaigns, wellness webinars, and website videos can be effective, as can straightforward, easy-to-find information on billing, covered services, and physician networks. Although baby boomers are currently the largest target audience for health insurers and providers, millennials are poised to surpass boomers as the largest US generation.

Posted by Peter Heydenrych.

Read the Entire Healthcare 4th Quarter Newsletter Here

Where Have All the Baby Boomer Business Owners Gone?

By Robert St. Germain | Nov 17, 2015

Baby BoomerIt has long been predicted that the “baby boomers” (i.e. the population cohort born between the years 1946-1964), who own businesses in the U.S., would begin to exit their businesses en masse as they began reaching the age of 65, starting back in 2011. The related prediction was that this mass exit would represent the greatest private transfer of wealth in the history of the U.S. To put those predictions into perspective, it is estimated that some 8+ million businesses in the U.S. with a total valuation of $10+ trillion are owned by boomers; and, for most of them, the vast majority of their personal net worths are tied up in their businesses.

Have those predictions come true? The answer, like so many other predictions in life, is a resounding no. While some boomers have certainly elected to exit and pursue their personal “bucket lists”, the majority, so far, seem to be hanging on to their companies. So, what is going on, especially in this period of plentiful and low cost capital, an abundance of buyers, and, as a result of the previous two factors, high purchase multiples?

In an effort to answer that question, The Wall Street Journal looked into this phenomenon; and on Oct. 14, 2015 published the related article titled “The Missing Boom in Small-Business Sales” with the sub-title “An expected rush in sales of small firms by the baby boomer generation has yet to materialize”. Their findings, in my words, were very interesting.

First, this is not their fathers’ generation that looked upon age 65 as the automatic start of the last stage of their lives i.e. wearing the stereotypical gold watch while golfing/fishing throughout their golden years. The boomers are a healthier and longer living generation with the energy and interest to continue running their companies. Read more »