InSight

Exit and Growth Strategies for Middle Market Businesses

Archive for 2015

Engineering and Construction M&A News

By Jeff Johnson | Jul 16, 2015

Construction and engineeringConsolidation in the crowded mid-sized engineering and construction segment is inevitable as smaller companies look to compete with their larger counterparts on larger, more complex projects and build-out capabilities. The industry is continuing on a path toward full-service integration and mid-size firms have to increase capabilities to compete.

Commercial and heavy construction contractors may see more opportunities to bid on projects in the southern US in the second half of 2015. Several southern US states with growing populations and rejuvenated economies are expected to serve as hotbeds of activity for the construction sector, according to Associated Builders and Contractors. Metropolitan areas like Houston, Dallas, Oklahoma City and Atlanta have experienced strong economic turnarounds since the late-2000s recession. Many southern states are logging rapid population growth, a leading indicator for demand in the industry, and seeing gains in both residential and commercial construction. As an example, Louisiana has received significant industrial investment, bolstered by the energy business, rebounding residential real estate, and the widening of the Panama Canal.

Construction firms stand to gain business as Canadian infrastructure projects, particularly work on public transit in and around its largest urban areas, and receive funding through a newly approved federal budget. A Public Transit Fund, recently rolled out as part of a new federal budget, offers a permanent source of funding for Canadian infrastructure projects that aim to alleviate problematic congestion across many of the country’s largest cities. According to the Canadian Construction Association, which represents more than 20,000 member firms, the transit fund allows municipalities to proceed with long-term public transit planning. Available in 2017, the allocated funding is intended for public-private partnerships and includes $750 million doled out over two years with $1 billion a year thereafter. The budget also maintains a $53-billion program that extends through 2024 to enhance provincial and municipal infrastructure.

Posted by Jeff Johnson.

Read the Entire Engineering and Construction M&A 3rd Quarter Newsletter Here


Preparing For An Exit – Part 1

By Matthew Bishop | Jul 14, 2015

Preparing for an ExitIs your Company worth what it should be?

When we meet with business owners, we always find it interesting to hear what they think their company is worth.  We have a slide in our pitch book that has two words on it – “EXPECTATION” and “MOTIVATION.”  This slide always generates interesting conversation.  Often the owner has an inflated expectation of his company’s worth and when asked how they came up with that value, the response has nothing to do with the company’s operations but what the owner needs for retirement.  As such, we should probably add a third word to the slide – “REALITY!”  We thought it would be germane to discuss three things: 1) how to value your company to determine if that amount is sufficient for you to retire on, 2) what drives value, so you can take actions now to increase your value, and 3) when is the best time to sell a privately held company.  We might be biting off too much, so for the blog post we are breaking this into two parts:  1) how to value your company and 2) how to increase the value of your company and the timing issue.  Is it time to sell?

Valuation:

When valuing your company, there is only one value that truly matters: the one someone will pay you for your company. You can hire the best valuation firm in the world to derive what they think your company is worth, but that valuation is not worth the paper it is printed on until a buyer makes a genuine offer at that value. We are not saying that a formal valuation is a waste of time. There are numerous legal reasons that effectively mandate a company to hire a third party firm to perform a valuation. However, the valuation does not determine the value of the company – the market does. Until a willing buyer and willing seller agree to a price, fair market value has not been achieved. Another nuance to understand is that when we discuss the value of a company, we are referring to Enterprise Value (“EV”). EV is not the equity value that the owner gets to pocket upon the sale of his company. EV is the total value of the going concern and includes a company’s debt and cash. Formula 1 below calculates EV and after a little manipulation, Formula 2 solves for Market Equity (“ME”). Read more »


M&A News in the Transportation Industry

By Doug Nix | Jul 09, 2015

With fuel prices remaining well below their highs many transportation and logistics companies are posting inflated EBITDA results driving up top-line valuations even though multiples for middle market companies remained fixed in the 4x to 6x range. This factor has spurred a variety of would-be sellers to seriously consider an exit before an inevitable rise in fuel prices occurs. From a buyer’s prospective the sector’s historically fragmented composition continues to post a solid landscape for a potential roll-up strategy.

Trucking – US trucking companies are struggling to add enough drivers as the economy improves and freight volumes increase. The employment turnover rate at large truckload fleets was 96 percent in the fourth quarter of 2014, according to the American Trucking Association. Smaller carriers (those with less than $30 million in annual revenue), which typically enjoy much lower turnover, experienced a rate of 95 percent during the same period. High turnover is expected to continue in both segments as they draw from an inadequate pool of qualified workers. The American Trucking Association estimates the current shortage to be between 35,000 and 40,000 drivers. With plummeting crude oil prices driving diesel prices lower, operating costs at trucking companies are falling dramatically. Retail diesel prices in the US, which averaged $3.82 in 2014, hit a four-year low at the end of the year. Prices are expected to average only $3.07 per gallon in 2015, which could result in diesel surcharge savings of as much as $24 billion, according to Bloomberg.

Posted by Doug Nix.

Read the Entire Transport, Logistics and Supply Chain 2nd Quarter Newsletter Here


Will You, and Your Business, Be Ready to Sell?

By Jim Gerberman | Jul 08, 2015

Question marksIn a song dedicated to his son, John Lennon once wrote “Life is what happens to you while you’re busy making other plans.” Though his “message” can be (and has been) interpreted in many ways, he seems to be saying “Don’t let distractions keep you from what’s important.” Every business owner has, at some point, looked into the mirror and asked some version of the question: “What’s next?” It’s a daunting question- particularly in the context of exit or succession planning. “Exit” implies an end to what has been known and familiar. “Succession” also implies some paths that rely on things not within your control. Fundamentally, the “next steps” come down to readiness-for you, your lifestyle, and your business. What can and should you do NOW to prepare for the inevitable separation of you and your business? How to get started? I submit that a good place to begin is by adopting a “READINESS” mindset…

The difference in value from being ready and not being ready can be substantial. Our firm has had the opportunity to work with and represent two manufacturing businesses that were similar in their offerings, their served market and their geographic location…and their willingness to sell. Their transactions closed within 30 days of each other. What differed was their “readiness to sell”. Business 1 had actually approached us several years earlier and our “brutal honesty” suggested that they had some work to do-which they did, addressing issues related to customer concentration, management team depth, systems that captured their processes and leveraged their intellectual capital. Business 2 was dealt a different hand. The owner had unexpectedly developed a serious health issue and was forced to sell…without being ready to do so. Fortunately, we were able to find buyers for both businesses. But the valuation that buyers placed on these businesses were markedly different-the EBITDA multiple of business 2 was 60% of business 1…mainly because prospective buyers saw a different risk profile. Read more »


Print & Packaging Industry Update

By Anthony Contaldo | Jul 01, 2015

Colour bar off cuts thrown into the recycle cage...According to data from the Interindustry Economic Research Fund (IERF), revenue for US print & packaging providers is forecast to grow at an annual compounded rate of 3.5 percent between 2015 and 2019. In addition, Freedonia Group, a global research group, projects worldwide demand for corrugated boxes to rise more than 4 percent per year through 2017.

In recent years the population at large has placed greater importance on “green” business practices and packaging has been at the forefront. According to a recent survey conducted by Asia Pulp & Paper, more than half of Americans (56%) indicate they’d like to see more sustainable packaging when they purchase products. In addition, 42% of Americans replied that they’d be open to paying more for products if the packaging options were more environmentally friendly. As such, packaging manufacturers have enforced manufacturing greener products by creating lighter weight products and have favored the use of recycled materials.

To remain competitive in 2015, commercial printers may seek to acquire or enhance their ability to offer data analytics services and to market innovative printed materials to B2B customers. Printers are expected to increasingly embrace data analytics and micro-targeting services to enhance their offerings to customers.

  • US nondurable goods manufacturers’ shipments of printed goods, an indicator of demand for commercial printing, rose 3.4% year-to-date in March 2015 compared to the same period in 2014.
  • US nondurable goods manufacturers’ shipments of paper products, an indicator of converted paper product demand, rose 0.7% year-to-date in March 2015 compared to the same period in 2014.

Posted by Anthony Contaldo.

Read the Entire Print & Packaging 2nd Quarter Newsletter Here


Due Diligence – Who is in Control?

By Terry Fick | Jun 29, 2015

ControlThe answer to that is actually in the hands of the business seller. How can that be?  Well, the seller that looks through the eyes of the buyer early in the sale process and does something with that perspective will control the process. Those that don’t let the buyer control the process.  So who cares?  The seller should care the most because elongated due diligence always costs the seller money and far too often, the entire deal.

If due diligence starts with the LOI, the buyer is in charge.  If the seller has prepared in advance, and the buyer knows this, the seller is in charge.  By having already pointed out the warts, or perceived warts, you steal the buyer’s thunder.  By presenting an indexed data room with all of the information you believe the buyer will ask, the seller takes control.  Sure, the buyer will always have more questions, but they will be minor. Read more »


Metal Fabrication M&A News

By Robert Contaldo | Jun 25, 2015

Metal to metal weldingMetal Fabrication: US industrial production by machine shops increased nearly 5 percent in 2014 compared to the previous year and has continued into 2015. Strong production growth by some key machine shop customer groups may have contributed to the industry’s gains in 2014. US production of motor vehicles and parts rose 8 percent in 2014 compared to the prior year; machinery production climbed more than 7 percent. Manufacturers of metal fabrication products saw production grow more than 5 percent, and production of aerospace products and parts increased 2.2 percent.

US industrial production of fabricated metal products increased about 4 percent in December 2014 compared to the same period a year earlier. Forgings and stampings saw some of the largest gains, with growth of more than 10 percent. Improving US construction spending likely contributed to a 6 percent increase in architectural and structural metals production. Fabricated metal product manufacturers also likely benefited from increased production in some key end-use OEM markets. US machinery production rose 12 percent in December 2014, and production of motor vehicles and parts grew 7 percent. Production of aerospace products and parts increased about 4 percent.

Global demand for machine tools is expected to reach more than $140 billion by 2020 amid a steady rise in manufacturing activity, according to a recent report by Global Industry Analysts. US manufacturers are forecast to continue to re-shore some operations amid higher labor costs in China, high transportation costs, and the difficulties of maintaining far-flung supply chains.

US capital spending for machine tools is forecast to rise 37 percent in 2015 compared to 2014, according to a recent survey by Gardner Business Media. High rates of capacity utilization by machine shops and other heavy users of machine tools, including metalworking machinery, suggest companies may have to invest in capital equipment purchases to keep up with new orders.

Posted by Bob Contaldo.

Read the Entire Metal Fabrication 2nd Quarter Newsletter Here


When Selling Your Business, Planning is Critical

By Marc Borrelli | Jun 22, 2015

Business PlanWe have all heard Alan Lakein’s quote “Failing to plan is planning to fail.”  However, the problem today is that many middle market entrepreneurs selling their businesses without proper planning for the sale event and thus leave millions on the table.

I am sure that many of these entrepreneurs would say that they did plan to sell, hired an investment banker, and went through a process. However, this is the end part of the process and planning needs to start 3+ years in advance to be truly effective. In the sub $100MM market, to maximize the value of a business is not hoping some banker knows a buyer that will pay substantially more, but rather properly preparing the company for sale.

The lack of planning I believe is due to two issues: (i) entrepreneurs don’t fully realize the benefits of planning, and (ii) they don’t look at their business with external objectivity. Read more »


Industrials M&A News

By John Hammett | Jun 19, 2015

industrials-1Industrials M&A: US industrial production in  of several types of industrial chemicals increased in December 2014 compared to same period a year earlier. Production of basic chemicals rose nearly 4 percent. Industrial gases saw production grow more than 9 percent, while basic inorganic chemicals saw an increase of more than 8 percent. Organic chemical production increased just over 2 percent. Overall, US industrial production, a general indicator of demand for industrial chemicals, grew more than 4 percent in 2014 compared to the prior year.

Slowing growth in the oil production sector could reduce demand for some industrial equipment wholesalers. Oil production and prices have boomed in recent years, particularly in the US, but Brent crude spot prices recently hit a six-year low. Falling oil prices are expected to slow production growth over the next two years among non-OPEC suppliers, a key customer segment for industrial equipment dealers. US crude oil production, which rose 16 percent in 2014, is projected to grow 8 percent in 2015 and 2 percent in 2016, according to the US Energy Information Administration’s Short-Term Energy Outlook for February 2015.

The best post-recession year for machine tool consumption could be ahead in the remainder of 2015, according to the Gardner Research Capital Spending Survey and Forecast. Metal cutting machine tool consumption is expected to grow by close to 40 percent and reach $8.8 billion by the end of the year. Gardner predicts that the US could become the top consumer of CNC machine tools in 2015, for the first time since 2000. Top industries for machine tools in 2015 include job shops, machinery and equipment manufacturers, and automotive in Industrials M&A.

Posted by John Hammett.

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


Middle Market Businesses and the Shark Tank Phenomenon

By Cliff Kendel | Jun 17, 2015

SharkTankShark Tank has exposed Main Street businesses to finding equity capital for business concepts.

Main Street is warming up to partnering with savvy professional investors through creating a salient story/elevator pitch by having committed experienced management paired with a financial venture partner.  The venture partner helps refine the concept, focus the team, and elevate the business to a higher level of success.

Middle market investment bankers assist Main Street businesses enhance their “story” presented in a ninety second(or less) elevator pitch that:

• Quickly and succinctly articulates the Investment opportunity
• Explains why the management team is uniquely qualified to execute the plan
• Understand the financial history and plan for the future

Then, the investment banker conveys the story to  targeted groups that have the knowledge and desire to be in the industry “space” that the Company is operating; vets the prospective investor; and facilitates a mutually beneficial economic transaction.

Corporate Finance Associates investment bankers are a diversified team of experienced financial and operating executives, who have run businesses, been CFOs and senior operating executives of various types of businesses, sold businesses for Clients and their own account, and developed real estate and senior living concepts for clients and their own account.  How can we help you with your business?

Posted by Cliff Kendel.

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