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Exit and Growth Strategies for Middle Market Businesses

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M&A News in the Metal Fabrication Industry Sector

By Robert Contaldo | Mar 14, 2018

The report below provides a good overview of the 1st Quarter M&A activity in the Metal Fabrication Industry Sector. M&A activity for North American based target companies in the Fabricated Metal sector for Q4 2017 included 29 closed deals, according to data published by industry data tracker FactSet.

One of the notable transactions of the quarter closed in November when DBM Global, Inc. (OTC PINK:DBMG), a family of companies providing fully integrated structural and steel construction services, and an operating subsidiary of HC2 Holdings, Inc. (NYSE:HCHC), announced that it had entered into an agreement to acquire the assets of Mountain States Steel, Inc. Mountain States Steel fabricates, supplies, and installs custom fabricated structural steel products.

The final quarter of 2017 saw a decline in iron and steel production based, in part, on a decline in a demand for imports.

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M&A News in the Metal Fabrication Industry Sector

By Robert Contaldo | Nov 15, 2017

The report below provides a good overview of the 4th Quarter M&A activity in the Metal Fabrication Industry Sector. M&A activity for North American based target companies in the Metal Fabrication sector for Q3 2017 included 34 closed deals, according to data published by industry data tracker FactSet.

One of the largest deals of the quarter was announced in July when Schneider Electric SE acquired ASCO Power Technologies LP from Vertiv Co, a subsidiary of Vertiv Group Corp, for US$1.3 billion in cash. The acquisition will further expand Schneider Electric’s EcoStruxure Power Platform globally, especially in North America. ASCO Power Technologies manufactures and designs solenoid valves. The company is headquartered in Florham Park, NJ.

Import prices for iron and steel have continued to rise throughout 2017 as businesses affected by the prices remain cautious.

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M&A News in the Metal Fabrication Industry Sector

By Robert Contaldo | Oct 04, 2017

The report below provides a good overview of the 3rd Quarter M&A activity in the Metal Fabrication Industry Sector. M&A activity for North American based target companies in the Metal Fabrication sector for Q2 2017 included 51closed deals, according to data published by industry data tracker FactSet.

One of the more notable transactions in the sector closed in April when Wieland-Werke AG acquired Wolverine Tube, Inc. for an undisclosed amount. The acquisition enhances Wieland-Werke AG’s international market position and also expands its portfolio of technical businesses. Founded in 1916, Wolverine Tube is located in Decatur, Alabama and manufactures copper alloy and copper tube, rod bar and strip products.

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How Do I Know It Is Time To Sell My Company?

By Robert Contaldo | May 09, 2017

After 35 years of selling companies, I have found that it is nearly impossible to convince a business owner to sell until the business and personal reasons align. But once they do, no good ever comes from delaying a sale.

Selling your business, which is perhaps your largest asset, can be a difficult decision. It has been part of you and part of your family. It has been good to you like an old friend. You have loved it – you have cursed it – you have nurtured it, you have seen it from birth through the teen years and into maturity. Unlike us, it can live for generations – though the time will come when it must change hands.
When the cycle of business and our personal circumstances begin to herald the transition, it should be addressed in order to realize the financial security for which it was created.
After 35 years of selling companies, I have found that it is nearly impossible to convince a business owner to sell until the business and personal reasons align. But once they do, no good ever comes from delaying a sale.
So – here are ten points to consider when deciding whether or not it is time to sell your business:

1) The Thrill Is Gone

We all go through seasons in life. Young business owners focus on raising a family, planning for the future and striving for a financially secure retirement. To that end, fighting the battles and making the sacrifices are necessary and expected as part of a growing business. However, there comes a time when a business owner does not care to take the business any further. The battles and victories that at one time were energizing have now lost their importance, and have become somewhat boring and wearisome. The focus shifts to more time off, warmer weather, grandkids, or more leisure time activities. Many business owners want to pursue a new direction in life that satisfies a greater personal or community need.

2) Your Marketplace Is Changing

Businesses that do not change will ultimately fade away. Change requires new market direction, more equipment, more people, new technology, expanded facilities, and other capital investment. Market changes can include more complexities involving government regulations, taxes, banking, certification requirements, customer reporting requirements, global competition that threatens margins and customers seeking fewer suppliers and lower costs. Many times the direction is clear, but the mind, body, and emotions are not willing to embrace change.

3) Risk Becomes a Four Letter Word

With all that needs to be done in a changing marketplace, business owners cannot afford to be squeamish when it comes to ongoing investment in the company. When one reaches the point of not making logical investments in the company or tends to count the debt rather than the probable benefit, it might be time to sell. Most business owners reach a point where they are tired of “betting the farm”, tired of personal guarantees, tired of meeting financing requirements and covenants, and worn out over protecting assets from legal liability. There comes a time when it makes sense to “take some chips off the table” and build financial firewalls.

4) A Change Would Be Good For the Family

Many have experienced the challenges of a family run business. As the succeeding generation grows into personal and business maturity, it may be time for a generational transfer of ownership. A recapitalization with a Private Equity Group as a financial partner can allow the founding shareholders to take the lion’s share of the business value in cash at closing, while the succeeding generation reinvests (through a small amount of the proceeds) for a meaningful share of the company going forward. The company would also have access to growth capital. How great would it be to again have a family relationship that is not encroached upon by business? Is the business stealing time from your kids or grandkids? Are you trading memories for dollars you’ll never need? Many business owners have delayed a sale in spite of the concerns of a loving spouse who desires a different and better life for themselves…until it’s too late.

5) Seller’s Market

The three principal buyer groups are: Private Equity Groups, Strategic Acquirers, and Family Funds.
Private Equity Groups have become the new conglomerates with overflowing levels of investment capital. With 2,500 or so Private Equity Groups in the United States and a like number overseas, with an estimated $1.5 trillion to invest, competition to buy companies remains robust among financial buyers. Multiple offers can be a reality for even some marginal industries or smaller companies. Premiums are being paid for companies as demand exceeds supply.
Strategic Acquirers see growth through acquisitions as the preferred way to gain market share quickly, add product lines, augment human resources, enhance management, and stay competitive.
From a valuation standpoint, strategic acquirers have historically been either the best or worst buyers (more often the worst) until the past few years. In many cases, their top competition has been acquired by a Private Equity Group which by mandate begins to effectuate meaningful growth. As the industry and market begins to take notice, it puts pressure on the privately owned company to do likewise.
Family funds can be worthy suitors. These sophisticated and respected families bring significant personal finances, outside private investment capital, experience, contacts, expertise, and many times a long-term investment strategy.

6) Unusual Financial Gain

Perhaps you have been approached by a bona fide buyer who is larger, cash heavy, willing to overpay, and inebriated with the desire to own your company. (We can dream can’t we?)

7) The Business Is Growing

It seems incongruent that a business owner should consider selling when growth is accelerating, but growth can end the life of a business – fast. Cash flow becomes the monster that consumes. Even in circumstances where growth is more controlled, businesses reach a point where professional management at a higher level is demanded. The founder of the company is wise to recognize that the large business dynamic has thrust him into unfamiliar territory, requiring personnel changes, organizational upgrades, a bigger, more complicated, much different way of thinking, and a doubling-down of time, effort and commitment.

8) The Business Is Flat

If flat, declining or inconsistent financial performance characterizes your business over the past several years and you just cannot seem to “crack the code”, let someone else figure it out! A strategic buyer, or an individual buyer with a dynamic skill set, or a Private Equity Group with more money and contacts might hold the key. Many business owners fail to realize that by staying in business under these circumstances, they forfeit personal income opportunities elsewhere and personal finances can be insidiously eroded.

9) Managing People Has Worn You Out

Do you long for the time when you need to only manage yourself? Are employee issues, government regulations, unions, health insurance, profit sharing, and retirement plans driving you to the brink?

10) My Partner Is A Problem

Most partnerships have a problem partner; if yours doesn’t, it might be you. Think: Jerry Lewis/Dean Martin; The Beatles, The Eagles; some marriages; and unfortunately, many businesses. Interestingly, we’ve found that most partnership problems are exacerbated by making more money – after the partners had been unified growing the business and defeating their common enemies. Many times, financial success spawns a disparate commitment toward reaching the next level as one continues to push and the other is dragged along.

11) Personal Compelling Reasons

The reason for considering selling a business will generally transcend the enterprise value of the business (though not to minimize the value component). The fundamental checkpoint in considering the sale of a business is this: “Does this business stand in the way of doing something else with my life?”
Hopefully the decision to sell is voluntary and not due to circumstances that necessitate a sale; but in any event, an exit strategy should be considered as part of estate planning since life is uncertain. An expert team comprised of an Investment Banking Professional and financial and legal counsel is a must.
All business owners experience all or some of these points from time to time with varying intensity. When that trusted “gut” feeling indicates more than a passing notion of selling, it may be time to explore options. The reality is that more business owners have said, “I wish I had sold sooner” than “I sold too soon”.


M&A Industry News From the Metal Fabrication Sector

By Robert Contaldo | Mar 16, 2017

metal fabrication sectorM&A activity for North American based target companies in the metal fabrication sector for Q4 2016 included 46 closed deals, according to data published by industry data tracker FactSet.  The average transaction value was $62.8 million.

On a global scale, M&A activity in the metal fab sector was stronger in Q4 than Q3, but still lower than in 2015. Total deal value surged by 12% to $12.9 billion in Q4, bringing the total deal value in 2016 to $40.2 billion, still 40% lower than in the year prior.

Global demand for steel is expected to rise 0.5% in 2017 compared to 2016, according to a recent report by The World Steel Association. Key challenges include uncertainties related to the UK’s vote to exit the EU, along with China’s efforts to shift its economy toward services and consumption, with less investment in manufacturing, exports, and construction. Demand in China is forecast to drop 2% in 2017. However, some emerging markets should experience robust growth in steel demand. Amid government investments in infrastructure, India’s steel demand is forecast to increase 5.7% in 2017. Other key pockets of steel demand growth include Turkey (with 4.2% growth expected), Brazil (3.8%), and Mexico (3.2%). In developed markets, steel demand is forecast to rise 1.1% in 2017, led by the US, which should see demand grow by 3%. The EU and Japan are each expected to experience a 1.4% increase in steel demand.

Industry Indicators

  •  US durable goods manufacturers’ shipments of primary metals, an indicator of primary metal production, fell 7.8% year-to-date in November 2016 compared to the same period in 2015.
  • US steel mill product prices, which impacts profitability for primary metal manufacturers, rose 8.7% in December 2016 compared to the same month in 2015.

Posted by Bob Contaldo.

Read the Entire Metal Fabrication 1st Quarter Newsletter Here


Fabricated Metal Industry M&A News

By Robert Contaldo | Oct 27, 2016

fabricated metalUS manufacturing activity, a leading demand indicator for manufacturers of fabricated metal products, grew in June 2016 for the fourth consecutive month, according to the Institute for Supply Management. Among 18 manufacturing industries tracked by the institute, 13 reported expansions in June, including fabricated metal products. Other industries of importance to metal fabrication product manufacturers also reported growth in June, including petroleum and coal products; food, beverage, and tobacco products; and machinery. However, transportation equipment manufacturers, a major demand driver for fabricated metal products, reported a contraction in activity in June. Overall, manufacturers generally reported faster growth in production and new orders in June, and employment gained ground over the prior month.

US industrial production, a demand indicator for metal coating, engraving, and heat treating services, fell 0.5% in July 2016 compared the same month in 2015. Production by providers of metal coating, engraving, and heat treating services fell more than 2%. Although industrial production dropped in July on a year-over-year basis, it saw monthly gains in June and July. The growth in June and July, along with a weaker US dollar and higher oil prices, could signal that the US manufacturing sector is poised for more robust growth, according to The Wall Street Journal.

Industry Indicators

  • US durable goods manufacturers’ shipments of fabricated metal products, an indicator of fabricated metal parts production, rose 1.1% year-to-date in August 2016 compared to the same period in 2015.
  • US steel mill product prices, an indicator of commodity steel costs for fabricated metal products manufacturers, rose 1.1% in September 2016 compared to the same month in 2015.

Posted by Bob Contaldo.

Read the Entire Metal Fabrication 4th Quarter Newsletter Here


Fabricated Metal Industry News

By Robert Contaldo | Sep 15, 2016

fabricated metalFabricated metal products manufacturers with high levels of exposure to markets relating to energy and mining are likely to remain cautious with staffing and production until more concrete evidence of a commodities price recovery emerges. US industrial production, a demand indicator for metal fab products, declined 2% in March 2016 compared to the same month a year earlier. US industrial output has been hurt by low commodity prices and reduced production in the mining and energy sectors, which has reduced demand for machinery and metals. Throughout 2015, a strong dollar made US exports less competitive, and low oil prices hurt demand for machinery and equipment. But so far in 2016, those headwinds have abated somewhat as oil prices stabilized and the dollar weakened relative to some other key currencies, according to The Wall Street Journal. Also pointing to a possible turnaround, the manufacturing portion of the industrial production index rose 0.4% in March year-over-year. Additionally, in April 2016 the Institute for Supply Management reported that March manufacturing activity marked the first increase in six months.

US new orders for manufactured goods, a demand indicator for metal coating, engraving, and heat treating services, fell by 2.3% in the first four months of 2016 compared to the same period a year earlier. New machinery orders were off by 4.8% overall, as construction machinery orders fell 20% and mining and oil and gas field machinery orders declined by 56%. New orders increased in a couple of key markets for metal coating, engraving, and heat treating services, however. Transportation equipment orders rose by 4.5%, and orders for fabricated metal products were up 2.4%.

Industry Indicators

  • US durable goods manufacturers’ shipments of fabricated metal products, an indicator of fabricated metal parts production, rose 0.7% year-to-date in May 2016 compared to the same period in 2015.
  • US steel mill product prices, an indicator of commodity steel costs for fabricated metal products manufacturers, fell 4.6% in June 2016 compared to the same month in 2015.

Posted by Bob Contaldo.

Read the Entire Metal Fabrication 3rd Quarter Newsletter Here


Metal Fabrication Industry M&A News

By Robert Contaldo | May 25, 2016

metal fabricationMetal Fabrication Industry Update 

US shipments of metal fabrication products declined 0.6% in the first 11 months of 2015 compared to the same period in 2014; new orders fell 2.5% during the same period. Demand for fabricated metal products may be dropping due to an overall slowdown in US manufacturing output. US industrial production, a demand indicator for fabricated metal products, fell 1.8% in 2015 compared to the prior year; production of fabricated metal products declined 1.3%. In December 2015 US manufacturing activity dropped for the second consecutive month, according to the Institute for Supply Management (ISM). Fabricated metal products reported a December drop in activity, along with several end-use markets for fabricated metal including machinery; transportation equipment; and electrical equipment, appliances, and components. Economists suggest slower growth in China is contributing to a global economic slowdown. The strong US dollar also makes US goods more expensive and less competitive in export markets. If weak demand persists, fabricated metal product manufacturers may adjust production, staffing, and/or inventory strategies to preserve margins.

US orders for primary metals, a demand indicator for steel service centers and other metals wholesalers, dropped nearly 16% in January 2016 compared to the same month in 2015. Iron and steel mills orders were off nearly 21%, while aluminum and nonferrous metal orders fell more than 10%. New orders for ferrous metal foundry products were down nearly 13%. On a monthly basis, January’s durable goods orders increased 4.7%, and primary metal orders edged up 0.6%.

Industry Indicators

  • US durable goods manufacturers’ shipments of fabricated metal products, an indicator of fabricated metal parts production, fell 0.4% year-to-date in February 2016 compared to the same period in 2015.
  • US steel mill product prices, an indicator of commodity steel costs for fabricated metal products manufacturers, fell 15.8% in March 2016 compared to the same month in 2015.

Posted by Robert Contaldo.

Read the Entire Metal Fabrication 2nd Quarter Newsletter Here


M&A News – Metal Fab Industry

By Robert Contaldo | Mar 31, 2016

Metal Fab IndustryUS shipments of metal fab industry products declined 0.6% in the first 11 months of 2015 compared to the same period in 2014; new orders fell 2.5% during the same period. Demand for fabricated metal products may be dropping due to an overall slowdown in US manufacturing output. US industrial production, a demand indicator for fabricated metal products, fell 1.8% in 2015 compared to the prior year; production of fabricated metal products declined 1.3%. In December 2015 US manufacturing activity dropped for the second consecutive month, according to the Institute for Supply Management (ISM). Fabricated metal products reported a December drop in activity, along with several end-use markets for fabricated metal including machinery; transportation equipment; and electrical equipment, appliances, and components. Economists suggest slower growth in China is contributing to a global economic slowdown. The strong US dollar also makes US goods more expensive and less competitive in export markets.

US industrial production, a demand indicator for metal fabrication, only grew 0.3% in October 2015 compared to the same month a year earlier. However, metal coating, engraving, and heat treating production increased 3.1%. Demand for metal coating services is likely being sustained by healthy demand from the automotive industry; industrial production of motor vehicles and parts rose nearly 11% in October 2015 compared to the same period a year earlier.

US nonresidential construction spending, a demand indicator for architectural and structural metals, is expected to rise 7.4% in 2016, according to a December 2015 report by Associated Builders and Contractors (ABC). The steady recovery of the US economy and strong growth in consumer spending are expected to drive demand for new construction. Projects related to manufacturing are forecast to experience the strongest growth with a rise of nearly 15%, followed by lodging with gains of more than 11%.

  • US durable goods manufacturers’ shipments of fabricated metal products, an indicator of fabricated metal parts production, fell 0.6% year-to-date in November 2015 compared to the same period in 2014.
  • US steel mill product prices, an indicator of commodity steel costs for fabricated metal products manufacturers, fell 19.8% in December 2015 compared to the same month in 2014.

Posted by Bob Contaldo.

Read the Entire Metal Fabrication 1st 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