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Exit and Growth Strategies for Middle Market Businesses

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M&A Quarterly News In The Financial Services Industry Sector

By David Sinyard | Oct 15, 2018

The report below gives a good overview of the fourth quarter M&A activity in the Financial Services Industry Sector. M&A activity for North American based target companies in the Financial Services sector for Q3 2018 included 268 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions closed in August when Xome, Inc., a subsidiary of WMIH Corp, acquired the business and assets of Mortgage Solutions business of Assurant, Inc. for US$35 million in cash. Under the terms of the agreement, Xome paid US$35 million in cash and an undisclosed amount in contingent payout to the shareholders of Assurant. The acquisition would allow Xome to expand its product offerings. The transaction is expected to be accretive to the earnings of WMIH Corp in 2019.

The financial services sector has been significantly impacted by software and technology, which continues to evolve creating efficiencies and increasing profitability.

 

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M&A Quarterly News In The Financial Services Industry Sector

By David Sinyard | Aug 07, 2018

The report below presents you with a good overview of the third quarter M&A activity in the Financial Services Industry Sector. M&A activity for North American based target companies in the Financial Services sector for Q2 2018 included 206 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions was announced in June when 360 Treasury Systems AG, a subsidiary of Deutsche Börse AG, acquired Gain GTX LLC from GAIN Capital Holdings, Inc. for US$100 million in cash, subject to a customary adjustment. The transaction allows Deutsche Börse AG to provide financial flexibility to enhance its investment opportunities. Following the transaction, the GTX ECN business will be integrated into Deutsche Börse’s 360T forex unit. Gain GTX LLC is located in Bedminster, New Jersey and provides foreign exchange services.

Household wealth continues to rise across North America, Western Europe and Asia, which has bolstered the financial services sector.

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M&A Quarterly News In The Financial Services Industry Sector

By David Sinyard | May 04, 2018

The report below presents you with a good overview of the second quarter M&A activity in the Financial Services Industry Sector.  M&A activity for North American based target companies in the Financial Services sector for Q1 2018 included 163 closed deals, according to data published by industry data tracker FactSet.

One of the notable transactions of the quarter was announced in January when Imperalis Holding Corp. acquired The Crypto Currency Mining Co, Inc. for US$175.3 million in stock. The acquisition would enable Imperalis Holding Corp to expand its crypto business. The Crypto Currency Mining Co. provides bitcoin mining services. Bitcoin is a peer-to-peer electronic cash system and is operated by a software that process transactions, secure the network, and keep the system synchronized.

Crypto currency trading was uneven in Q1 as prices swung heavily from month to month.

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Interest Rates

By David Sinyard | Apr 09, 2018

The fed funds rates continue to increase. Two more increases are expected this year. When the fed raises rates, banks raise the prime rate and the result is an increased cost to borrowers, both consumer and corporate. Short term treasury rates have increased as well.

So what do higher rates in the US mean? Typically, the expected result is a stronger dollar. One might reasonably wonder, however, why higher U.S. market rates have not provided more support to the dollar. That is not occurring. Why? Because this time higher rates in the United States mean higher rates in the rest of the world, too. This is very clearly seen in the LIBOR markets where the spread between LIBOR (London Interbank Offered Rate) and the OIS (Overnight Index Swap) has increased significantly to levels last seen during the financial crisis of 2008. Why? The impact of the new tax laws is forcing repatriation of US dollars. Historically, they would buy treasury bills, commercial paper and bank CDs. Now the money is coming back to the US to pay taxes. The result is a significant reduction in the demand for short-term treasuries, which in turn will push rates higher.


M&A Quarterly News In The Financial Services Industry Sector

By David Sinyard | Mar 19, 2018

The report below presents you with a good overview of the first quarter M&A activity in the Financial Services Industry Sector. M&A activity for North American based target companies in the Financial Services sector for Q4 2017 included 134 closed deals, according to data published by industry data tracker FactSet.

One of the largest transactions of the quarter closed in November when Hartford Life & Accident Insurance Co, a subsidiary of Hartford Life Inc, ultimately owned by The Hartford Financial Services Group Inc, acquired the business and assets of the group life and disability operations of Aetna Inc for US$1.5 billion in cash. Funding for the deal came from existing capital resources. The acquisition accelerates Hartford Life & Accident Insurance Co’s strategies for distribution, digital capabilities and claim outcomes, and enhances its distribution footprint. The transaction is expected to be accretive to The Hartford Financial Services Group Inc’s earnings in 2018.

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Why do potential acquisitions fail to close?

By David Sinyard | Aug 14, 2017

The termination of a purchase agreement entails significant costs for both the buyer and the seller. Research suggests that relational aspects are as vital as financial considerations.  The role of personal rapport between executives, as well as the importance of the bidder’s reputation, have major impact. First, private equity groups appear to consider the relational aspects of buying entrepreneurial and/or private businesses.  The importance of their reputation and of building rapport illustrate that non-financial aspects are important. Second, sellers should.. Read more »


A Recent Example of the Strategic Benefits of Merging with a Competitor

By David Sinyard | May 03, 2017

Recently RLJ Lodging Trust (“RLJ”) (NYSE: RLJ) and FelCor Lodging Trust Incorporated (“FelCor”) (NYSE: FCH) announced that they have entered into a definitive merger agreement under which FelCor will merge with and into a wholly-owned subsidiary of RLJ in an all-stock transaction. According to the press release the merger will establish the third biggest pure-play lodging REIT by enterprise value, creating meaningful scale to capitalize on cost efficiencies, negotiate leverage and access to capital, and the opportunity to strategically recycle assets and optimize the portfolio. The combined company will have ownership interests in 160 hotels, including premium branded hotels located primarily in urban and coastal markets with multiple demand generators. The combination also provides significant penetration within key high-growth markets and broad geographic and brand diversity.

Summary of Strategic Benefits (per management):

  • Combination creates the third largest pure-play lodging REIT with a combined enterprise value of $7 billion

    – Increased shareholder liquidity and cost of capital efficiencies
    – Stock transaction allows both sets of shareholders to participate in the upside
    – Enhanced positioning with brands and operators

  • Leading upscale portfolio of compact full-service and premium focused-service hotels generating strong operating margins

    – Combined portfolio will include 160 hotels in 26 states and the District of Columbia, diversified across Marriott, Hilton, Hyatt and Wyndham flags
    – Broad geographic diversity and strengthened presence in key markets such as California, Florida and Boston

  •  Positive financial impact and positioning for future value creation

    – Accretive in first full year
    – Expected cash G&A expense savings of approximately $12 million and approximately $10 million of potential savings from stock-based compensation expense and capitalized cash G&A
    – Opportunity for additional ongoing operating and cash flow improvements through greater purchasing power, market leverage and capital expenditure efficiencies

• Future opportunities to unlock value from portfolio repositioning
• Potential conversion and redevelopment opportunities
• Opportunity to actively refine portfolio
• Strong and flexible balance sheet
• Significant liquidity, minimal near-term maturities and opportunity to lower cost of capital

Mergers such as these are predicated on these Strategic Benefits. The market will measure the success of this transaction in light of whether management ultimately realizes on these listed opportunities.


The Buyout – For Business Owners to Exit Their Business

By David Sinyard | Aug 15, 2016

business owners to exit their businessThe buyout is an important route for small and medium size business owners to exit their business and could be particularly relevant for family firms who find no successor inside the family.  According to a recent survey, it is estimated that around 35 percent of businesses globally consider ownership succession through a buyout (PWC 2011). One of the primary sources of capital for such buy-outs comes from Private Equity (PE) firms.

An interesting academic article has recently been published in the Journal of Small Business Management 2016 by Ahlers, Hack, Kellermanns, and Wright that focuses on perceived bargaining power in buyout negotiations between PE firms and current owners who sell their business.  They looked at competition, expertise, and time pressure as key elements of PE firms’ perceived bargaining power.  Their research indicates that PE firms experience high perceived bargaining power in buyout negotiations, depending on factors such as competition, expertise advantage, and seller’s time pressure.  Higher competition between potential buyers lowers the PE firm’s perceived negotiating power.  Expertise as it relates in particular to valuation, synergies, and process-related aspects of buyout deals would seem to provide the PE firm with more perceived bargaining power, particularly as it relates to valuation.  If the seller in buyout deals suffers from time pressure, PE firms may gain higher levels of perceived bargaining power.

Clearly sellers need to be aware of these perceptions of stronger bargaining power.  The process must be run so as to balance the bargaining positions of both seller and buyer.

Posted by David Sinyard.

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What Will Cause a Buyer to Walk Away From Your Deal?

By David Sinyard | Jan 06, 2016

walking away 2What can keep the transaction from closing?

After you have made the decision to sell your business and you have an agreement with a buyer, what can keep the transaction from closing? An understanding of the review and approval process of the buyer will help understand what might happen and can potentially save you from making costly mistakes that can de-rail your deal.

A buyer (in our example a private equity group) will conduct a significant amount of due diligence on your company before it provides a Letter of Intent outlining the major terms of the agreed acquisition. This means that they have analyzed your industry, looked at your business in detail, met the management team and reviewed the financial statements that you have provided. Read more »


SBA – Great Source of Business Capital

By David Sinyard | Aug 10, 2015

Business CapitalEntrepreneurship in America remains vital to the U.S. economic growth.    The number of new business establishments tends to rise and fall with the business cycle of the overall economy.  The U.S. Bureau of Labor Statistics collects data on new businesses and job creation. The number of business starts is roughly 550,000 per year, yet survival rates are tough.   A major reason is often lack of business capital.

A major source of entrepreneurial funding is through the Small Business Administration (SBA) loan programs.  The primary SBA lending program is the SBA 7(a) guaranty loan program which is extended to business owners to use for start-ups, expansion, business acquisition working capital, equipment and inventory.  The maximum loan amount is $5,000,000 and the terms vary and range between 7 years for working capital and 25 years for real estate.   As an example, the bank of which I am a director recently approved a $3 million loan to a restaurant owner to take out the construction loan on his building in which he has two different food service establishments.

Another popular SBA loan program is the SBA 504.  This program is focused on commercial real estate, either new construction or acquisition and some major equipment financing.  Maximum loan size is $13,500,000.  Loan terms can be up to 30 years.  A recent example that I have seen is a $12,000,000 loan to construct a new assisted living complex.

Community banks are very interested in pursuing these loans.  The SBA guarantees a major portion of the indebtedness.  The loans are often sold in the secondary market, freeing capital for the bank.  In addition to origination fees, the banks also earn a servicing fee.

The key for a business owner is to find an experienced SBA lending group that has an extensive record of underwriting and closing these loans for business capital.

Posted by David Sinyard.

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