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Exit and Growth Strategies for Middle Market Businesses

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M&A Quarterly News In The Engineering and Construction Industry Sector

By Peter Heydenrych | Sep 30, 2019

The report below gives a good overview of the third quarter M&A activity in the Engineering and Construction Industry Sector. M&A activity for North American based target companies in the Engineering and Construction sector for Q2 2019 included 113 closed deals, according to data published by industry data tracker FactSet.

FirstService Corp acquired a 95% majority stake in Global Restoration Holdings LLC, a portfolio company of Delos Capital LLC, for US$505 million in cash. The acquisition would funded through FirstService Corp’s cash on hand, new term loan and credit facility. The transaction also includes Interstate Restoration Group, Inc. and FirstOnSite Restoration LP. The acquisition would expand FirstService Corp’s scale and capabilities in the property restoration sector and further complements its existing Paul Davis Restoration franchised and company owned operations. Founded in1998, Global Restoration Holdings is located in Texas and functions as an investment company whose subsidiaries engage in disaster restoration, reconstruction and renovation services.

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M&A Quarterly News In The Transport, Logistics and Supply Chain Industry Sector

By Peter Heydenrych | Sep 25, 2019

The report below gives a good overview of the third quarter M&A activity in the Transport, Logistics and Supply Chain Industry Sector. M&A activity for North American based target companies in the Transportation and Logistics sector for Q2 2019 included 71 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions in the sector closed in June when Aurora Capital Group LP acquired Petroleum Service Corp from SGS SA for US$335 million. Founded in 1991, Aurora Capital Group is a private equity firm located in Los Angeles. Petroleum Service Corp. provides loading and unloading services for the refining, chemical and marine transportation industries. It offers tinkering barges, operating docks, switching railcars, material packaging and warehousing services. The company was founded in 1952 and is headquartered in Baton Rouge, LA.

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M&A Quarterly News In The Engineering and Construction Industry Sector

By Peter Heydenrych | Jun 26, 2019

The report below gives a good overview of the second quarter M&A activity in the Engineering and Construction Industry Sector. M&A activity for North American based target companies in the Engineering and Construction sector for Q1 2019 included 83 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions was announced in February when Authority Brands, LLC, a portfolio company of Apax Partners (UK) Ltd, acquired Clockwork IP, LLC, a subsidiary of Direct Energy Services, LLC, ultimately owned by Centrica Plc, for US$300 million. Founded in 1999, Clockwork IP is located in Houston, Texas and provides residential heating and cooling, electrical and plumbing services.

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M&A Quarterly News In The Transport, Logistics and Supply Chain Industry Sector

By Peter Heydenrych | Jun 19, 2019

The report below gives a good overview of the second quarter M&A activity in the Transport, Logistics and Supply Chain Industry Sector. M&A activity for North American based target companies in the Transportation and Logistics sector for Q1 2019 included 49 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions was announced in March when a private group led by Mason Wells Buyouts, management of RJW Logistics, Inc. and other investors, acquired RJW Logistics Group from the Williamson family, for an undisclosed amount. The acquisition enhances Mason Wells Buyouts’ long-term growth initiatives for its logistics platform. RJW Logistics Group is located in Illinois and provides trucking, logistics and warehousing services.

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Re-Casting of Earnings Analyses v. “Just the Facts Ma’am”

By Peter Heydenrych | Jun 10, 2019

In his May 15 Wall Street Journal Article “Tech Firms’ Creativity Meets Investor Reality”, Rolfe Winkler looks at the creative ways in which recent big startups going public, have come up with unusual, alternative ways for measuring their performance.

Uber and Lyft, Mr. Winkler’s examples, seem to be explaining their losses by offering up an IPO version of “the dog ate my homework” excuse for poor performance. Uber had a $3 billion operating loss last year, but presented an argument, that, on a “core platform contribution” basis, it actually made a profit of $940 million!

Comments on Mr. Winkler’s article include views that suggest some acceptability of the “alternative metrics”, provided that full and clear disclosure is made of how the conclusions were reached.

In the private M&A market, calculating earnings/profits by adjusting historic booked and even future earnings is very common. Is it a fair practice? GAAP provides detailed rules for calculating earnings, and FINRA holds its Broker-Dealer members to strict account on the question of “making promises about benefits including future profits.” Yet almost every private M&A transaction is negotiated around arguments that the “Re-Cast EBITDA”, a number often materially different than the booked EBITDA, should be used in place of the booked EBITDA.

For purposes of presenting “alternative ways to present performance”, private M&A transactions hold one significant advantage over the public buying and selling of securities, including IPOs, because private transactions are generally negotiated with full disclosure to buyer and seller and the Investment Banking, Legal and Tax professionals who advise them. Ample opportunity exists for the buyer to conduct a self-designed due diligence investigation which, in turn, will usually include scrutiny by the other professionals mentioned above.

Regarding “alternative metrics” or “Re-Cast EBITDA”, there is only one rule: “There are no rules!” Of course, both parties must agree, so that becomes the rule. The “Re-Cast Adjustments” that the seller seeks to present, and the buyer must accept for there to be an agreement, usually fall into 4 categories:

  1. Revenues and costs which will not continue after the sale
  2. Revenues and costs which were booked historically as a result of an extraordinary, non-recurring event
  3. Revenue and cost adjustments which will result from the engagement of synergistic benefits which the transaction will trigger
  4. Revenues and costs which the buyer will eliminate as a result of implementing strategic decisions (which the buyer won’t necessarily want the seller to be aware of)

Sometimes GAAP will even come to the rescue, permitting the capitalization of costs which can be demonstrated to build asset value with future benefit, such as the funding of IP creation with a view to generating earnings over subsequent years. For this and other reasons, often relating to the patterns of capital expenditure required to sustain the business model, the buyer will look at cash flows instead of or in addition to EBITDA earnings.

Re-Cast Adjustments are generally made to the historic results. The buyer is working to estimate future results, but is relying on historic results as an indicator. The buyer will also want to negotiate a purchase price based on historic results, arguing that he is paying only for what has already been created. The seller, on the other hand, is looking to paint as rosy a picture of the future as possible, arguing that the future is what the buyer is really getting and should be paying for. Again, there are no rules, only the need for the parties to agree.

A second measure to protect the buyer is often employed when the Parties are not, or are not equally, confident about the future and the valuation it will yield. An “Earn-Out” construct is not available to public market Parties, but is often used by private transaction parties. In an Earn-Out, the buyer promises to pay more money, but only if certain future performance or other criteria are met.

So, in a private sale of a business, there would seem to be a good argument supporting the idea that the seller should have the opportunity to claim an, as yet, unrealized vision, or to offer an alternative measure of the pro forma profitability of the company. The buyer can check the claims thoroughly and can even set aside some part of the consideration pending the successful achievement of a future milestone. Of course, this approach is justified only by the engagement of two fully advised, experienced and knowledgeable parties, who can, and do, engage in a thorough examination and negotiation of a transaction in circumstances which can be argued to be fully transparent.


M&A Quarterly News In The Engineering and Construction Industry Sector

By Peter Heydenrych | Mar 21, 2019

The report below gives a good overview of the first quarter M&A activity in the Engineering and Construction Industry Sector. M&A activity for North American based target companies in the Engineering and Construction sector for Q4 2018 included 61 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions closed in October when MDU Resources Group, Inc. acquired Sweetman Construction Co, doing business as Concrete Materials Co, for an undisclosed amount. The transaction expands the construction materials business of MDU and is expected to be accretive to earnings per share. Following the transaction, Sweetman Construction and all its employees will become part of Knife River Corp, an MDU subsidiary. Sweetman Construction is located in South Dakota and provides construction materials. It employs around 260 people.

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M&A Quarterly News In The Transport, Logistics and Supply Chain Industry Sector

By Peter Heydenrych | Mar 20, 2019

The report below gives a good overview of the first quarter M&A activity in the Transport, Logistics and Supply Chain Industry Sector. M&A activity for North American based target companies in the Transportation and Logistics sector for Q4 2018 included 43 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions closed in November when SP Plus Corp acquired Baggage Airline Guest Services, Inc., trading as Bags, Inc., for US$275 million in cash. SP Plus Corp. provides professional parking, ground transportation, facility maintenance, security, event logistics and baggage handling and related services to commercial, institutional, municipal and aviation clients. Baggage Airline Guest Services engages in the provision of airline related delivery and logistic services. It serves hotels and resorts, group travel, malls, cruises and aviation. The company is headquartered Orlando, FL.

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M&A Quarterly News In The Engineering and Construction Industry Sector

By Peter Heydenrych | Dec 06, 2018

The report below gives a good overview of the fourth quarter M&A activity in the Engineering and Construction Industry Sector. M&A activity for North American based target companies in the Engineering and Construction sector for Q3 2018 included 97 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions was closed in September when Infrastructure & Energy Alternatives, Inc. acquired American Civil Constructors, Inc., a portfolio company of Insight Equity Holdings LLC, for US$145 million. Included in the transaction is American Civil’s subsidiary Saiia Construction Co. LLC. The acquisition would expand Infrastructure & Energy’s capabilities in the engineering sector. American Civil Constructors is located in Phoenix, Arizona and provides construction services and supplies construction materials.

Housing starts in the US increased 1.5 percent from September to an annualized rate of 1,228 thousand in October of 2018, compared with market expectations of a 1.6 percent rise.

Industry Indicators

  • US corporate profits, an indicator of corporate demand for construction services, rose 7.7% in the second quarter of 2018 compared to the same period in 2017.
  • The value of US nonresidential construction spending, a demand indicator for heavy construction, rose 5.0% year-to-date in September 2018 compared to the same period in 2017.
  • US steel mill product prices, an indicator of commodity steel product costs used in construction, rose 18.2% in October 2018 compared to the same month in 2017.

Posted by Peter Heydenrych.

Read the Entire Engineering & Construction 4th Quarter Newsletter Here


M&A News In The Transport, Logistics and Supply Chain Industry

By Peter Heydenrych | Nov 28, 2018

The report below provides a good overview of the fourth quarter M&A activity in the Transport, Logistics and Supply Chain Industry Sector. M&A activity for North American based target companies in the Transportation and Logistics sector for Q3 2018 included 59 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions was announced in September when General Logistics Systems BV, a subsidiary of Royal Mail Group Ltd, ultimately owned by Royal Mail Plc, acquired Dicom Transportation Group Canada, Inc., a portfolio company of Wind Point Advisors, LLC, for CAD360 million (US$276.1 million) in cash, on a cash-free debt-free basis. The acquisition allows Royal Mail to further expand and diversify its existing business operations. Dicom Transportation Group Canada is located in Montréal, Québec and provides business to business transportation services. It generated revenue of approximately CAD233 million (US$178.7 million) for the year ended June 30, 2018.

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M&A Quarterly News In The Engineering and Construction Industry Sector

By Peter Heydenrych | Sep 19, 2018

The report below gives a good overview of the third quarter M&A activity in the Engineering and Construction Industry Sector. M&A activity for North American based target companies in the Engineering and Construction sector for Q2 2018 included 98 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions closed in June when Gutridge Plumbing, Inc., a portfolio company of Kassel Equity Group, LLC, acquired Titan Electrical Construction & Design, Inc. for an undisclosed amount. The acquisition would enhance Gutridge Plumbing’s service capabilities. Titan Electrical Construction & Design is located in Ohio and provides electrical contracting services.

Building permits were on the rise in quarter, which bodes well for the construction sector. Privately-owned housing units authorized by building permits in July were at a seasonally adjusted annual rate of 1,311,000. This is 1.5 percent (±1.3 percent) above the revised June rate of 1,292,000 and is 4.2 percent (±1.7 percent) above the July 2017 rate of 1,258,000.
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