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Exit and Growth Strategies for Middle Market Businesses

Archive for the ‘Exit Strategies’ Category

Still a Sellers’ Market, But Not Forever

By Eduardo Berdegué | Jun 09, 2015

watch on armOn June 1st, Ferrellgas Partners (NYSE:FGP) announced the acquisition of Bridger Logistics LLC for $837 million, a valuation representing 8.3 times future EBITDA of the Dallas-based crude oil hauler. The transaction is further evidence that activity in the energy sector is healthy despite the dramatic reduction, and subsequent less dramatic though reassuring re-bouncing in the price of oil that has impacted the sector over the past several months.

The transaction also illustrates that, despite a moderate decrease in middle-market M&A activity in 1Q2015 compared with the record-breaking trends of 2014, we are still in a sellers’ market…for now.

Yes, Ferrellgas is a NYSE traded company implementing an aggressive diversification strategy; yes, the transaction was structured to include a mix of cash and stock; and yes, Bridger Logistic has experienced extraordinary growth (the company was named Inc. Magazine’s fastest growing energy company in 2013), but with only 5 years in existence, Bridger has yet to prove its model in a non-boom environment.

Valuations are high because cash is plenty available in the coffers of strategic acquirers and of Private Equity groups which held close to a record $1 trillion in dry powder in 2014 fully cognizant that, if not deployed dry power gets wet. Cost of borrowing is at record lows, and many lenders are increasingly willing to tolerate higher leveraged deals. Quality targets are aggressively pursued by competing investors, especially in the middle and upper middle-markets, but with 800-900 quarterly PE-backed transactions between 3Q2013 and 4Q2014, quality is becoming increasingly scarce.

This situation clearly represents a window of opportunity for sellers getting ready to go to market, and for would-be sellers to join them. However, the rate at which Private Equity is raising new funds is slowing down, which could be read as either a saturated, or a fatigued environment, both of which may translate into an end of the current cycle and its fat valuations.

Posted by Eduardo Berdegué.

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Private Equity Seeking Smaller Deals

By Kim Levin | May 05, 2015

Money GraphRecent articles in both the Wall Street Journal and Reuters shine the spotlight on the conundrum facing Private Equity firms working under stricter regulatory guidelines designed to curb dangerous lending practices.  On one hand, it is understandable and prudent to expect policies to be in place to prevent the kind of financial melt-down we experienced during the recent sub-prime mortgage fiasco.  On the other hand, Private Equity firms have traditionally used substantial leverage to their advantage, boosting returns on investments for their portfolios and their investors.  Current regulatory guidelines urge banks to avoid putting debt of more than six times earnings before interest, taxes, depreciation and amortization, or EBITDA, on companies in most industries.

As major buyers of businesses, both public and private, private equity firms use a combination of cash and debt to finance their purchases.  The higher the level of debt, the greater the potential return when things go as planned.  However, when expectations fall short…use of leverage compounds the shortcomings.  We have begun to see both buyouts and loan levels dropping.  According to the Wall Street Journal article “Buyout Firms Feel Pinch From Lending Crackdown”, bankers and private-equity executives indicate the lending pullback is creating pressure on buyout firms to do smaller deals funded with less debt and more cash.  Less debt can mean less risk if the deal goes south, but also lower returns if it proves a success.

The fact that private equity will be seeking out smaller size deals plays into the hand of  middle-market business owners considering a sale.  Average debt levels on middle market deals have stayed within the regulatory guidelines since they went into effect in 2013, according to GF Data.  It is likely this trend will continue for middle-market transactions.

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Business For Sale by Mobile App or Web Portal?

By Peter Heydenrych | Apr 20, 2015

Phone with appsFor business owners looking to execute an M&A transaction to buy, sell or merge, or to raise capital for a privately owned company, the world has changed quite dramatically in the last 20 years. It wasn’t that long ago that Investment Bankers hand-searched the printed Thomas Register of Manufacturing Companies to find prospective buyers for their clients. The Thomas Register, of course, has gone online, along with numerous other searchable “databases” such as Hoovers, OneSource, Capital IQ, and so on. Online databases, however, is not where the story ends. Through Google, Bing and other search engines, the internet has opened up a vast world of access and connectivity.

In an Inc. Magazine article “Merger and Acquisition Deals Moving Online” Erik Sherman points to the growth of online venues as a key deal sourcing element increasingly used by M&A Professionals. The article suggests to an exiting business owner that ” …  according to an online global survey … you’d better get yourself online in the right places .. [along with any other search avenues you may explore]”. In a Bloomberg News article “An App for Finding the Perfect M&A Match” Manuel Baigorri writes, “There are apps for dating, shopping, and hailing cabs. Now there are apps for matching companies for takeovers.”

A 2012 Lead Generation Benchmark Report noted: “Over the past decade, the way people buy products and services has completely transformed.” The report characterized as a “Monumental Shift”, the change in buying behavior amongst small business purchasing decision makers, from the traditional reliance on vendors’ salespeople, to the self-empowerment derived from the ability to become educated and informed through research and social media access. Read more »


Business Exit Planning – It Helps to Know What You Want

By Peter Ventre | Mar 10, 2015

Business Exit PlanningI am reminded that it helps to know what you want from life. Here in the Northeast last week was winter school vacation week. We took the opportunity to tour a handful of states looking at prospective colleges with my son, who like many 16 year olds has little notion of what he may want in a college or what lies ahead for him. We toured urban and rural schools, large universities and small quaint colleges, academically rigorous schools and school that were not so competitive, as everyone needs a back-up plan. Surprisingly by the end of a rather demanding travel week, even my son began to formulate opinions about what he liked and didn’t like. The trip will pay dividends next fall when he ultimately decides where to apply to college.

Many business owners seeking to exit their business remind me of my son. They are not sure what they want. Each owner has read or heard of industry friends who may have sold their business to an unrelated third party at high multiples, or transferred the business to their children, or sold the company to their employees through an ESOP structure or to members of their management team, or perhaps they sold a portion of the company to a private equity group and decided to stay on building the company further with an additional capital infusion. The right path forward to exiting a business is unique to each owner, their company and circumstances. What options best fit the company’s circumstances and also matches the desires of the owner, considering his personal situation. Are there options for the company at a price that would work for the owner to move on? Does the owner wish to retire immediately or do they wish to continue to work in some capacity for years to come? Are there other family considerations?

Business exit planning demands thought, planning, and knowing what you want as the owner.  Like many things in life, it helps to know what is important to you. If you are contemplating a business exit contact a Corporate Finance Associates representative, who would be happy to discuss the various options with you.

Posted by Pete Ventre.

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If You Are Going to Sell Your Business, Sell Now

By Marc Borrelli | Mar 02, 2015

Sell Your BusinessIf you are going to sell your business, sell now.  At the ACG Capital Connection in Atlanta two weeks ago the common theme from the Private Equity Groups I spoke to was that multiples are back at 2007 levels. They were lamenting the fact that they didn’t have more portfolio companies ready to sell.

Jeff Mortimer, Director of Investment Strategy at BNY Mellon, further reinforced this notion during a presentation I attended today. Jeff said that any private company owner who is looking to exit should sell now. In Jeff’s opinion, the bull market has maybe up to 24 months to run; however, multiples will fall before the end of the market as buyers see the impending downturn and won’t pay for the growth that has passed. Thus in his view the selling usiness window could close anytime in the next 6 – 18 months and if an owner were to miss it, it would be another 8 to 10 years before multiples were to return to this level.

To paraphrase Oscar Wilde, “To ignore one sign, Mr Worthing, may be regarded as a misfortune; to ignore both looks like carelessness.”

Posted by Marc Borrelli.

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It’s Always Something in Exit Planning

By Jim Gerberman | Feb 23, 2015

Exit PlanningThe recent production of “Saturday Night Live 40th Anniversary Special” brings back some great memories of the original “Not Ready for Prime Time Players” and the creativity that they and the SNL writers brought into our homes in those early years of the show. And, the stories that we would later share about “Killer Bees”, “Coneheads”, “Samurai” and the like became a routine part of our culture. I have a particular favorite character – introduced by Gilda Radner (rest in peace) in the form of Roseanne Roseannadanna…and her catch-phrase “It’s Always Something”.

Many of us can relate to the challenge of overcoming inertia…of going against the grain. This is particularly true when dealing with a subject that is rather easy to put off or that is rather difficult to address. The subject of “exit planning” is one such subject for many business owners. Accordingly, some questions.

Firstly: Why is exit planning hard to do? For the most part, the daily life of a business owner is dealing with things that are urgent and demand our immediate attention. It’s natural for these to get precedence. The discipline required to effectively address exit planning (or any planning, for that matter) necessitates putting a number of these “urgent items” into proper perspective and giving priority to those that are truly important. In his classic book The 7 Habits of Highly Effective People, Steven Covey called this “Putting First Things First”. Otherwise, as Roseanne Roseannadanna would say: “It’s Always Something”. Read more »


Buying and Selling Businesses Strategies

By Craig Allsopp | Feb 05, 2015

Business MeetingThe great blizzard of 2015 left us snowbound in New England last week. So time for a little reflection.

I was talking the other day with a business owner I know. His company is successful and he makes about $1 million a year. Personal issues have him thinking about retirement. But he isn’t quite ready to put the company up for sale.

This scenario is pretty common in the dealmaking business. Owners think about selling all the time. But when it comes time to act, they often have a hard time pulling the trigger.

Why is that? For one thing, I think business owners are like athletes. They don’t want to leave the game early. They are natural born competitors. And deep down they worry about missing the action. After all what beats running a successful company? Read more »


Q3 Metal Fabrication M&A Industry Report

By Catherine Patience | Oct 10, 2014

MFIPG-Metal PartM&A activity in the metal fabrication sector for North American based target companies in Q2 2014 included 16 closed deals, according to data provided by S&P Capital IQ. The deal environment in the metal sector has rebounded over a slow first quarter, according to a report from international consulting firm PricewaterhouseCoopers. As smaller machine shops struggle to stay viable, operators with strong cash reserves are likely to take advantage by buying up assets and using scale to focus productivity on higher-margin capacity.

Read the Entire Metal Fabrication M&A 3rd Quarter Newsletter Here


Q3 Aviation, Aerospace & Defense M&A Industry Report

By Kim Levin | Oct 03, 2014

Nose WheelM&A activity in the North American Aerospace and Defense sector for Q2 2014 included 29 closed deals according to data provided by S&P Capital IQ. Total deal value soared to $443 million, while average deal value reached $44 million. High deal value is largely attributed to several mega deals, the largest being The SI Organization’s $215 million acquisition of QinetiQ North America. Three additional deals, valued at more than $60 million added to the high deal value of the quarter.

Aerospace M&A remains robust with volume expected to match the record high set in 2013. However, deal making on the defense side has not been as strong.

Read the Entire Aviation, Aerospace & Defense M&A 3rd Quarter Newsletter Here


Good News for Middle Market Business Sellers

By Catherine Patience | Oct 01, 2014

Middle Market PulseGF Data is out with their Mergers & Acquisitions Report for the second quarter of 2014 and in some ways, it’s status quo and in other ways, not so much. With a scarcity of quality companies for sale and an abundance of both lending capital and investable funds, the tale of the tape is a little bit different this period.  Valuations remain consistent with those of Q1, but debt levels have never been greater and a there is a new “look” to the companies that investors are stocking in their portfolios.

As we have mentioned in previous months, a high percentage of companies that have been acquired since 2003 have been “best in class” businesses. These are characterized by above average EBITDA margins and revenue growth.  Over the life span of GF Data’s deal sample, 57% of all total deal activity has involved above average quality companies.  However, year to date those figures are at 40%, either signaling an anomaly in the chart or a changing of the guard.

If this is indeed a changing of the guard, this is a good sign for middle market business owners who either have been on the market or are considering a sale. Financial investors constantly face the dilemma of needing to put their money to work while mitigating as much risk as possible.  Best in class companies foot this bill.  But with a scarcity of those companies in the market, they must be finding a way to consider less than perfect candidates.  Data has shown that smaller “add-on” deals have become more popular during the post-recession recovery.  It is possible that additional relaxed standards have also been adopted leading to a wider pool of potential target companies.  If this is the case, this signals a positive trend for middle-market sellers.

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