Exit and Growth Strategies for Middle Market Businesses

Archive for the ‘Industry Focus’ Category

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.

Logistics & Transport Industry M&A News | 1st Quarter 2017

By Doug Nix | Apr 15, 2017

Logistics & Transport IndustryAccording to Douglas Nix, Chairman of CFA’s Transportation and Logistics Industry Group, there is a very strong demand for good quality logistics & transport companies of all sizes. Significant bid premiums are being submitted by all categories of strategic buyers in every auction run by CFA.

On a global scale, the shipping of dry bulk containers – across all modes – continues to climb and is projected to continue on an upward trajectory. The growth is expected to be driven by freight rates, ship availability, ship utilization, oil market fundamentals, exchange rates and commodity prices and production.

A recent industry survey reported that the top priorities of North American logistics leaders for their 2017 transportation operations were:

  • Reduce overall transportation costs
  • Improve route planning accuracy
  • Improve the quality and timeliness of management information/reporting

While there are several reasons driving these priorities, we believe the key ones are:

  • The continued shortage of qualified drivers. Many trucking companies are still reporting 100% annual turnover rates in their driver pool. The impact of the Federal Motor Carrier Safety Administration’s electronic logging devices requirement is expected to worsen this shortage as it comes on stream in December 2017.
  • Continued weakness in freight rates resulting from overcapacity in intermodal, water and road markets.
  • The tightening of supply chains combined with the growing demand from shippers for transparency and real time, accurate freight status information. 

Industry Indicators:

  • Total US manufacturers’ shipments, an indicator of the volume of goods shipped by truck, fell 1.5% year-to-date in December 2016 compared to the same period in 2015.
  • Total US revenue for general freight trucking fell 1.4% in the second quarter of 2016 compared to the previous year.

Posted by Doug Nix.

Read the Entire Transport, Logistics and Supply Chain 1st Quarter Newsletter Here

M&A News | Technology, Media & Telecom Industry

By Dan Vermeire | Apr 06, 2017

M&A News Technology – m&a news technologyOne of the largest transactions of the quarter in was completed in December when Roper Technologies, Inc. acquired Deltek, Inc., a portfolio company of Thoma Bravo LLC, for US$2.8 billion in cash. The transaction was funded through cash on hand, borrowings under Roper Technologies’ existing credit facility and new debt. The acquisition enables Roper Technologies to solidify its market position. Roper Technologies engages in the provision of engineered products and solutions for global niche markets. Deltek provides enterprise software and information solutions. Its products include project ERP solutions, enterprise information management, business development solutions, project and portfolio management solutions, HR and talent management solutions and professional services automation solutions. Read more »

M&A News | Print & Packaging Industry

By Anthony Contaldo | Mar 30, 2017

Print & Packaging IndustryOne of the largest deals of the Print & Packaging Industry in the 4th quarter of 2016 took place in November when Ocelot Acquisition, Inc., a newly formed joint venture of CVC Capital Partners Ltd and BA Glass BV, agreed to acquire Anchor Glass Container Corp, a portfolio company of KPS Capital Partners LP and AlpInvest Partners BV for more than US$1 billion in cash. Anchor Glass Container, based in Tampa, Florida, manufactures glass containers. It offers beer, beverage, liquor, food and custom mold making products and services. Read more »

Plastics & Rubber Industry | M&A News

By Jim Zipursky | Mar 23, 2017

plastics & rubberPrivate equity has been in the plastics & rubber products space. In November 2016 AEA Investors LP acquired TricorBraun Holdings Inc, a portfolio company of Goldman Sachs Mezzanine Partners and CHS Capital LLC, for an undisclosed amount in cash. The transaction was funded through US$735 million senior secured credit facility provided by the Antares Capital LP. TricorBraun Holdings operates as a holding company with interests in plastic packaging solutions. It supplies rigid packaging and related components for the personal care, cosmetics, healthcare, food and beverage, industrial and household chemical markets.

Production overcapacity, weak demand, and pressure from imports have contributed to slow growth in the US PET (polyethylene terephthalate) plastic blow molded packaging market, according to industry experts cited by Plastics News in November 2016. Even as the US industry has consolidated over the last few years, overcapacity persists, which has caused PET producers to reduce prices as they compete for market share and to cut costs in an effort to preserve margins. Industry watchers suggest that PET converters’ cost-cutting efforts have come at the expense of product innovation investment, as some producers have reduced engineering staffs. Manufacturers also face competitive pressure from imports, as well as alternative packaging products, including paper and stand-up pouches, that have innovated in marketing and product design. Soft drink and water packaging remain steady markets for PET converters, but dairy and juice markets are flat. Food offers an opportunity for growth, but further hot-fill and barrier (oxygen, moisture, UV light) innovation is needed. Other growth markets include dairy substitutes (almond and soy milk), and sports drinks. One upside for PET converters is that low oil prices are likely to keep resin feedstock prices in check.

Industry Indicators
  • US nondurable goods manufacturers’ shipments of chemical products, an indicator of demand for plastic resin and synthetic fibers, rose 2.0% year-to-date in November 2016 compared to the same period in 2015.
  • The spot price of crude oil, a key raw material in plastic resin and synthetic fiber manufacturing, rose 50.3% in the week ending January 13, 2017, compared to the same week in 2016.

Posted by Jim Zipursky.

Read the Entire Plastics & Rubber 1st Quarter Newsletter Here

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

Energy Sector Q1 M&A News

By Roy Graham | Mar 08, 2017

energy sectorM&A activity for North American based target companies in the Energy sector for Q4 2016 included 118 closed deals, according to data published by industry data tracker FactSet. The average transaction value was $271 million.

With oil prices making a slow recovery, US oil production activity is becoming increasingly concentrated in the Permian Basin. Spanning parts of western Texas and southeastern New Mexico, the Permian Basin’s highly productive fields and substantial transportation infrastructure make it one of the few places for profitable oil production when prices are relatively low. (US oil prices, which were over $100 per barrel as recently as August 2014, dropped below $30 per barrel in early 2016 and averaged $45 per barrel in the first week of November 2016.) The Permian now holds nearly as many active oil rigs as the rest of the US combined. Read more »

M&A News From the Healthcare Industry

By Peter Heydenrych | Mar 02, 2017

healthcare industryM&A activity for North American based target companies in the Healthcare industry for Q4 2016 included 147 closed deals, according to data published by industry data tracker FactSet.  The average transaction value was $137 million.

The number of US physician practices owned by hospitals is rising rapidly, as changes in medical payment systems prompt providers to seek efficiencies through new operational structures. Some 31,000 practices were acquired by hospital groups between 2012 and 2015, leading to an 86% jump in the number of hospital-owned doctors’ offices, according to a recent study from Avalere Health and the Physicians Advocacy Institute (PAI). Nearly 40% of physicians in the US are employed by hospitals or health systems. Typical acquisitions include employment contracts for multiple physicians’ services, along with physical property and equipment. The study found that Medicare payments for some common outpatient hospital services are up to three times higher than if they’d been performed at a physician-owned office, leading to concerns that the acquisition trend could drive up health care costs for payers. 

Industry Indicators

  • US consumer prices for medical care commodities, an indicator of healthcare costs, increased 4.3% in November 2016 compared to the same period in 2015.
  • US consumer prices for medical care services, an indicator of profitability for healthcare services, rose 3.9% in November 2016 compared to the same month in 2015.
  • Total US revenue for healthcare and social assistance rose 5.40% in the third quarter of 2016 compared to the previous year.

Posted by Peter Heydenrych.

Read the Entire Healthcare 1st Quarter Newsletter Here

M&A News From the Food & Beverage Industry

By Terry Fick | Feb 23, 2017

food & beverageOn the public markets the Food & Beverage sector kept pace with the rest of the market experiencing a hefty post-election bounce. Conagra Brands, Inc. (NYSE: CAG) had a topsy turvy quarter taking a precipitous drop in November from $48/share to $34/share, but finished the year on an uptick at $39.14/share.

Faced with slowing sales in grocery stores and discount clubs, snack food manufacturers are looking to grow revenue online. E-commerce has become one of the fastest-growing avenues for purchases of ready-to-eat snacks as major food companies continue to increase their investments in the channel, according to NPD Group. Mondelez International recently launched a holiday-themed website to sell tins of Oreos directly to consumers, marking the first time the company is overseeing its own supply chain and shipping logistics, Bloomberg News reports. The snack food giant established a dedicated e-commerce team in 2016 and hopes to reach $1 billion in online revenue by 2020. The company will occasionally offer special limited-time promotions through its own website, but most of its products will ultimately be sold through third-party online retailers like Amazon. Some manufacturers have leveraged social media buzz to sell rare and premium varieties of snack foods that are unavailable in most brick-and-mortar outlets. Typical online snack food purchasers are households with incomes of $75,000 and above.

Industry Indicators

  • The consumer price index for food, an indicator of food product values, fell 0.2% in December 2016 compared to the same month in 2015.
  • US nondurable goods manufacturers’ shipments of food products, an indicator of demand for food manufacturing, rose 0.4% year-to-date in November 2016 compared to the same period in 2015.
  • US retail sales for food and beverage stores, a potential measure of food demand, increased 2.4% during 2016 compared to 2015.

Posted by Terry Fick.

Read the Entire Food & Beverage 1st Quarter Newsletter Here

Construction & Engineering Sector | M&A News

By Jeff Johnson | Feb 15, 2017

construction & engineeringNew US infrastructure projects such as repaving roads, shoring up bridges, and expanding busy highways with toll roads – a key source of demand for contractors – are predicted to rise in value in 2017 compared to the year before, according to Dodge Data & Analytics. The value of new public works construction & engineering projects, which include highway, street, and bridge construction as well as natural gas and oil pipelines and environmental work, is expected to rise 6%. The forecast represents improvement over 2016, when the value of new public works projects fell by 3% year over year. Demand is being driven in part by highway and bridge work funded by the new federal transportation bill.

New US regulations make it easier for companies that construct highways, streets, and bridges to begin or expand their use of drones. The FAA in mid-2016 issued commercial drone regulations that allow construction companies to begin using drones within days, rather than weeks or months. The infrastructure sector, along with the engineering & construction sector, leads in the number of exemption applications since the FAA began granting exceptions to its ban on the commercial use of drones. According to the Association for Unmanned Vehicle Systems International, nearly 40% of FAA-approved exemptions so far have come from these sectors.

Industry Indicators

  • The value of US nonresidential construction spending, a demand indicator for builders, rose 4.1% year-to-date in November 2016 compared to the same period in 2015.
  • US steel mill product prices, an indicator of commodity steel product costs used in construction, rose 8.7% in December 2016 compared to the same month in 2015.
  • The spot price of crude oil, which affects highway construction costs for asphalt, bituminous concrete, plastic pipe products, and for running equipment fleets, rose 50.3% in the week ending January 13, 2017, compared to the same week in 2016.

Posted by Jeff Johnson.

Read the Entire Engineering & Construction M&A 1st Quarter Newsletter Here