Exit and Growth Strategies for Middle Market Businesses

Archive for the ‘Investment Banking’ Category

M&A in 2016

By Kim Levin | Jan 19, 2016

M&A in 2016Crystal balls, psychics, astrologers and forecasters all attempt, with varying degrees of accuracy and success, to predict the future.  When it comes to private investment, and M&A in 2016, the picture is even more murky due to the scarcity of reliable information and layers of confidentiality surrounding completed transactions.  Pitchbook, a collector and provider of private company data, did a nice job of translating recent data into hints at what the M&A future may look like next year in their recent Crystal Ball Report for 2016.

We will likely see deal multiples continue to slide a bit lower and deal volume, which lagged in 2015, continue to decline.  One bright spot in this scenario is lower middle-market add-ons which should see volume levels at or near those of 2015.

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Middle Market Businesses and the Shark Tank Phenomenon

By Cliff Kendel | Jun 17, 2015

SharkTankShark Tank has exposed Main Street businesses to finding equity capital for business concepts.

Main Street is warming up to partnering with savvy professional investors through creating a salient story/elevator pitch by having committed experienced management paired with a financial venture partner.  The venture partner helps refine the concept, focus the team, and elevate the business to a higher level of success.

Middle market investment bankers assist Main Street businesses enhance their “story” presented in a ninety second(or less) elevator pitch that:

• Quickly and succinctly articulates the Investment opportunity
• Explains why the management team is uniquely qualified to execute the plan
• Understand the financial history and plan for the future

Then, the investment banker conveys the story to  targeted groups that have the knowledge and desire to be in the industry “space” that the Company is operating; vets the prospective investor; and facilitates a mutually beneficial economic transaction.

Corporate Finance Associates investment bankers are a diversified team of experienced financial and operating executives, who have run businesses, been CFOs and senior operating executives of various types of businesses, sold businesses for Clients and their own account, and developed real estate and senior living concepts for clients and their own account.  How can we help you with your business?

Posted by Cliff Kendel.

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Expansion of Tech M&A

By Kim Levin | May 27, 2015

Upward Chart Money SignThe recently published KPMG 2015 M&A Outlook Survey Report suggests that one of the top industry sectors that will benefit from robust M&A activity this year will be technology, continuing a trend that began in 2013.  Cloud computing, big data, mobile devices and social media are segments that will command the attention of both financial and strategic investors alike.

So why should we expect this tech M&A growth expansion to continue?  Fueled by historically low interest rates and historically high EBITDA multiples, corporate growth through acquisition has been the fast track to higher profits.  This approach appears to cost more up front, but the immediate boost to the bottom line more than compensates by the resulting increase in EBITDA.  Combined with Private Equity investors’ buckets of “dry powder”, you have a recipe for expansion in 2015.  Private Equity investors will also add their own twist to the increase in M&A activity in the sector by entering the profit taking arena.  Many of their tech investments made in prior years have reached the expiration point and Private Equity will be liquidating tech assets this year.  We will likely continue to see consolidation in the industry with larger companies snatching up smaller ones when the time is right.

Preparing your company to take advantage of a surge in M&A activity is all about revenue and timing.  The highest possible revenues generate the highest possible EBITDA margins.  In addition, a strong and wide customer base is important.  In tech, the opportunity for M&A opens and closes quickly and you need to be ready to move when the opportunity presents itself.  Make sure your financials and your financial reporting is ready and you are prepared to put your due diligence team to work.   Your M&A advisor can then roll up his sleeves and get to work.

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Investment Bankers vs. Business Brokers – It’s Not Just About Size

By Dan Vermeire | Mar 25, 2015

Question marksThe Differences Between Investment Bankers and Business Brokers

You may hear the words “Business Broker” and “Investment Banker” used interchangeably. Some people think they mean the same. That is not completely wrong – both professions are aimed at financial transactions for a business. But, by any other measurement, the two words mean very different things.

One common misconception is that it’s all about size. That is, if you’re a business owner and you want to consider a transaction for your business, then you align with a Broker or an I-Banker, simply depending on the size of your business. Many people think an arbitrary revenue number, such as $2M or $5M, will decide.

Size matters, of course, but only in general terms – and there are many exceptions. With M&A, there are three main divisions. Business Brokers tend to operate in the lower revenue range, say $5M and below. Investment Bankers operate in the “Lower Middle Market” generally ranging from $5M to $250M. “Bulge Bracket” or Wall Street Investment Bankers operate at higher levels, generally $500M and above. Read more »

Does Industry Expertise Matter When Selecting an Investment Banker?

By Jeff Wright | Mar 04, 2015

Investment BankerSometimes a company owner insists that an investment banker must be an “industry expert” to maximize value. To the contrary, my experience leads me to believe that the real benefits of specific category experience may be small and the potential pitfalls, larger.

It may seem counterintuitive, but being narrowly focused in an industry may actually be a detriment to owners seeking to sell their companies for maximum value. Here are some reasons this might be so:

  1. An “industry expert” may approach the assignment just like his last deal and not apply innovative thinking to the assignment. There is a risk of “phoning in the work”. We know that every company and every situation is different and deserves fresh thinking.
  2. The “industry expert” may see a limited buyer universe because he thinks he already knows all the buyers in the industry. This kind of banker may not dig as deep or think as creatively to find buyers who may have strategic adjacencies, because they are not directly in the client’s industry.
  3. Worse, due to long standing relationships, the banker may owe favors to certain buyers in that industry and lose some objectivity, maybe even unintentionally.

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M&A Trends in the Transportation Industry

By Peter Heydenrych | Jan 16, 2015

Transport and LogisticsMultiple sectors of the transportation industry remain on an upward trajectory. According to a report from industry research group First Research, the US transportation services market is forecast to grow at an annual compounded rate of 5 percent between 2014 and 2018. US railroads, trucking, and water transportation services, all major indicators for freight forwarding, is forecast to grow at an annual compounded rate of 5 percent between 2014 and 2018. US warehousing and storage services is forecast to grow at an annual compounded rate of 4 percent between 2014 and 2018.

Read the Entire Transport, Logistics and Supply Chain 4th Quarter Newsletter Here

Posted by Doug Nix.

How Much Leverage Should You Use When Buying a Business?

By Kim Levin | Jan 06, 2015

Middle Market PulseThe use of leverage is always a challenge. Use too little, and you leave profits on the table. Use too much, and you could be putting yourself in jeopardy. Most middle market M&A transactions are financed using a combination of debt and equity. A deal may have a single lender, or a mix of senior, junior or mezzanine debt. Debt has a lower cost of capital than equity, so the return on equity increases as the percentage of debt goes up. The goal is to use as much debt as possible without hitting the point where cash flow from the equity component cannot service the debt interest.

In acquisitions made in 2011 to 2013, total debt averages were remarkably stable, averaging 3.4x in each of those years. However, for deals closed during the first nine months of 2014, we have seen debt averages begin to rise, with the average jumping to 3.7x. Deals financed on the characteristics of another entity (ie: an existing portfolio platform or the corporate-level facility of a family office) employed even more debt, with an average of 4.4X.

As one goes from the smallest deal tier to the largest, the pickup in leverage becomes more pronounced. At $10-25 million TEV, leverage increased just .1X from 2013 to 2014 year to date. At $25-50 million and $50- 100 million, the gain was .3X and in the $100-250 million bracket, average total debt jumped .6X.

From one sector to the next, the use of leverage is not equal. Currently, manufacturing deals are participating fully in the flush leverage market, with debt levels rising from 3.4x in 2013 to 3.9x year to date. Business services, on the other hand have not experienced the same leverage run up, with a slight decline in 2014.

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Technology, Media & Telecom Industry News

By Kim Levin | Jan 02, 2015

Hand with Cell PhoneThe market for wireless communication between objects such as cars and wearable items such as smartwatches and smartglasses represents a significant opportunity for telecommunications providers. The machine-to-machine (M2M) market is forecast to bring in $252 billion between 2015 and 2019, according to technology research and advisory firm Ovum. Global telecom operator revenue share of the total cellular M2M market is set to reach $25 billion by 2019.

Read the Entire Technology, Media and Telecom 4th Quarter Newsletter Here


Plastics & Rubber Industry M&A Trends

By Jim Zipursky | Dec 29, 2014

The life of a new product from concept to market has decreased from years to months, affecting the entire supply chain of plastic products. Equipment manufacturers look increasingly to closer collaboration with plastics suppliers to cut production timetables, asking them to be responsible for specialized molded component design, development, and assembly.


Read the Entire Plastics & Rubber 4th Quarter Newsletter Here

News From the Metal Fabrication Industry

By Robert Contaldo | Dec 19, 2014

TurbineDespite increased demands for steel from end-use industries such as automotive, construction, and energy sectors, steel production has declined globally. Simultaneously, steel prices have remained weak; further declines in prices are expected as demand growth flattens. A positive note from this is the decrease in iron ore prices, which could lower production costs for steel makers. Also, demand for aluminum has increased, showing that the surplus in capacity may end soon. This is partly driven by the increased use of lightweight alloys in automobiles and aircrafts.

Strong growth in the United States GDP (4.6 percent in the second quarter) combined with improvements in key end-use sectors such as automotive and construction, should drive increased demand, leading to a need for increased capacity.


Read the Entire Metal Fabrication 4th Quarter Newsletter Here