Exit and Growth Strategies for Middle Market Businesses

Archive for the ‘Investment Banking’ Category

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.

Read more »

M&A Trends in the Transportation Industry

By Doug Nix | 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 Catherine Patience | 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

M&A News for the Aviation Industry

By Joe Contaldo | Dec 12, 2014

Private JetAccording to First Research, global shipments of general aviation aircraft, a demand indicator for aircraft parts, increased 4.8% in the first half of 2014 compared to the same period in 2013, according to the General Aviation Manufacturers Association (GAMA). Business jets saw the largest jump in demand as shipments increased by 12.4%. Makers of aircraft parts serving the general aviation market may want to focus marketing and production resources on business jets and piston aircraft, which are experience strong demand.

In addition, Aerospace companies are increasingly following the lead of many automakers and choosing to situate new US facilities in the southern part of the country, according to Stateline, the news service of the Pew Charitable Trusts. Companies that have recently established facilities in the South or announced plans to do so include Airbus (Alabama), Boeing (South Carolina), GE Aviation (North Carolina), and Gulfstream (Georgia).

Read the Entire Aviation, Aerospace & Defense M&A 4th Quarter Newsletter Here

M&A Trends in the Food & Beverage Industry

By Terry Fick | Dec 05, 2014

Cut VeggiesThe food and beverage industry is directly connected to the consumer and has been adapting to consumers who are more actively using social media and mobile technology in their buying decisions. Based on survey of executives in this sector by KPMG, an audit, tax and advisory firm, growth is of high priority. The main channels of growth, based on executive respondents, are product innovations, attracting new customers, capturing alternative sales channels, focusing on healthier and specialty products, and M&A activity. 

Read the Entire Food & Beverage 4th Quarter Newsletter Here




Q4 Industrials M&A Update

By Kim Levin | Dec 01, 2014

737632-industry-on-a-misty-night for blogM&A activity for North American based industrial target companies in Q3 2014 included 563 closed deals and total deal value of $20.3 billion, according to data provided by S&P Capital IQ. This is a slight increase from the previous quarter where 541 deals were closed. Total transaction value increased from $11.4 billion to $20.2 billion from Q2 2014 to Q3 2014 largely due to the AECOM acquisition of URS Corporation.

Oil, gas, and petrochemical related companies dominated industrial manufacturing activity. Almost 40 percent of US related transactions were energy related deals. In addition, there were several mega-deals announced, indicating the market has grown and is actively looking to consolidate. According to the report, industrial manufacturers will continue searching for growth in non-core businesses with good leadership and an existing competitive edge.

Read the Entire Industrials M&A 4th Quarter Newsletter Here