InSight

Exit and Growth Strategies for Middle Market Businesses

M&A Quarterly News In The Energy Industry Sector

By Roy Graham | Oct 26, 2018

The report below gives a good overview of the fourth quarter M&A activity in the Energy Industry Sector. M&A activity for North American based target companies in the Energy sector for Q3 2018 included 130 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions was announced in July when Independence Contract Drilling, Inc. acquired Sidewinder Drilling. LLC for US$148.8 million in stock. The acquisition complements Independence Contract Drilling’s existing pad-optimal drilling fleets and operations focused in the Permian Basin, Haynesville region and other basins in Texas. Independence Contract Drilling engages in the provision of land-based contract drilling services for oil and natural gas producers. Founded in 2011, Sidewinder Drilling is located in Houston, Texas and owns and operates a fleet of premium land drilling rigs and provides contract drilling services.

During the past decade, the U.S. trade gap for energy products narrowed. From 2003 to 2007, the value of energy imports was about 10 times greater than the value of exports.

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M&A News In The Wholesale Distribution Industry Sector

By Jeremiah Hughes | Oct 23, 2018

The report below gives a good overview of the fourth quarter M&A activity in the Wholesale Distribution Industry Sector. M&A activity for North American based target companies in the Wholesale and Distribution sector for Q2 2018 included 112 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions closed in September when DCC Technology Ltd, a subsidiary of DCC Plc, acquired JAM Industries Ltd for CAD220.5 million (US$170 million). The acquisition expands DCC Technology’s service offering and business presence in Canada. JAM Industries is located in Baie-D’Urfé, Québec, Canada and distributes musical instruments and accessories. It had revenue of approximately CAD418.8 million (US$323 million) and has 570 employees in April 30, 2018.

Despite the current administration’s renegotiation of NAFTA, exports and imports between the United States and Canada have climbed relatively steadily over the past three decades.

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M&A Quarterly News In The Hospitality and Leisure Industry Sector

By David Hulett | Oct 23, 2018

The report below gives a good overview of the fourth quarter M&A activity in the Hospitality & Leisure Industry Sector.  M&A activity for North American based target companies in the Hospitality and Leisure sector for Q3 2018 included 43 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions closed in August when Xenia Hotels & Resorts Inc acquired the business and assets related to the Ritz-Carlton hotel in Denver from The Ritz-Carlton Hotel Co LLC, a subsidiary of Marriott International Inc for US$100.2 million in cash. Funding for the transaction was provided by Xenia Hotels’ existing cash resources. The acquisition expands Xenia Hotels & Resorts Inc’s hotel management business. The Ritz-Carlton Denver is located in Colorado and owns and operates hotels and resorts.

Both business travel and leisure travel have been on a solid upward trend for decades now. This is driven, in part, by a growing economy and increased efficiencies in booking travel.

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Environmental Liability in M&A

By Dan Vermeire | Oct 23, 2018

Environmental concerns can be hugely important in an M&A deal, and are typically investigated as part of the due diligence process. But, for a business owner, that may be too late.

What’s at stake for your business?
It’s important to know that PLL (Pollution Legal Liability) can affect both the property owner and the tenant. Yes, a business that leases the property can still be responsible for environmental problems. Further, PLL can be from the historic uses, well before you owned or leased the property. And PLL can affect you because of an adjacent property, even if you don’t operate there.

PLL costs can be significant to identify and remediate problems. This may involve drilling and digging at the property, through the floors, parking lots, and open ground, to remove and dispose of contaminated soil. Far worse, if the environmental issue isn’t properly managed, it can be disruptive to your business if customers, employees and regulatory agencies draw the wrong conclusions.

How does the process work?
It is a three-step process, starting with a simple assessment and, if problems are found, progressing to more rigorous efforts. The initial step, Phase 1, reviews the property and creates the Environmental Site Assessment (ESA), which identifies potential or existing environmental contamination liabilities. Various engineering firms specialize in the practice of these reports, according to guidelines from the EPA. The assessment will look for any visible signs of contamination and review the historic uses of the property. If the ESA identifies areas of significant concern, then a Phase 2 is recommended which involves further analysis such as boring, collecting soil samples, and installing ground water monitoring wells. If the Phase 2 identifies significant issues, then a Phase 3 project will remediate the site. As you can see, each step costs more money, takes more time, and may create further disruption to your business.

How can you protect your business?
It is important that the business or property owner’s attorney order the ESA, not the buyer. Why? Because the report can be protected by attorney-client privilege. Should the ESA identify problems, then the information can be kept confidential. Most good law firms will have a working relationship with an engineering firm and keep the owner’s interests in mind, thereby avoiding overly aggressive, or “make work” recommendations.

There are several areas of the ESA that are somewhat subjective, such as the classifications of risks. Professional opinions can vary – one group may think action is needed, while others may not. For this reason, ESA’s are initially produced in a draft form and issues can be discussed. If it is warranted, you can get a second opinion, perhaps more favorable. If the process continues, eventually a report becomes final, and then can be made available to the buyer, banks, and regulatory agencies. A clean ESA has value to both the buyer and seller.

To stay ahead of any issues, you should consider ordering an ESA well before you start the M&A process. In that way, you can be aware of any potential risks and solve them before they become bigger problems.

Other ways to manage environmental risk include indemnification from the seller to the buyer. This approach may often require some meaningful security, such as continued equity, a note, escrow or insurance. Leasing may be considered as an alternative to buying property in an M&A deal. There may be other business reasons to control the property and leasing does not completely eliminate risk for the new owner, but this approach can help in many cases.

Last, but certainly not least, environmental insurance is a very good way to eliminate risk and should be considered in any PLL situation. Policies have been used for many years, are available from many respected providers and can have customized coverage. Many policies are transferrable to the new owner and will cover pre-existing conditions, both onsite and offsite contamination, claims for bodily injury and legal costs. In certain cases, policies will exclude voluntary digging, that is, don’t go looking for trouble. This restriction can be included in the lease or purchase agreement, too. Environmental insurance is affected by the findings in an ESA, so it is important to consider insurance before starting the process. Always work with your advisor to control the process and manage the information flow to the insurance market.

Environmental concerns continue to gain attention, as we move closer to a green planet. Any business that involves owning or leasing property should have an effective strategy to manage environmental risk. Our CFA professionals regularly lead programs that successfully avoid environmental pitfalls.


M&A Quarterly News In The Financial Services Industry Sector

By David Sinyard | Oct 15, 2018

The report below gives a good overview of the fourth quarter M&A activity in the Financial Services Industry Sector. M&A activity for North American based target companies in the Financial Services sector for Q3 2018 included 268 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions closed in August when Xome, Inc., a subsidiary of WMIH Corp, acquired the business and assets of Mortgage Solutions business of Assurant, Inc. for US$35 million in cash. Under the terms of the agreement, Xome paid US$35 million in cash and an undisclosed amount in contingent payout to the shareholders of Assurant. The acquisition would allow Xome to expand its product offerings. The transaction is expected to be accretive to the earnings of WMIH Corp in 2019.

The financial services sector has been significantly impacted by software and technology, which continues to evolve creating efficiencies and increasing profitability.

 

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M&A Quartely News In The Aviation, Aerospace and Defense Industry Sector

By Daniel Sirvent | Sep 20, 2018

The report below gives a good overview of the third quarter M&A activity in the Aviation, Aerospace and Defense Industry Sector. M&A activity for North American based target companies in the Aerospace and Defense sector for Q2 2018 included 11 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions closed in May when Valiant Integrated Services, LLC acquired Cubic Global Defense, Inc. and Omega Training Group, Inc. from Cubic Corp for $138 Million in cash and contingent payout. Under the terms of transaction, Valiant Integrated Services paid $135 Million in cash and will make additional earnout payments of $3 Million based on certain performance conditions related to the award of certain government contracts over the next 12 to 24 months. The transaction allows Valiant Integrated Services to further expand its business operations. Cubic Global Defense engages in the manufacturing of tactical training and simulation systems while Omega Training Group provides training, testing, analysis, logistics and staffing services for the military industry.
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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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M&A Quarterly News In The Food and Beverage Industry Sector

By Terry Fick | Sep 19, 2018

The report below gives a good overview of the third quarter M&A activity in the Food and Beverage Industry Sector. M&A activity for North American based target companies in the Food and Beverage sector for Q2 2018 included 70 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions closed in May when Lassonde Industries, Inc. acquired Old Orchard Brands, LLC for US$158.9 million in cash, contingent payout and other payment. Under the terms of the agreement, Lassonde Industries paid US$146 million in cash and an additional US$10 million over next two years subject to specified financial milestones. The transaction is in line with Lassonde Industries’ growth strategy and improves its manufacturing footprint in the Midwestern United States. Founded in 1985, Old Orchard Brands, is located in Sparta, Michigan and processes and bottles fruit juices, frozen juice concentrates and nonalcoholic drink mixers.

The recent acquisition of Body Armor by Coca Cola is a continued example of the growth in the specialty beverage sector. This has been particularly evident in the tea sector.

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M&A News In The Consumer Retail Industry Sector

By Joe Sands | Sep 11, 2018

The report below gives a good overview of the third quarter M&A activity in the Consumer Retail Industry Sector. M&A activity for North American based target companies in the Consumer and Retail sector for Q2 2018 included 90 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions closed in June when Fairfax Financial Holdings Ltd acquired Toys “R” Us Ltd, trading as Toys “R” Us (Canada) Ltd from Toys “R” Us, Inc. for CAD300 million (US$237.9 million), via bankruptcy. The acquisition is in line with the growth strategy of Fairfax Financial Holdings. The transaction was subject to customary closing conditions, including remaining court and applicable regulatory approvals. Toys “R” Us is located in Concord, Ontario and retails toys, games and electronics for children.

Driven in large part by the ubiquity of Amazon, retail dollars seem to be on a continuous trend toward leaving storefronts for the online giant.

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

By Peter Heydenrych | Sep 06, 2018

The report below provides 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 2018 included 50 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions closed in July when The Jordan Co LP acquired GlobalTranz Enterprises, Inc., a portfolio company of Providence Equity Partners LLC, Susquehanna Growth Equity LLC, Volition Capital LLC and Savano Direct Capital Partners LLC, for an undisclosed amount. The acquisition expands Jordan Co’s existing portfolio. GlobalTranz Enterprises is located in Scottsdale, Arizona and provides international freight forwarding services.

As the retail sector shifts more toward e-commerce, there continues to be a surging demand for truck drivers.

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