Exit and Growth Strategies for Middle Market Businesses

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

By Robert Decker | May 04, 2018

The report below presents you with a good overview on the second 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 Q1 2018 included 41 closed deals, according to data published by industry data tracker FactSet.

One of the notable transactions of the quarter closed in March when Host Hotels & Resorts LP, a subsidiary of Host Hotels & Resorts, Inc., acquired Andaz Maui at Wailea Resort, Grand Hyatt San Francisco and Hyatt Regency Coconut Point Resort and Spa from Hyatt Hotels Corp for US$1 billion in cash. As part of the agreement, the three acquired hotels would continue to operate under the Hyatt brand and would be operated by Hyatt under a long-term management agreement. The transaction enables Hyatt Hotels Corp to maintain its brand presence in key markets and support the execution of its recently announced initiative to reduce real-estate ownership to unlock shareholder value.

The hospitality sector has been significantly affected by technology when it comes to bookings. This is especially evident in the booking of short-term rentals, but has been prevalent across the board. One of the key areas has been improving guest experiences including speeding up check-in and check-out times.
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M&A Quarterly News In The Financial Services Industry Sector

By David Sinyard | May 04, 2018

The report below presents you with a good overview of the second 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 Q1 2018 included 163 closed deals, according to data published by industry data tracker FactSet.

One of the notable transactions of the quarter was announced in January when Imperalis Holding Corp. acquired The Crypto Currency Mining Co, Inc. for US$175.3 million in stock. The acquisition would enable Imperalis Holding Corp to expand its crypto business. The Crypto Currency Mining Co. provides bitcoin mining services. Bitcoin is a peer-to-peer electronic cash system and is operated by a software that process transactions, secure the network, and keep the system synchronized.

Crypto currency trading was uneven in Q1 as prices swung heavily from month to month.

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By George Walden | Apr 26, 2018

I’m going to talk about ESOP’s as a potential structure to be used by a business owner trying to sell his business. Why would you look at an ESOP, otherwise known as an employee stock ownership plan? Two major reasons.

One, legacy for your employees. Strategic and financial buyers often look to move businesses to make them more synergistic with other investments they have. If you form an ESOP, the company stays there, all those jobs stay there. All those people that helped you build that business, stayed there. Also there’s some empirical evidence that shows that employee owned companies do better and there’s fewer layoffs during recessions.

On a tax basis, the ESOP is a tax exempt entity. Therefore, no taxes are paid on the earnings that are generated through the company. This gives the company a significant advantage in terms of its cost of capital as it builds, as it builds its business going forward. Sellers can take advantage of certain other tax opportunities, such as a 1042 Exchange. So, from a ownership perspective, is something to really be considered. Particularly, if the business is a professional service business or has a specific contract with some vendor that they have to keep.

M&A News In The Commercial Real Estate Industry Sector

By Peter Moore | Apr 23, 2018

The report below gives a good overview of the second quarter M&A activity in the Commercial Real Estate Industry Sector. According to data released by Ten-X Commercial, a leading transaction platform for commercial real estate, commercial real estate transaction volume edged down to $117.4 billion in Q4 2017 representing a 0.5 percent decline from the prior quarter.
Following two quarters of growth, the minor drop can be linked to a $6.7 billion decline in deal volume in the industrial sector. In comparison to the same period a year earlier, investment activity plunged by 13.2 percent.

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Why do you need to call an M&A Advisor?

By George Walden | Apr 16, 2018


Why do you need to call an M&A advisor when you get approached by a buyer?

There is a rule of thumb in my industry that I absolutely believe in. Your deal never, never, never gets worse with competition and I would submit, it never gets worse with good advisory. You would never want just one buyer for your house and believe for a minute that you were getting the highest value for your home. The same holds true for your business.

Think about it, just letting the buyer know you have an M&A advisor lets them know you have the potential for competition. If the buyer doesn’t deal fairly, you will have an advocate telling you this is not market and you can do better. Remember, the buyer will have their team. They will always be dealing from a position of knowledge and strength.

You have no idea how often we get told by buyers, we don’t like auctioned transactions. Why do you think they say that? They don’t like them because they usually have to pay more.

Here are just three of many reasons to get active advisory advice.

1. The clock is running: Another saying in my industry is “Time kills all deals”. Make sure the buyer has a sense of urgency. To many things can go wrong in a transaction that takes too much time. One common problem is your response to information requests may be taking too long, after all you have never done this before, and it makes you look like you don’t know what you are doing. Lack of preparation can may you look weaker as an owner. With too much time market conditions could change. If the business is starting to decline or the industry is capping or beginning a downturn all can affect the company valuation.

2. Advocacy: Having someone on your side in the promoting, negotiating and deal structure that understands what is current market, is very valuable. Coordinating the different offers and their variances can mean the difference between success and valuable dollars left on the table. The deal process, documentation, due diligence, legal issues, accounting issues, banking issues etc. can be very time consuming and grinding. This is at a time when you need to be focused on your business and performing to expectations. Many deal valuations go south due to the owner taking their eyes off the ball. What do you think happens to your valuation when the sales start to slip? I have never seen an owner told, we will pay you more because your business is not being managed correctly. Having an advisor who can act as your advocate and offload many of those issues, can be a very strong negotiating tool.

3. Expertise: Remember negotiations from a position of knowledge have a greater chance of success. The sale of a privately held company is a sophisticated process requiring knowledge, expertise and strong negotiation skills. Few business owners possess these traits at a level sufficient to complete a transaction.

In closing, while there are many good reasons for seeking an M&A advisor in a transaction, getting additional expertise, advocacy and creating a sense of urgency will improve your chances of success.

Capability and Capacity: Inseparable Components of Growth Strategy

By Peter Moore | Apr 12, 2018

As investment bankers to a wide variety of closely held companies we sometimes witness business owners investing heavily in new production output “capacities” (new equipment, new hires, plant expansions, or even acquisitions) well before they’ve properly established the full “capability” to put that new or expanded capacity to work on an optimized basis.

Generally the goal of creating new production or service capacity is to take advantage of a market opportunity, stay competitive, and create increased enterprise value in the business.

In this context “capability” is the condition of being sure your key team members have the know-how to produce the expanded product or service output. It also means having codified the processes employed to produce your product or service, so that new members to the team can also generate the product or service without any diminution in the quality or effectiveness to the customer. And it means you have the disciplines in place to continue producing the product or service with the same or better level of customer satisfaction, product integrity, and product reliability. It may also mean that you are continuously keeping an eye out for product relevance in your industry and marketplace, as well as being aware of what your competitors are doing and alternatives to your product or services.

Without being sure the capabilities are in place to get the greatest benefit from your new investment, you risk losing the financial advantage you expected. That new capacity (higher production rates, faster throughput, better engineering or design, or systems to reduce materials procurement costs, labor inputs, or transportation and logistics expenses) should be able to deliver measurable improvement in key financial metrics soon after the new investment in the capacity has been made.

While both capability and capacity can sometimes be developed concurrently it is often not advisable to make large capacity investments before you are sure you can provide the associated capability to optimize use of that new equipment, factory addition, acquisition, or expensive new talent.

Taking the time to plan on incorporating these two key elements of growth will help you more confidently achieve the goals you envision by adding new capacity.

For more information on this topic or assistance in expanding your company’s capabilities and capacities, and confidence, please contact your nearest CFA investment banker.

Interest Rates

By David Sinyard | Apr 09, 2018

The fed funds rates continue to increase. Two more increases are expected this year. When the fed raises rates, banks raise the prime rate and the result is an increased cost to borrowers, both consumer and corporate. Short term treasury rates have increased as well.

So what do higher rates in the US mean? Typically, the expected result is a stronger dollar. One might reasonably wonder, however, why higher U.S. market rates have not provided more support to the dollar. That is not occurring. Why? Because this time higher rates in the United States mean higher rates in the rest of the world, too. This is very clearly seen in the LIBOR markets where the spread between LIBOR (London Interbank Offered Rate) and the OIS (Overnight Index Swap) has increased significantly to levels last seen during the financial crisis of 2008. Why? The impact of the new tax laws is forcing repatriation of US dollars. Historically, they would buy treasury bills, commercial paper and bank CDs. Now the money is coming back to the US to pay taxes. The result is a significant reduction in the demand for short-term treasuries, which in turn will push rates higher.

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

By Joe Contaldo | Apr 05, 2018

The report below gives a good overview of the first 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 Q4 2017 included 15 closed deals, according to data published by industry data tracker FactSet.

Boeing gave a strong forecast for 2018 and expects to deliver 810 to 815 commercial aircraft this year. That’s an increase of at least 47 from 2017, when it set a company record of 763. In the quarter ended Dec. 31, Boeing’s net income nearly doubled to $3.13 billion, or $5.18 per share, from $1.63 billion, or $2.59 per share, a year ago. Fourth-quarter revenue grew to $25.37 billion in 2017, a 9 percent increase from the same period the year prior.

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

By Peter Heydenrych | Apr 04, 2018

The report below provides a good overview of the first 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 Q4 2017 included 23 closed deals, according to data published by industry data tracker FactSet.

One of the largest transactions of the quarter closed in October when AMP Capital Investors Ltd, acquired ITS Technologies & Logistics LLC from Carlyle Infrastructure GP Ltd for US$500 million. AMP Capital Investors Ltd. (AMP Capital) is the wholly-owned investment management subsidiary of AMP Capital Holdings Ltd., ultimately held by financial group AMP Ltd. (SY: AMP, ADR: AMLYY) in Australia. ITS Technologies & Logistics provides rail intermodal terminal services. The firm offers rail terminal operations, auto loading and unloading, contract switching and lift equipment, and trailer and chassis maintenance. The company was founded in 1984 and is headquartered in Darien, IL.

There is a significant shortage of qualified truck drivers. As the US economy has improved, demand for freight transportation has grown, and carriers are increasingly concerned that trucking demand will outstrip the supply of qualified drivers.

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M&A News In The Print and Packaging Industry Sector

By Anthony Contaldo | Apr 02, 2018

The report below gives a good overview of the first quarter M&A activity in the Print and Packaging Industry Sector. M&A activity for North American based target companies in the Packaging and Printing sector for Q4 2017 included 26 closed deals, according to data published by industry data tracker FactSet.
One of the largest transactions of the quarter closed in October when Genstar Capital, LLC acquired Tekni Plex, Inc., a portfolio company of American Securities, LLC, for a reported value approximately US$1.5 billion. Founded in 1988, Genstar Capital is a private equity firm located in San Francisco, California. Tekni-Plex manufactures and sells packaging, packaging products and materials and tubing products primarily for the food and beverage, healthcare, specialty, lawn and garden and consumer markets.

According to a report from Smithers Pira, an industry research group, the digitally printed labels and packaging market was worth $13.4 billion in 2017. By 2022, the rapidly expanding digital (inkjet and toner) packaging market will grow by almost 13% annually to exceed $22 billion.

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