Welcome to this issue of Capital Ideas, our
newsletter dedicated to business selling, business buying and
financial resources for mid-market companies.
Getting the Deal Done
By John Hammett, Managing Director
Minneapolis Office, Corporate Finance Associates
This may not seem like the right time for most
owners of $5 to $50 million companies to
be selling. But…if the selling company is
positioned as an Add-On to a bigger company, owners
will be surprised by the interest in the deal, the
valuation, and the terms of the deals that can get done.
Add-Ons or Bolt-Ons or Tuck-Ins are deals where a
large company buys one or more smaller companies in
the same, or similar, businesses to
accelerate their own growth. This
strategy drives a lot of buyers to make
acquisitions.
Being an Add-On acquisition can be a
real plus for the private company owner
being acquired. Many of the stumbling
blocks that interfere with other kinds of
merger and acquisition activities are not
a problem for these kinds of deals. Here
are a couple of advantages for sellers:
Less Industry Due Diligence
Add-Ons are done in the same or similar
industries. The buyer doesn’t need to go through a
long learning curve to understand the seller’s industry
and markets. The owner doesn’t need to spend time
convincing the buyer it’s a good industry; the buyer
already knows that... Read more »
An Appealing Opportunity
By Gianpiero (JP) Balestrieri, Managing Partner
Washington DC Office, Corporate Finance Associates
Middle market investment
banking activities felt the
effects of the financial
crisis. M & A deal volume for the
middle market fell 39 percent in
2008 compared to 2007 and has
fallen even further into 2009. The
harsh credit markets have left their
mark on the middle market. The
average deal value in Q1 2009 was
$64.1 million, down from $93.4
million in the fourth quarter of
2007. The decrease in average deal
size can be accredited to conservative
valuations due to the added
risk and limited debt funds available.
The incentive for an owner
or principals to sell their business
has sharply decreased and left many
waiting for a more optimal, but
indefinite exit timeline.
Traditional business models and
financial investments have lost
effectiveness, allowing a higher
demand for alternative strategies
and investments. Private equity
groups are tentative to invest
because of the risk coupled with
difficultly accessing debt to leverage
the scale of their investments.
An alternative investment like a
Management Buyout (MBO) presents
an appealing opportunity to
private equity. Why? First, the baby
boomer generation is reaching their
retirement age and ripe for an exit
strategy with a structure that creates
choices for owners. Second, investing
in the current management
team to take ownership allows for a
familiar and friendly transition, and
in turn a more reliable and sustainable
future for the company. Lastly,
the trends in buyout valuation, debt
capital, and equity capital are all
enablers of MBOs for owners who
want to control their destiny at the
times they wish to exit, as well as
the values at which they prefer to
monetize their business’ value.
Baby boomers make up 28 percent
of the US population and 77 percent
of the financial assets in the US
are controlled by the baby boomers.
Baby boomers in ownership do
not... Read more »
Feature Acquisition
Situation: Chris P. Lewis
watched his company steadily
grow from its founding in
1987 to eventually take a place in
the top 100 contract manufacturers
in the world. It was now time to
sell his 67% ESOP owned electronic
manufacturing services (EMS)
company. The state of the economy
and the level of buyer sophistication
required to purchase an ESOP
added to the challenge. Mr. Lewis
contacted the Atlanta Office of CFA
for assistance in finding the right
buyer.
Solution: CFA received strong
interest in Spectral Response, Inc.
by advocating on behalf of the firm
with a select group of high quality
buyers who were interested in
ESOPs as accretive acquisitions. On
August 12, 2009, Alliance Holdings,
LLC acquired Spectral Response Inc.
in a private transaction.
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