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Capital Ideas for Middle Market Businesses



Welcome to this issue of Capital Ideas, our newsletter dedicated to business selling, business buying and financial resources for mid-market companies.


Why Not Mexico?

By Eduardo Berdegué, Managing Director
San Antonio/Austin Office
Corporate Finance Associates

Why Not Mexico?Over the past decade, the surprising evolution of the Mexican economy has been greatly overlooked by the impact of crime-ridden headlines unjustly concealing a vastly more encouraging reality of our neighbor to the South.

As indicated by Richard Fischer, Chair of Dallas Federal Reserve in an op-ed piece published by the Financial Times last May, it is a mistake to see a country outperforming the US in many economic areas through the lens of immigration and drug trafficking. “Mexico has a sound macroeconomic footing and is addressing the microeconomic problems still holding it back” adds Fischer, “The same can not be said for the US.”

At 113 million, Mexico’s population is 3 times larger than that of Canada. It has the 11th largest economy in the world, and the 5th among emerging countries, only after the more touted BRIC group. The country’s GDP is expected to grow between 3.5% and 4% in 2012, while inflation is being maintained at around 4%. In comparison, Brazil’s expected GDP growth rate for 2012 is only 2.2% with an inflation rate unlikely to remain under 5% this year. Moreover, Mexico’s Public Debt/GDP (33%) and unemployment rate (5%) are far better than those of most, if not all, industrialized countries. Read more »


Potential Deal Killers: Working Capital and Working Capital Adjustments

By Jim Zipursky, Managing Director
Omaha Office
Corporate Finance Associates

Potential Deal Killers: Working Capital and Working Capital AdjustmentsThere are lots of different factors which can kill a deal, most of which can be easily avoided. One potential deal killer which can always be avoided is the Working Capital Adjustment (“WCA”).

What is a WCA? First, we need to define Working Capital. In its truest form, Working Capital is Current Assets minus Current Liabilities. In the M&A world, we also consider cash free/debt free Working Capital, which is (Current Assets minus Cash) minus (Current Liabilities minus Current Interest bearing debt instruments).

Why is Working Capital important to buyers? Think of the business as an engine and the Working Capital as the fuel to power the engine. Buyers want to know they have enough working capital to operate the business after an acquisition. Read more »


Feature Acquisition

tombstone

Situation: Founded in 1989, Qualified Innovation, Inc. has grown to become a leading manufacturer and converter of cohesive cold seal paper, film, and foam packaging. The Company's products are manufactured in-house at their Sugar Grove, Illinois facility and sold in custom sized rolls or sheets. When the time came to look at selling the business, their goal was to find a buyer that had the same core values of excellent customer service, creative product development and outstanding quality.

Solution: PolyFirst Packaging, Inc., a Wisconsin based company, specializes in pre-opened bags on a roll for automatic packaging equipment. PolyFirst Packaging determined that adding Qualified Innovations pioneering products to their existing mix would complement their long term growth plans. The acquisition was facilitated with the help of Robert Contaldo and his CFA Chicago team.


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