Capital Ideas | Newsletter Q3 2017

Capital Ideas for Middle Market Businesses

Middle Market Business Insights

M&A activity for North American based target companies during the first half of 2017 included 4,376 closed deals, according to data published by industry data tracker FactSet.

The largest deal of the half closed in February when Reckitt Benckiser Group Plc acquired Mead Johnson Nutrition, Co. for US$16.5 billion in cash. Under the terms of the agreement, Reckitt Benckiser Group Plc offered US$90 cash per share. The purchase price represented a premium of 29% to the closing price of Mead Johnson of $69.50 on February 1, 2017. As a result of this transaction, Mead Johnson will become a new division of Reckitt Benckiser Group. Mead Johnson Nutrition Co produces infant and children's nutrition products.

From an M&A perspective, the first half of 2017 was relative steady with an average 692 closed deals per month. The most active month was January, which had 769 closed deals.

Transactional Overview

Notable closed lower middle market transactions in the first half of 2017 include:

June 2017 - Berry Global Group, Inc. acquired Adchem Corp for US$49 million. The acquisition was funded through existing cash. The acquisition will enhance Berry Global's service with expanded technologies and product lines. Berry Global Group engages in manufacturing and marketing of value-added plastic consumer packaging and engineered materials. Adchem Corp. engineers and manufactures pressure sensitive adhesive tape systems.

May 2017 - Albertsons Cos LLC, a subsidiary of AB Acquisition LLC, acquired MedCart LTC, Inc., doing business as MedCart Specialty Pharmacy, for US$51.7 million in cash and contingent payout. Albertsons Cos., a subsidiary of AB Acquisition LLC, is a company headquartered in the United States that operates supermarkets. MedCart LTC, Inc. owns and operates pharmacies. It is an industry-leading pharmaceutical and healthcare provider serving the unique needs of patients with complex diseases.

May 2017 - Quotient Technology, Inc. acquired Crisp Media, Inc., trading as Crisp Mobile, a portfolio company of Meritage Private Equity Funds and Intel Capital Corp, for US$57.5 million in cash, contingent payout and stock. Quotient Technology engages in the operation of a digital promotion platform that connects great brands and retailers with consumers through web, mobile and social channels. Crisp Media provides mobile advertising technology, media and services. It offers services to the brand advertisers, agencies and publishers.

M&A Update

Amazon’s acquisition of Whole Foods was certainly a showstopper in the first half and demonstrative of the ever-changing food sector.

Food wholesalers looking for sales and profit growth will want to expand their offering of popular, high-margin specialty foods and ethnic products. With sales growth of specialty foods outpacing that of all foods by a wide margin, food wholesalers are pursuing the fast-growing category. Sales of specialty foods totaled $127 billion in 2016, a 15% increase over 2014, while over the same period retail sales of all food grew by just 2.3%. SUPERVALU's pending acquisition of Unified Grocers is driven in large part by the allure of the California-based distributor's Market Center division, which provides specialty and ethnic products to independent supermarkets in the West. Minnesota-based SUPERVALU plans to expand Market Center's operation across the US to capitalize on these fast-growing categories and to help its retail customers compete in the evolving grocery industry. Specialty and ethnic foods, which carry higher margins than many traditional categories, are bright spots for grocery wholesalers and retailers, many of which are struggling with declining sales.

Industry Indicators

  • Total US wholesale sales, a measure of the wholesale sector, rose 5.6% in June 2017 compared to the same period in 2016.

  • The average US retail price for diesel and regular gas, a major operating cost for distributor fleets in the wholesale sector, rose 12.4% and 9.8%, respectively, in the week ending August 21, 2017, compared to the same week in 2016.

  • Total US manufacturers' shipments, an indicator of demand for industries in the wholesale sector, rose 4.5% year-to-date in June 2017 compared to the same period in 2016.The spot price of crude oil, which affects energy-intensive armored vehicle manufacturing costs, fell 6.1% in the week ending July 7, 2017, compared to the same week in 2016.

  • US steel mill product prices, an indicator of commodity steel costs for armored vehicle manufacturing, rose 11.6% in June 2017 compared to the same month in 2016.


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2nd Half   |  2017