Capital Ideas | Newsletter Q1 2019

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.

Middle Market Business Insights

M&A activity for North American based target companies in 2018 included 8,932 closed deals, according to data published by industry data tracker FactSet.

According to data from Pitchbook, private equity buyers were aggressive in 2018 generating deal value of $713 billion, a 7.2% increase over 2017. PE groups generated exit value of approximately $365 billion, which was in line with 2017. According to Pitchbook, private equity funds raised $167 billion of new capital across 186 funds 2018.

One of the largest middle market deals (below $500m in deal value) was announced in December when Grand Canyon Education, Inc. acquired Orbis Education Services LLC, a portfolio company of LLR Partners, Inc. and Lightspeed Management Co. LLC, for US$362.5 million in cash. Grand Canyon Education engages in the provision of education services. It offers graduate and undergraduate degree programs and certificates across colleges. Orbis Education Services provides online healthcare education solutions. The firm merges online education with onsite clinical application to create collaborative, customized solutions that help colleges, universities and healthcare systems expand their nursing programs. The company was founded in 2003 and is headquartered in Carmel, IN.

According to data from the National Center for the Middle Market, approximately 80% of middle market companies reported increases in revenue growth compared to a year earlier, which bodes well for valuations of companies looking to exit.

Transactional Overview

Notable closed lower middle market transactions in 2018 include:

December 2018 - LendingTree, Inc. acquired Valuepenguin, Inc. for US$105 million in cash. The transaction was funded through LendingTree's internal resources and credit facilities. LendingTree engages in the operation of an online loan marketplace for consumers seeking loans and other credit-based offerings. Valuepenguin operates as a personal finance website that conducts in-depth research and analysis on a variety of topics from insurance to credit cards. The firm offers credit cards, insurance, investment, small business, banking and loan services. The company is headquartered in New York, NY.

November 2018 - Orora Ltd acquired Pollock Paper Corp for US$82.5 million in cash and contingent payout. Orora engages in the manufacturing and distribution of fiber, glass and aluminum beverage cans. Pollock Paper provides packaging and facility supplies. The film's services include facility solutions, packaging resources and office essentials including cleaning supplies and equipment, e-commerce, packaging systems and stock boxes. The company was founded in 1918 and is headquartered in Dallas, TX.

February 2018 - Citrix Systems, Inc. acquired Cedexis, Inc., a portfolio company of NGP Capital, Ginko Ventures SARL, Madrona Venture Group LLC and Advanced Technology Ventures for US$66.5 million in cash. Citrix Systems engages in the design, development and marketing of information technology solutions. Cedexis provides cloud performance monitoring applications. The firm's products include radar, platform, sonar, openmix, fusuion, impact and netscope. It also offers application delivery, video delivery, and web content delivery solutions. The company was founded in 2009 and is headquartered in Portland, OR.

Sector Snapshots

The US manufacturing sector remains on a growth trajectory, according to new data from the Institute for Supply Management (ISM). Overall, manufacturers in June 2018 reported continued growth in production, new orders, and employment, but while production growth gained steam, new orders and employment growth slowed in June compared to the prior month. Of the 18 manufacturing industries covered in the ISM report, 17 reported growth in June, including wood products; electrical equipment, appliances, and components; fabricated metal products; computer & electronic products; food, beverage, and tobacco products; transportation equipment; machinery; primary metals; chemical products; and petroleum and coal products. While the manufacturing sector is generally enjoying robust demand, the ISM suggested that the attention of many companies has been diverted to creating contingency plans because of the ongoing trade strife between the US and key trading partners. Some manufacturers reported considering moving production out of the US to avoid tariffs on US goods. The ISM also suggests that US tariffs on imported steel and aluminum, combined with trucking shortages, are creating supply chain issues for some manufacturers.

The IT sector continues to report strong job growth and is expected to close out 2018 with a total of 83,500 new jobs in the US, according to Janco Associates, a consulting firm focused on information systems. Janco conducted interviews with two dozen CIOs in the last two weeks of November and all respondents said they were actively recruiting for IT professionals for new development activities and for replacements of those who had recently left amid high attrition rates. Firms are recruiting IT professionals for a mix of new responsibilities addressing robotics, the Internet of Things, search engine optimization, social networking, compliance mandates, and identity management. The research from Janco followed similar findings from tech industry trade association CompTIA, which reported tech sector job growth in November was led by new hiring in IT services. An estimated 7,600 jobs were added that month in IT services, custom software development, and computer system design. The November unemployment rate for IT occupations was 2.4%, down slightly from the 2.5% rate in November 2017.

Featured Acquisition - CFA Atlanta


The Situation

Our client, a real estate developer wanted to purchase an old Nissan car dealership in LaGrange, GA with the intention of renovating the building so that Enterprise Rent a Car and Gerber Collision and Glass would be able to open new branches. The developer had Letters of Intent from both prospective tenants but needed to raise the equity and debt to fund the acquisition and renovation. The purchase price of the building and 6 acres was $1,500,000 and the renovation costs were estimated to be $1,130,000 for a total of $2,630,000.


We arranged for a loan of $2,080,000 from a local community bank and raised $550,000 in equity through a private placement that qualified for a Reg "D" exemption from registration with the SEC. A total of five investors were involved in the capital raise.


The developer closed on the acquisition of the old dealership with the construction loan, the equity and the executed leases in early May 2018. The renovation was completed by October 2018 and the tenants took occupancy then. Rent payments started at this time. The building was appraised at $3,175,000 after renovation which indicates the creation of approximately $500,000 in equity. The property is currently for sale.


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First Quarter  |  2019