2012 was a year of tremendous uncertainty that had businesses showing great caution. Industrial distributors that typically ride the ebb and flow of the economy fared well in 2012, resulting in earnings increases and higher multiples, making now an attractive seller’s market.
Although we have now gone over the cliff, companies will continue to remain tentative across most industries in 2013 with U.S. fundamentals such as industrial growth, exports, and government spending still navigating challenging conditions.
A few bright spots for distributors however include the comeback of the housing market, shale gas exploration, and automotive sales with dealers projected to sell around 15.2 million cars and light trucks, according to Kiplinger.
Congratulations to our long time Friend of FRG, Dave Dayton, who was recently named one of the Outstanding Electrical and Computer Engineering Alumni from Purdue University.
We congratulate Kiyoshi Odawara of Pinnacle, our IMAP partner firm in Japan, on his recent election to Japan’s Lower House of Representatives.
Mr. Odawara’s departure is regrettable for Pinnacle and for IMAP, but his contribution to Japan as a legislator will certainly be significant. Mr. Odawara is a very capable investment banker and has also demonstrated his desire to contribute. As many know, Mr. Odawara volunteered in one of the prefectures of Japan most affected by the 2011 earthquake. He wrote a book and donated all the profits to children orphaned in the disaster.
FRG’s All Natural Client
Our Strategic Advisor, Neil Goeren (featured this month under Advisor Highlights) has been working with our client, Glam Natural Cosmetics®, the first water-free, preservative-free, high performance premium color cosmetics line (patent pending).
Our role is to help Glam Natural find distribution partners and bring this product to market globally. Beginning next month, Television Shopping Network QVC will debut the products in Italy.
See www.glamnatural.com for more information and a great demo video.
U.S. Patent Law
U.S. patent law changes to first-to-file system on
March 16, 2013.
In the past, the first person to invent in the U.S. obtained a patent for an invention even though another person filed an earlier patent application. That will change on March 16, 2013 when the U.S. switches to a first-to-file patent system.
The first-to-file system puts the United States in step with the rest of the world, which already operates under this system.
Sun Wenbin and his colleagues from China got the red-carpet treatment on a recent trip to the US, reports the WSJ.
Over 10 days, Mr. Sun and 60 other Chinese entrepreneurs and executives were welcomed by former Presdient George W. Bush, and courted by businesses ranging from a shrimp breeder in Orlando to a real-estate developer in Dallas to an alternative fuel company in Madison.
The wooing was part of an effort by local governments to attract more investment from the Chinese, who despite their newfound wealth have the reputation in some quarters as window shoppers rather than deal makers.
Chinese investment into the US is already on the rise. According to Rhodium Group, a NY consulting firm that tracks Chinese outward investment, companies there invested $6.3 billion into US companies and projects between January and September 2012, more than the $5.8 billion invested in all of 2010, the previous record for annual investment.
FRG Advisor Highlights: Neil Goeren
Our firm consistently has exposure to new innovative consumer product brands through a variety of outlets including our extensive internal network, our International Merger and Acquisition Partnership (IMAP), and our Strategic Advisors, specifically
Neil Goeren (pictured). Neil joined FRG last year and has given us extremely interesting insight into the consumer brands industry.
Neil’s resume spans across multiple leading consumer product companies including Miller Coors, Victoria Secret, Mennen, and Bath and Body Works (BBW) where he was assigned to drive growth through establishing new innovative brand categories. A few of Neil’s product line launches include:
Further, Neil recommended extending the BBW brand into the aromatherapy market, and helped develop an oral care line that included breath strips, household & laundry line, botanical sun care line, organic pet care line, and nutritional supplements, all which were developed well ahead of the market trends.
We are always learning something new here at FRG with our esteemed Strategic Advisors!
What Distinguishes Mergers from Acquisitions?
The well known abbreviation for Mergers and Acquisitions is M&A and that is, primarily, the bulk of the work we do at FRG. In recent years, the distinction between a “merger” and an “acquisition” has become more blurred especially in terms of the economic outcome of the transaction.
In the pure sense of the deal business, a merger occurs when two firms agree to go forward as a single new company or legal entity. If the two companies agree they have close to equal value, it is known as a merger of equals. If it is a stock merger, then both companies surrender their shares and new company stock is issued. However, there are very few companies that have complete equality of value in terms of assets, stock value or market share branding. So what can happen is that one company will buy another and, as part of the deal announcement, call the transaction a merger of equals when it is technically an acquisition. Similarly, a purchase might also be called a merger when two CEO’s agree that combining their companies is in the best interest of the businesses and their shareholders.
In general terms, an acquisition occurs when one company acquires another company and establishes itself as the new owner. Acquisition usually refers to the purchase of a smaller company by a larger one and is the sale of a controlling interest in the assets or ownership. However, there are situations whereby a smaller firm will acquire management control of a larger firm or a more established firm and retain the name of the latter for the post-acquisition combined entity. This is commonly known as a reverse takeover. Alternatively, a reverse merger occurs when a privately held company (with strong prospects and financing strength) buys a publically listed shell company that has limited assets. From a legal standpoint, the target company in an acquisition still exists as an independent legal entity now controlled by the acquirer. A “merger or consolidation” occurs when two companies combine together to form a new entity and neither of the companies survives independently.
One important thing to recognize is that companies use M&A for reasons other than acquiring hard assets or cash flow. Paul Graham first advanced this theory in his essay “Hiring is Obsolete” in 2005 whereby he theorized the free market is better at recognizing talent and noted that companies such as Google and Microsoft were better served acquiring start-ups than hiring new raw talent. Other considerations that make companies attractive for either a merger or an acquisition are patents (bio-tech pipelines, pharmaceutical pipelines, etc.), licenses, market share, name brand, customers and franchises.
So what does 2013 look like for the M&A world? According to one of the big four tax advisory firms, M&A activity will remain stable with 60% of the 300 M&A professionals interviewed citing companies’ large cash reserves as the driving force behind deal activity with more favorable credit terms also a factor. Other primary driving forces for deal momentum in 2013 will be companies looking to expand their geographic reach and the addition of new lines of business without the inherent start-up costs. It’s simply more cost effective to merge or acquire. Many of these deals are forecasted to be smaller and more strategic as companies expand into new markets and fill product gaps. Of course, if Washington shows any initiative on a sustainable approach to fiscal responsibility and there is more stability in the Eurozone, then M&A activity could be robust both domestically and internationally.
One of the strong value drivers that distinguish FRG from other M&A firms is our membership in IMAP (International Merger and Acquisition Partners). Based on the Thompson Reuters League Tables, IMAP has consistently ranked among the top ten financial advisors worldwide in closed deals valued up to $100 million. In 2011, IMAP rose to number three worldwide for completed transactions with values up to $500 million. With IMAP partner firms worldwide in 40 countries, FRG is well positioned to ensure our clients have excellent global exposure to merger and acquisition prospects.
Dr. Maegan A. Evans
IMAP Annual Report 2012 will be available soon. In the meantime, the 2011 IMAP Report remains available for viewing on the home page of www.imap.com
Falls River Group, LLC, a Global Merger and Acquisition Advisory Firm based in Naples, Florida, and a member of IMAP, an exclusive global partnership of leading M&A firms providing premium M&A services focused on the middle market. IMAP celebrates 40 years of successful global collaboration with consistent ranking among the top 5 M&A advisories and approximately 200 completed transactions annually. From more than 40 countries throughout North and South America, Eastern and Western Europe, the Middle East and Asia, IMAP advisers provide strategic merger, acquisition, and divestiture and related corporate finance services. For more information, visit www.imap.com.
Securities transactions conducted through StillPoint Capital, LLC.