Stay tuned for the upcoming launch of the new FRG website! We are very excited about this project, due to debut later this summer.
Average Middle Market Deal Multiples 8.0x
Deal multiples are continuing to hold strong amidst the market of uncertainty. According to PitchBook the 2012 average EBITDA multiple was 8.0x for middle market deals valued between $25 million and $1 billion. Falls River Group believes that these multiples will hold steady in 2013, if not increase, due to the shortage of strong companies as sellers in the market place.
IMAP Partner Updates
Eduardo Morcillo, our colleague at IMAP China, was recently appointed as Vice President of the European Union Chamber of Commerce in China (EUCCC).
The EUCCC’s main goal is lobbying for greater market access and improved operating conditions in China. It establishes formal communication channels with Chinese government officials and institutions to provide opinions on regulation, standards and ad hoc conflicts. This position is one of the highest representatives of the EUCCC in China.
Being elected to this role reflects InterChina’s strong standing in the business community in China. Congratulations, Eduardo!
Notable developments from our colleagues at IMAP India during the quarter included the recommencement of monetary easing by the RBI after a nine month pause and the Union Budget for FY 2013-14. While the central bank action was along expected lines, the Union Budget committed to continued fiscal consolidation in the medium term.
On the global front, investors recognized US stewardship (US S&P 500 +1-% for the quarter) of the ongoing economic recovery, amid renewed hope of a revival in Japan (Japan Nikkei +19% for the quarter) on the appointment of Haruhiko Kuroda as the Governor of the Bank of Japan.
U.S. Patent Law
U.S. patent law changed 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 changed on March 16, 2013 when the U.S. switched to a first-to-file patent system.
The first-to-file system puts the United States in step with the rest of the world.
Riding the Wave: Is the timing right?
In John Slater’s recent guest post on Axial Market, he discussed the diverse reasons regarding the timing of exits for business owners, yet regardless of the reason for selling, the most asked question is “What is my business worth?” The next eighteen months may see the highest pricing for good middle market companies for the following reason:
The middle market is very cyclical, with three to four years separating peaks and troughs and six or seven years to cover a full cycle. The last bull cycle for M&A peaked in 06-07 and the market trough was witnessed in 2009/2010. There was a moderate improvement in 2011 and 2012 with Q4 being particularly strong.
2013 started with a bang with large announced deals for Dell, Heinz and Virgin Media just to name a few and many believe that the odds favor a strong market for sales of middle market companies through sometime in 2014.
The next twelve to eighteen months will almost certainly be a highly favorable period for business exits. If this proves to be a cyclical market top, the next favorable period for business owners wanting to sell may not come around before the 2020s.
How to be Happier in Business & Life
We really liked a recent article from Inc.com on how to find happiness by not doing the following. See our abbreviated version below:
1. Blaming: Learn to take responsibility when things go wrong – it’s empowering because you focus on doing things better or smarter the next time.
2. Impressing: Focus on genuine relationships, not things, and just be yourself.
3. Clinging: Let go so you can reach for, and try to earn, what you want.
4. Interrupting: Listen, really listen, to what people are saying. Ask questions. They’ll love you for it.
5. Whining: Don’t waste time complaining, put that energy into making the situation better.
6. Controlling: Short term results at best. Instead, find people who want to go where you’re going.
7. Criticizing: Appreciate the differences instead of the shortcomings and you’ll see people – and yourself – in a better light.
8. Preaching: Criticizing’s little brother. They share the same father: Judging.
9. Dwelling: The past is the past; let it go.
10. Fearing: Don’t let your fears hold you back.
A Strong Seller’s Market Now
by Dr. Maegan Evans & Erik Bindslev
In spite of the bloated regulatory environment, fear of Obamacare, proposed new Obamacare taxes on businesses and the still sluggish economy, 2013 is setting up to be a banner year for the sale of middle market companies.
Source: Private Equity Growth Council
Why? Because there is a glut of money sitting on the sidelines waiting to come into play from private equity groups, family offices and corporations flush with capital who need transactions (sell-side and buy-side) eager to make strategic acquisitions to complement their growth strategies. According to FactSet Research, there is over $1.3 trillion in cash in the S&P (not including the financial sector) which represents the highest amount ever as a percentage of assets. Further, the global private equity groups have $1 trillion in dry powder ready to be put to use. Several forces are converging that are conducive to dealmaking: aging portfolio companies, easier access to credit, and the surplus of dry powder that is set to soon expire (PEG’s could have to give dollars back and release commitments). Given these factors and the fact that the M&A markets have been sluggish the past few years, this means that private equity and corporations’ appetite for acquisitions is growing.
What exactly is the middle market? The middle market represents one-third of non-government GDP and generates over $9 trillion in revenues annually, accounting for over 43 percent of total employment in the U.S. According to U.S. Census data, 369,122 companies constituted the middle market in 2007 which are business that generate annual revenue from $5 million to $1 billion. The lower middle market which is generally businesses with revenues between $5 million and $50 million accounts for 95 percent of the middle market companies. Approximately 16,000 companies with revenues in excess of $50 million up to $500 million represent the true middle market with the remaining 2,500 companies making up the upper middle market.
If you are a business owner contemplating an exit and decided not to sell in 2012, that means that you elected to roll the dice and wait another year or two before the sale of your business even though that decision exposed you to higher taxes on your taxable gain on a sale. The good news in this scenario is that higher valuation multiples are being paid for businesses with strong profits and other synergistic value drivers due to the high demand and low supply of quality middle market companies. The fear of selling that business owners had in 2012 has now created a ripple effect in 2013 and beyond as they will be penalized with higher taxes on their gains but also will be likely to enjoy higher valuations in many instances. In North America in particular, continued confidence in the economic recovery, rising equity markets and robust debt markets bode well for PE deal making.
Source: Private Equity Growth Council
So what are these buyers looking for? Basically, companies with reoccurring revenue, growth, consistent margins and strong free cash flow. Those that showed resilience in the economic downturn of the past few years will be even more desirable.
What industries are looking bullish? Manufacturing, Healthcare (Obamacare reimbursements are a risk), Oil & Gas, Distribution, Business Services, and IT & Software.
In summary, it is a Sellers market. Consider contacting us to take advantage of the timing.
FRG Spotlight: Dr. David Spellberg
We recently welcomed Dr. David Spellberg to FRG as Medical Director, leading our Healthcare practice. David has a long career in medicine, specializing in Urology, and has been named in the Castle Connolly’s Best Doctors in America listing multiple times, and also placing in the Consumers’ Research Council of Americas Guide to Top Urologists and Top Physicians for the last 5 years. He is a Board Certified Adult and Pediatric Urologist, a Diplomat of the American Board of Urology, and a Fellow of the American College of Surgeons.
David is currently recognized as a world expert and authority in the use of cyberknife radiosurgery for treatment of prostate cancer, having presented his data and techniques at multiple sites around the world. He has been a pioneer and innovator, helping to develop what is now referred to by physicians around the world as the “Naples Protocol”.
David is an astute businessman and has transitioned smoothly into Investment Banking. He just passed the first of his FINRA exams this week (Congratulations, Dave!), and will be working on non-healthcare assignments as well. As many of you know, FRG LLC has considerable experience in the healthcare industry, and David will help us enhance this expertise.
Please join me in welcoming David to the IMAP family.
The Power of IMAP
I am very pleased to serve again as a Board Member for IMAP. This recent appointment adds to my previous service as President, 2001/2002 and as Chairman, 2002/2003.
IMAP was a very different organization when we made the decision to join in 1997, but it was clear that Falls River Group could help it become the Global M&A powerhouse that we now are.
Since we joined IMAP, these 16 intervening years have shown us just how important that decision was. Nowhere is this better evidenced that in the impressive performance of Falls River Group and our IMAP partner firms in the last three years.
In 2012 IMAP was again ranked No. 3 globally by Thomson Reuters in number of completed transactions in 2012 with values up to US$500 million.
IMAP also ranked No. 9 in North America, No. 4 in Europe and Latin America, and No. 2 in the Nordic Region for number of completed transactions with values up to US$500 million.
IMAP ranked among the top five in terms of number of deals closed by industry and held top ranking worldwide in the consumer products and services, industrials and retail sectors for number of deals closed with values up to US$500 million and US$200 million.
This performance confirms the importance of IMAP to both its member firms and the wider business community. It is also the reason I was honored to accept the invitation to rejoin the IMAP Board for the next four years. Part of my responsibility will be enhancing Global Quality of Service as well as selectively and carefully increasing the North American membership. Two new members in North America will be announced shortly.
As part of my tenure, I look forward to building on the energy and cohesiveness of the IMAP brand that was demonstrated during the recent IMAP Symposiums in Turkey, Beijing and Chicago; and to doing business with you in 2013 and beyond.
To that end, we have increased the size and quality of the FRG team with some great people. Here are the members of our group and the date they joined FRG:
Dr. Maegan Evans, Director – 1997
Dr. David Spellberg, Medical Director – 2013
Kurt Andersen, Managing Director – 2008
Robert Newman, Director, Rail Practice – 2009
Christopher Boll, Associate – 2010
Erik Bindslev, Associate – 2012
Suzanne Boland, Director of Administration – 2011
Bethany Bragg, Administrative Associate – 2013
Kerry Dustin, Founder & CEO – 1997
Our Strategic Advisors
Ron Glah/Multi-Industry – 2004
Frank Pinto/IT – 2004
Jerry Bogo/Multi-Industry – 2008
Robert McCashin/Defense & IT – 2009
Michael Benz/Multi-Industry – 2012
Neil Goeren/Innovation/Consumer Products – 2012
Mark Michel/Multi-Industry – 2012
I hope you’ve enjoyed our latest newsletter and learning more about the power of IMAP.
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.
Members of Falls River Group are registered representative of and securities transactions are conducted through StillPoint Capital, LLC, Member FINRA/SIPC (www.finra.org and www.sipc.org ), Tampa, FL. StillPoint is not affiliated with Falls River Group.