We are pleased to share Watermark’s inaugural M&A Wire for 2021.
Back to Fundamentals: Comprehensive M&A Expertise a Rarity, but also a Requirement
M&A continues, as it always has been, to be a risky endeavor. If any one area in M&A goes sideways, that can spell trouble. Considering M&A involves so many processes and skills, the odds are high that something will go sideways when a company transacts a M&A. Surprisingly, very few M&A advisors offer a comprehensive solution that delivers all of the processes and skills required to excel. What do we mean by that? Since businesses small and large don’t live in the world of M&A, it is easy to stumble without having expertise in M&A preparation, due diligence, core M&A skills of valuation, synergies and negotiations, and integration planning and execution. No one individual can deliver all that is required.
M&A Macro Conditions from 2020
With an acknowledgment of the fundamental challenges of M&A, let’s kick off the new year with a reflection of 2020. It was the year of COVID, of global instability, of political divisiveness, and ultimately, yes, a divided nation. M&A also took a hit. By the end of the second quarter, closed M&As aggregate transaction value in the US plunged 50% over the first quarter, from $263Bn in Q1 to $133Bn in Q2. However, the second half of the year rebounded significantly in M&A transaction value and number of transactions closed, with $1.2 Tn in closed M&As vs. $396Bn in 1st Half 2020.
US M&A Activity 2H’20 Rebounded After 1H’20 COVID Shocks
Number of M&As and Total Value Drops Across All Sized Transactions in 2020
Valuations Hold Up
Deal valuations remained robust entering 2021. According to GF Data, Average Enterprise Value/EBITDA multiples of 243 acquisitions led by private equity firms rose from 7.1x in 4th Quarter 2019, to 7.3x in 1st Quarter 2020, to 7.4x in 2nd Quarter 2020 then fell to 6.7x in the 3rd Quarter 2020. These multiples are based on acquisitions of companies whose Enterprise Values ranged from $10MM – $250MM. We opine that deals with survivorship bias dominated the market and thus multiples overall remained solid. We saw more challenged deals simply postponing their efforts. With those transactions falling away, healthier deals survived, and therefore M&A deal multiples didn’t slide as much as one might have anticipated.
Complexities of Deal Making
Deal makers experienced increased pressure on projections uncertainty and due diligence (“DD”) efforts. Acquirer skepticism tempered conclusions on sellers’ projection guidance, resulting in valuation gaps challenging negotiations. Further, in a current AM&AA study, 93% of respondents reported that scrutiny increased in: Financial DD, Customer DD, Management team and Key Employees DD, Contracts DD, Vendors and Supply Chain DD, Operations DD, and Sales DD. As we all know, deals with valuation and due diligence issues become more complicated to close.
Where Are We Now?
The question is simple, the answer is complex. If we start from a macro geopolitical perspective, we ended 2020 with great consternation of China identified as the greatest threat to the United States’ security. With the change of regime to the Biden Administration, uncertainty abounds as to how the threat of China will be handled. Trade policies are likely to soften, shifting away from America First to a global business mindset again. This matters to M&A because M&A seeks economic political stability. Further, Biden plans significant tax increases after historic lows. Capital gains taxes directly impact M&A volume, as do income taxes. If we see both rise significantly in 2021 or 2022, the negative repercussions will be felt in M&A.
Spotlight on Manufacturing M&A Transactions
Here in the Southeast, manufacturing remains a solid backbone to the economy. We want wrap up this issue of the M&A Wire by taking a minute to spotlight closed M&As in the Carolinas, Georgia, Florida and Tennessee over the last six months.
Southeast US Manufacturing M&A Transactions from June 2020 – January 2021
| M&A Closed Date | Acquirer | Geographic Locations (Buyer) | Target | Business Description (Target) | Total Transaction Value ($USDmm, Historical rate) | Implied Enterprise Value/Revenues (x) | Implied Enterprise Value/EBITDA (x) |
|---|---|---|---|---|---|---|---|
| 01/21/2021 | H.I.G. Capital, LLC | Florida | Continental Batteries Company | Continental Batteries Company distributes batteries for a variety of vehicles, as well as for other commercial and heavy duty uses. | - | - | - |
| 01/19/2021 | NovaQuest Capital Management, L.L.C. | North Carolina | CoreRx, Inc. | CoreRx, Inc., a contract development manufacturing organization (CDMO), provides services for the development, manufacturing, and testing of solid, liquid and semi-solid dosage forms to pharmaceutical and biotechnology companies. | - | - | - |
| 01/11/2021 | Advantus Corp. | Florida | ART 101 USA, Ltd. | ART 101 USA, Ltd. manufactures and supplies art sets and wooden easels. | - | - | - |
| 01/07/2021 | Chimerix, Inc. (NasdaqGM:CMRX) | North Carolina | Oncoceutics, Inc. | Oncoceutics, Inc., a clinical-stage drug discovery and development company, develops imipridones, a class of compounds that target G protein-coupled receptors for oncology. It provides ONC201, an orally active DRD2 small molecule antagonist that is well-tolerated against advanced cancers. | $442.44 | - | - |
| 01/06/2021 | Gibson Brands, Inc. | Tennessee | Mesa Boogie Ltd. | Mesa Boogie, Ltd. operates as a custom shop for custom hand-built designs for expectations of musical expression. Its products include guitar and bass amps and cabinets, as well as hardware and accessories. | - | - | - |
| 12/31/2020 | Seaway Plastics Engineering LLC | Florida | Wright Engineered Plastics, Inc. | Wright Engineered Plastics, Inc. manufactures plastic injection molder for the medical, aerospace, defense, and industrial markets. | - | - | - |
| 12/31/2020 | Highline Aftermarket Acquisition, LLC | Tennessee | BlueDevil Products | BlueDevil Products manufactures and provides sealants for the automotive aftermarket industry. It also provides aerosol, fuel system cleaner, oil injector, oil stop leak, radiator flush, and washer concentrate. | - | - | - |
| 12/31/2020 | Malibu Boats, LLC | Tennessee | Maverick Boat Group, Inc. | Maverick Boat Group, Inc. designs and manufactures shallow-water flat skiffs, flatboats, and technical poling skiffs. The company also offers boat logo apparel, hats and visors, gift items, decals and parts, and coolers online. | $150.00 | 1.25x | - |
| 12/21/2020 | Sarasota Interventional Radiology | Florida | XACT Robotics Ltd. | XACT Robotics Ltd. develops a robotic technology platform for needle steering in minimally invasive interventional procedures. It develops a 5 degrees-of-freedom needle steering and insertion system that include a patient-mounted robot, a control unit connected to the CT and to the robot, and a workstation for procedure planning and observation. | - | - | - |
| 12/15/2020 | Shamrock Environmental Corporation | North Carolina | Virginia American Industries, LLC | Virginia American Industries, LLC provides non-hazardous wastewater treatment services. | - | - | - |
| 12/14/2020 | Phoenix Stamping Group, LLC | Georgia | Taggart Enterprises, Inc. | Taggart Enterprises, Inc. provides metal fabrication and stamping services. Its services include laser cutting, CNC stamping, metal forming, press brake forming, welding, progressive and secondary stamping, tool and die support, deep draw and short run stamping, and assembly services. | - | - | - |
| 12/07/2020 | Fanatics, Inc. | Florida | WinCraft, Inc. | WinCraft, Inc. manufactures licensed and promotional products for retailers, professional sports teams, concessionaires, colleges, businesses, distributors, and schools. | - | - | - |
| 11/18/2020 | Mangrove Equity Partners, L.P. | Florida | Steam Turbine Alternative Resources, Inc. | Steam Turbine Alternative Resources, Inc. engages in the design, manufacturing, and installation of turbine seals. It offers products, which include conventional seals, retractable seals, sensitized seals, spill strips, and conventional spill strips. | - | - | - |
| 11/16/2020 | Southwire Company, LLC | Georgia | American Elite Molding, LLC | As of November 16, 2020 American Elite Molding, LLC was acquired by Southwire Company, LLC. American Elite Molding, LLC manufactures nylon cable ties. The company offers cable ties, specialty ties, EZ-OFF ties, HVAC duct straps, custom printed ties, and accessories products. | - | - | - |
| 11/09/2020 | Helios Technologies, Inc. (NasdaqGS:HLIO) | Florida | Balboa Water Group Inc. | Balboa Water Group Inc. designs and manufactures control systems and equipment for the leisure water industry in the United States and internationally. | $218.50 | - | 9.3x |
| 11/05/2020 | Mel-Mont Medical, LLC | Florida | PreTect AS | PreTect AS, a research-based company, develops and markets medical products for clinical diagnosis. | $0.84 | - | - |
| 11/03/2020 | Chart Industries, Inc. (NYSE:GTLS) | Georgia | BlueInGreen, LLC | BlueInGreen, LLC, a water treatment company, manufactures machinery for delivering dissolved oxygen, carbon dioxide, and ozone into water. It offers SDOX, a solution for aeration; CDOX, a solution for pH adjustment; HYDOZ, a solution for disinfection; and SDOX-CS, a solution for odor control. | $26.00 | - | - |
| 10/27/2020 | Resource Label Group, LLC | Tennessee | Mcdowell Packaging & Advertising Co., Inc. | Mcdowell Packaging & Advertising Co., Inc. provides label and screen printing services for customers across the automotive, household products, gourmet foods, and health and personal care segments. | - | - | - |
| 10/26/2020 | Vision Investment LLC | North Carolina | Alluxa, Inc. | Alluxa, Inc. offers precision optical thin film interference filters for laser systems, telecommunications equipment, and biomedical instruments. Alluxa, Inc. was formerly known as Sirrus Technology, Inc. and changed its name to Alluxa, Inc. | $254.85 | - | - |
| 10/06/2020 | Consolidated Machine & Tool Holdings, LLC | Florida | Delva Tool & Machine Corp | Delva Tool & Machine Corp provides contract machining, fabrication, engineering and complex assembly services. | - | - | - |
| 10/01/2020 | Evergreen Capital, L.P. | Florida | Shipham Valves Limited | Shipham Valves Limited manufactures and supplies valves for the energy industry. It offers high-alloy valves used in processing minerals, valves for handling seawater, water valves, stainless steel valves, cryogenic valves for the storage/transportation/processing of industrial gas and liquefied natural gas, and fire-safe valves for liquefied natural gas storage tanks, regasification terminals, and cargo carriers. | - | - | - |
| 10/01/2020 | Sandvik Mining and Construction USA, LLC | Georgia | Allied Construction Products, LLC | Allied Construction Products, LLC designs, manufacturers, and distributes attachments and safety-enhancing equipment primarily for construction, mining, quarrying, and industrial machinery and tools markets. | - | - | - |
| 09/30/2020 | H.I.G. Capital, LLC | Florida | Hart & Cooley, LLC | Hart & Cooley, Inc. manufactures and supplies heating, ventilating, and air conditioning products for residential and commercial markets in the United States. | - | - | - |
| 09/14/2020 | APACE Holding Company, LLC | North Carolina | AP Exhaust Products, Inc. | AP Exhaust Products, Inc. designs, manufactures, and supplies exhaust and emissions products for automotive, light truck, heavy-duty, off-road vehicles, and industrial applications. | - | - | - |
| 09/03/2020 | East West Manufacturing, LLC | Georgia | Universal Electronics, Inc. | Universal Electronics, Inc. provides contract electronics manufacturing services to medical, industrial/commercial, communications, and security/defense OEMs in the United States. | - | - | - |
| 09/01/2020 | Ingersoll Rand Inc. (NYSE:IR) | North Carolina | Albin Pump SAS | Albin Pump SAS manufactures and sells industrial hose pumps. | - | - | - |
| 08/22/2020 | Arauco North America, Inc. | Georgia | Prime-Line, Inc. | Prime-Line, Inc. manufactures medium and light density fiberboards, molding, doors, and millwork products to distributors in the United States. | - | - | - |
| 08/14/2020 | Thunder Energies Corporation (OTCPK:TNRG) | Florida | Thunder Energies Corporation | Thunder Energies Corporation develops various technologies in the United States. It produces and sells Galileo and Santilli telescopes, as well as focuses on providing hadronic reactors. The company also engages in producing, selling, and servicing Directional Neutron Source equipment. | - | - | - |
| 08/06/2020 | Logo Brands, Inc | Tennessee | Boelter Brands LLC | Boelter Brands LLC offers sports, beverage, music, and entertainment licensed drink ware, kitchen products, home decor, and tailgating/entertaining products. | - | - | - |
| 08/05/2020 | Division 5, Inc. | Georgia | Structural Steel of Carolina, LLC | Structural Steel of Carolina, LLC provides structural and miscellaneous steel fabrication services in Central and Western North Carolina. The company serves commercial, retail, institutional, and industrial markets, as well as construction industry. | - | - | - |
| 08/03/2020 | Sonoco Products Company (NYSE:SON) | South Carolina | Can Packaging SAS | Can Packaging SAS designs and manufactures paper packaging cans. | $48.98 | - | - |
| 07/31/2020 | Source Capital, LLC; Kilroy Partners | Georgia | Dedinas & Franzak Enterprises, Inc. | Dedinas & Franzak Enterprises, Inc., doing business as Cheeze Kurls Inc, manufactures and markets snack foods. The company’s products include cheese curls, party mix, caramel corn, potato chips, balls, puffs, popcorn, and onion rings. | - | - | - |
| 07/27/2020 | Southwire Company, LLC | Georgia | Madison Electric Products, Inc. | Madison Electric Products, Inc. designs, manufactures, and sells electrical components and accessories to professionals. | - | - | - |
| 07/20/2020 | Astec Industries, Inc. (NasdaqGS:ASTE) | Tennessee | Concrete Equipment Company, Inc. | Concrete Equipment Company, Inc. engineers and operates portable and stationary batch plants in North America. It offers stationary transit mix concrete batch plants, mobile transit mix concrete batch plants, stationary and mobile central mix concrete batch plants, central mixers, dust control systems, material handling systems, and other components. | $13.84 | - | - |
| 07/14/2020 | Technimark LLC | North Carolina | Tool and Plastic Industries Ltd | Tool and Plastic Industries Ltd manufactures and supplies precision injection molded plastic components to the global medical device, pharmaceutical, and consumer product sectors. | - | - | - |
| 07/09/2020 | Accelmed Partners | Florida | TearLab Corporation | TearLab Corporation operates as an in-vitro diagnostic company in the United States and internationally. The company offers TearLab Osmolarity System, a proprietary in vitro diagnostic tear testing platform. | $39.35 | 1.45x | 28.63x |
| 07/03/2020 | Ingersoll Rand Inc. (NYSE:IR) | North Carolina | Ingersoll-Rand (India) Limited (BSE:500210) | Ingersoll-Rand (India) Limited manufactures and sells industrial air compressors primarily in India. The company offers reciprocating air-cooled and water-cooled, contact cooled and oil free rotary screw, and centrifugal compressors; and cycling and non-cycling refrigerated dryers. | $15.01 | 3.09x | 15.83x |
| 07/01/2020 | Element Solutions Inc (NYSE:ESI) | Florida | DMP Corporation | DMP Corporation designs and develops industrial wastewater treatment solutions for a vast array of industries and manufacturing processes. | - | - | - |
| 06/30/2020 | Pine Island Capital Partners LLC | Florida | InVeris Training Solutions, Inc. | InVeris Training Solutions, Inc. develops, manufactures, and distributes integrated live-fire and virtual weapons training systems. The company offers FATS, a small arms trainer; Bluefire, a virtual training system; Armored Fighting Vehicle (AFV) trainers; Mortar simulator; and Motion integrated Training System (MITS). | $146.00 | 1.06x | - |
| 06/23/2020 | AVF CBD, LLC | Tennessee | Atalo Holdings, Inc | Atalo Holdings, Inc manufactures and markets white label hemp products. | - | - | - |
Source: S&P Capital IQ