Albert D. Melchiorre

Wednesday, 29 February 2012 19:01

Cleveland Deals Page: Ready and Waiting

The perfect storm for sellers in 2012 was the outlook at the end of 2011. Apparently, buyers have been slow to get on board due to lingering concerns about the economy and the European debt crisis. These buyers seem to be ready, set and waiting for this perfect storm to calm down as indicated by January’s data.

According to CapIQ, the number of closed M&A transactions in the United States (including undisclosed values) was 1,418 in January 2011 and 1,014 in December 2011.  The first month of 2012 was 1,046, up slightly from December 2011 but down from January 2011. Locally, Northeast Ohio encountered the following closed M&A transactions: 44 in January 2011, 41 in December 2011 and 30 in January 2012.  December and January are typically the busiest months of the year when it comes to closed deals. This historical trend would suggest that the rest of the year would be less active, but with private equity needing to invest and with high cash on hand for strategic buyers, conditions are still in place for solid deal making throughout 2012.

Local strategic buyers wasted no time announcing acquisitions in January after completing a handful of acquisitions in December 2011. TransDigm Group Inc. led the acquisitive charge within the manufacturing industry with its $750 million acquisition announcement of AmSafe Global Holdings Inc. from a group controlled by Berkshire Partners LLC and Greenbriar Equity Group LLC. AmSafe had 2011 revenue of approximately $260 million.

Within the real estate industry, DDR Corp. and Blackstone Real Estate Advisors announced the purchase of 47 U.S. shopping centers with a proposed transaction value of $1.43 billion.

Dan Gilbert completed the sports owners “trifecta” with his January purchase of the Cleveland Gladiators as part of the Arena Football League. This adds to his investments in the Cleveland Cavaliers and the Lake Erie Monsters, a minor league hockey team.  Gilbert’s Cleveland sports investments, and his investment in the city’s forthcoming casino, solidifies his commitment to the future of Northeast Ohio.

Resilience Capital Partners purchased Weaber Inc., one of the nation’s leading hardwood lumber producers in Lebanon, Pa., employing more than 300 people. Meanwhile, The Riverside Co. ended 2011 with a record 29 completed acquisitions and is not stopping in 2012 as another three acquisitions were completed in January.

Albert D. Melchiorre is the president of MelCap Partners LLC, a middle-market investment banking firm. He is also a director on the ACG Cleveland board. For more information on MelCap Partners, please visit www.melcap.co.  For more information about the Association for Corporate Growth, please visit www.acg.org/cleveland.

Deal of the Month

The deal of the month is awarded to TransDigm for announcing its $750 million acquisition of AmSafe Global Holdings. Nicholas Howley, TransDigm’s chairman and CEO, stated that the deal “meets our strategic, operational and value-creation criteria. … Most of AmSafe’s revenues come from highly engineered, proprietary aerospace product with substantial and growing aftermarket content.” 

AmSafe is well-known for its proprietary aviation passenger seatbelts and airbags. The company’s products are on nearly all of the world’s airlines with products certified and installed on more than 90 percent of the aircraft produced worldwide. AmSafe is the first and only company to have a seatbelt airbag system installed worldwide on both commercial transport and general aviation aircraft.

Tuesday, 31 January 2012 19:01

February Cleveland Deals

Get ready for a busy year

The amount of cash on corporate domestic balance sheets is at an all-time high. The S&P 500 alone has more than $1 trillion. Furthermore, private equity firms have a pent-up supply of capital to invest with more than $450 billion of equity capital to be deployed. With an improved lending market, PE purchasing power is approaching $1 trillion, as well. What does all this mean?

The signs seem to point to a perfect storm on the horizon for 2012. There will still be challenges in 2012, but merger and acquisition activity should be robust.

Lubrizol Corp., TransDigm Group Inc., First Communications Inc., Colfax Corp., Eaton Corp. and PolyOne Corp. all ended the year with completed acquisitions. Lubrizol acquired Active Organics, which provides access to the natural performance ingredients markets for personal and home care. Lubrizol’s other acquisition, Merquinsa Mercados Quimicos S.L., expands its global reach.

TransDigm gave $84 million in cash to Harco Laboratories Inc, which had 2011 sales of $37 million. PolyOne completed its acquisition of ColorMatrix and its intellectual property portfolio of 162 patents and 107 pending applications worldwide for $486 million. The deal structure includes a new secured $300 million Term Loan B, replaces its expiring accounts receivable securitization facility as well as a new $300 million asset-based revolving credit facility and redeemed its 2012 senior notes.

The Riverside Co. wrapped up another busy year with its 25th and 26th acquisitions of 2011. The first, HR Solutions International Inc., is an add-on to its recently acquired portfolio company Avatar International. The second acquisition, Newvision, is a Portuguese customer journey management specialist company. Newvision provides virtual queue management, people counting, self-service, multimedia kiosks and corporate television.

Finally, Rockwood Equity Partners LLC announced a merger between Amistco Separation Products and two divisions of ACS Industries. The new company, called ACS-Amistco, is expected to be a leading manufacturer of separation and mass transfer products.

Albert D. Melchiorre is the president of MelCap Partners LLC, a middle-market investment banking firm. He is also a director on the ACG Cleveland board. For more information on MelCap Partners, please visit www.melcap.co. For more information about the Association for Corporate Growth, please visit www.acg.org/cleveland.

Deal of the Month

The deal of the month is awarded to Linsalata Capital Partners for completing its 100th acquisition since its inception in 1984. These 100 acquisitions are broken down by 43 platform companies and 57 add-ons. On Dec. 19, Linsalata completed the add-on acquisition of Dell Manufacturing Co. Inc. to its portfolio company Whitcraft Group. Whitcraft serves the aerospace and defense industry as a manufacturer of machined and fabricated parts for commercial and military aircraft engines. Dell Manufacturing will increase the manufacturing products on existing and next-generation jet engine platforms.

Tuesday, 03 January 2012 15:16

Market in mood to sell

Private equity firms owned more than 6,100 portfolio companies when 2011 reached its halfway point, according to a report by Pitchbook and Grant Thornton. One-third of those 6,100 companies have been held for more than five years. The result of this oversupply of tenured portfolio companies is a large exit strategy from private equity groups. With strategic buyers’ enormous cash holdings, low earnings on interest and acquisitive behavior in 2011, private equity groups are seeing an opportunity to sell. PE firms also need to appease limited partners by deploying capital and increasing returns, which will ensue through an exit strategy.

Private equity firms still have ample capability to perform acquisitions with an overhang of capital close to $400 million. However, the current market appears more situated for private equity groups to exit rather than acquire. So far in 2011, private equity acquisitions made up just more than 10 percent of total deal value, as compared to 2006 and 2007 where private equity acquisitions accounted for approximately one-third of total deal value. It has been difficult for private equity groups to compete for companies as strategic buyers continue to offer aggressive cash bids and continue to maintain lower borrowing costs.

The overall merger and acquisition market has remained rather flat the last few months due to uncertainty in the global market. However, in Northeast Ohio, private equity groups have become very active in November with The Riverside Co. doing multiple acquisitions and exits, and Blue Point Capital Partners making multiple acquisitions. Expect to see a lot more activity from local private equity groups as exiting portfolio companies becomes more advantageous and capital overhang continues to linger.

Albert D. Melchiorre is the president of MelCap Partners LLC, a middle-market investment banking firm. He is also a director on the ACG Cleveland board. For more information on MelCap Partners, please visit www.melcap.co. For more information about the Association for Corporate Growth, please visit www.acg.org/cleveland.

Deal of the Month

The deal of the month is awarded to Blue Point Capital Partners for the company’s two acquisitions in November. On Nov. 1, Blue Point announced that its portfolio company, Quality Synthetic Rubber Inc. would acquire Wisconsin-based Quadra Inc., a manufacturer of custom-molded silicone products. Blue Point’s portfolio company QSR, locally based in Twinsburg, is a manufacturer of highly engineered, molded rubber components. QSR’s acquisition will expand the company’s medical business and diversify the current customer base.

On Nov. 16, Blue Point completed its second acquisition of Selmet Inc., based in Albany, Ore. Selmit is a manufacturer of complex titanium castings for the aerospace and defense industries. Blue Point acquired Selmet because of the company’s growth prospects as the aerospace industry moves more towards lighter weight products. Selmet produces many lightweight titanium products, including engine, airframe and other aircraft components.

Wednesday, 30 November 2011 19:01

Market enters fall with uncertainty

High domestic unemployment and low domestic consumer spending teamed with the heavy burden of a European economic debt crisis has tampered with potential merger and acquisition growth. With third-quarter deal volume down 16 percent and an uneventful month in October, the M&A markets are attentively watching to see what will evolve in the overall marketplace.

Confidence has weakened from international debt policies and recent increased regulations. At the same time, there is some optimism out there as a result of certain positive market data. Gross domestic product is one definitive indication of a growing market, and current third-quarter estimates for the U.S. economy are at 2.5 percent growth, double the previous quarter. Another encouraging sign for M&A markets is the amount of debt and equity available for transactions. 

S&P nonfinancial companies have accumulated more than $1 trillion of cash and short-term investments on their balance sheets. This is 58 percent higher than during the market slowdown in 2008. Private equity “overhang” (funds available from private equity groups for acquisitions) combined with S&P 500 cash balances, totals more than $1.5 trillion of capital available for acquisitions.  

With mixed market data, some companies are playing it very conservative while others are seeing the market as an advantageous time to pursue other companies. The market appears uncertain as August posted the highest activity of the year and September the slowest activity of the year. The value of companies, or rather the multiples on companies, remains high as buyers compete for healthy companies and banks compete vehemently to provide lending for those transactions.

In Northeast Ohio, there was some activity but not at the level seen in previous months.  The Riverside Co., nevertheless, remained by far the most aggressive group in Cleveland, completing three separate transactions. Riverside completed two acquisitions including ECN Inc., an emergency communication group that issues messages on behalf of government and education entities, and PPS AB, a private school operator in Sweden.  

Albert D. Melchiorre is the president of MelCap Partners LLC, a middle-market investment banking firm. He is also a director on the ACG Cleveland board. For more information on MelCap Partners, please visit www.melcap.co. For more information about the Association for Corporate Growth, please visit www.acg.org/cleveland.

Deal of the Month

The deal of the month goes to a transaction between two local companies. On Oct. 3, Cleveland’s PolyOne Corp. announced it would acquire Berea’s ColorMatrix for $486 million. ColorMatrix, a leading manufacturer of specialty additives, liquid colorants and dosing technologies globally, had sales of $196.8 million and EBITDA of $43.6 million for its fiscal year ending June 30. For the past decade, ColorMatrix has increased EBITDA by 16 percent annually.

PolyOne, a provider of specialized polymer materials, services and solutions, will add additional support to its specialty business through the acquisition. The company’s specialty business will now be greater than 50 percent of operating income compared to 2 percent of operating income in 2005. PolyOne also adds an additional 162 patents and another 107 pending patents with the acquisition. PolyOne expects to increase its global reach through the acquisition and build on revenue of $2.6 billion in 2010.

The labor lockout in professional basketball has frustrated sports fans and unnerved downtown Cleveland businesses who count on Cavaliers fans to patronize their establishments. But on the transactions front, Northeast Ohio’s deal market continues to be open for business. The local market was especially active as several area companies either announced or closed on a number of strategic acquisitions in September while several other local companies were acquired. On the private equity front, many Northeast Ohio private equity groups were involved in acquisitions as well.

More specifically, Berkshire Hathaway officially closed the Lubrizol deal, which was announced in March of this year. Primus Venture Partners purchased G2 Web Services LLC and also sold SterilMed Inc. to Ethicon Endo-Surgery Inc., a Johnson & Johnson company. Cornerstone Industrial Group LLC, a private equity firm in Chagrin Falls, sold Fremont, Ohio-based FPM Tooling & Automation to Tooling Tech Group out of Fort Loramie. 

Scrap company PSC Metals Inc. of Mayfield Heights closed on the acquisition of Shapiro Brothers Inc., of Festus, Mo. This is PSC’s fourth acquisition in 2011. This purchase now gives PSC a total 37 locations in the Midwest and Southeast. PSC Metals employs 900 people and is a subsidiary of Icahn Enterprises LP.

The Riverside Co. maintained both resilience and growth in the face of news that banks are selling investments in private equity companies with the company’s 14th and 15th acquisitions in 2011, Centiv Services LLC and Avatar International LLC. Riverside also closed on its next micro-cap fund in September at 37 percent above its target of $100 million, showing it can still raise money despite an estimated half a trillion dollars of unspent private equity dollars in the marketplace. 

Albert D. Melchiorre is the president of MelCap Partners LLC, a middle-market investment banking firm. He is also a director on the ACG Cleveland board. For more information on MelCap Partners, please visit www.melcap.co.  For more information about the Association for Corporate Growth, please visit www.acg.org/cleveland.

Deal of the Month

RPM International Inc. has been very active in the second half of the year and has completed its fifth deal in two months, which is why RPM is our Deal of the Month for September. First, its subsidiary, RPM Wood Finishes Group, purchased Texas-based Fuhr Industrial. Next, RPM closed on the acquisition of Kemrock Industries & Exports Ltd., which is based in India. And finally, RPM announced the purchase of Legend Brands, from Cleveland-based private equity firm Blue Point Capital Partners. This acquisition will help RPM extend its reach to the restoration of property markets as Legends provides equipment and solutions for water and fire damage restoration

Friday, 30 September 2011 20:01

Business Pulse

As summer ends and the cold, gloomy winter draws closer, Ohio companies remain on fire. Eighty percent of the selected August transactions listed on this page included Ohio companies as buyers. The Northeast Ohio region remains acquisitive in the face of high market volatility. The uncertainty of a global economic recovery and unstable equity markets has shaken some confidence in the M&A market. However, companies continue to pay high dollar for strategic fits that will add market share and build long-term value.

OM Group Inc. completed its strategic acquisition of Vacuumschmelze GmbH & Co. KG for $950.9 million on Aug. 2. The acquisition will give OM Group greater presence in emerging markets and further mitigate raw material pricing volatility through economies of scale.

RPM International Inc. also made an international acquisition with the purchase of API S.p.A. The $28 million company, located in Genoa, Italy, is a producer and installer of polyurethane and urethane-based flooring for the marine industry, primarily luxury boats. The company will complement the commercial polymer flooring businesses already owned by RPM and will give RPM a greater presence in the decorative flooring space.

Private-equity groups remained somewhat quiet this month, yet some were still very busy acquiring Northeast Ohio companies. The Riverside Co. continued its great year with its 13th acquisition of the year, Sunless Inc. The Macedonia company manufactures spray tanning booths, airbrush equipment and retail products in the sunless tanning segment. Finally, Weinberg & Bell Group acquired Cleveland-based Channel Products Inc., a manufacturer of ignition systems and safety controls for gas appliances.

Albert D. Melchiorre is the president of MelCap Partners LLC, a middle-market investment banking firm. He is also a director on the ACG Cleveland board. For more information on MelCap Partners, please visit www.melcap.co. For more information about the Association for Corporate Growth, please visit www.acg.org/cleveland.

 

Deal of the Month

August’s deal of the month goes to TransDigm Group Inc., for the acquisition of Kent-based Schneller Holdings LLC. TransDigm acquired Schneller on Aug. 31 from Graham Partners for $288.5 million in cash. Schneller manufactures a variety of laminates, thermoplastic sheets, utility flooring and custom applications for the aviation and rail industries. Schneller’s decorative materials are found on most Boeing platforms, all active Airbus platforms and most regional jets. Two-thirds of Schneller’s revenues come from the commercial aftermarket with most of the company’s products being used for aircraft side walls, lavatories, galleys, bulkheads and cabin floors.  It is anticipated that Schneller’s revenues will reach $84 million in 2011.

TransDigm’s acquisition comes just a week after the board of directors authorized a repurchase program of up to $100 million of common stock. This move should add flexibility and strengthen the company’s position through various uses of cash, including both acquisitions and the repurchasing of stock. The acquisition of Schneller is expected to build value as both companies’ products and markets align, increasing Transdigm’s aerospace market share.

Wednesday, 31 August 2011 20:01

Northeast Ohio is in a buying mood

Even with the lackluster gross domestic product data from the second quarter and uncertainties surrounding governmental debt and its effects on the marketplace, the mergers and acquisitions market has continued to improve as aggregate deal value, private equity fundraising and debt availability have all shown positive signs of growth over the first half of the year. Northeast Ohio businesses remain both acquisitive and aggressive as July was another solid month for local wheeling and dealing. Twenty of the 24 transactions listed on this page, or roughly 83 percent, represent Ohio companies as the buyer in the transaction.

Both Olympic Steel Inc. and Timken Co. completed acquisitions on July 1. Olympic Steel purchased Chicago Tube and Iron for $150 million while Timken acquired Philadelphia Gear for $200 million. These transactions allow both companies to deliver more value to current customers and allow both companies to reach a wider audience.

Sherwin-Williams Co. increased its product line in the United Kingdom with the purchase of Leighs Paints on July 6. Leighs Paints employs 260 people and distributes its products to 47 countries. Leighs’ FIRETEX brand will join Sherwin-Williams Protective & Marine Coatings division and will be a key product as it has been used on more than 400 projects worldwide.

Lincoln Electric Co. completed a pair of acquisitions at the end of July. The first acquisition was for Techalloy Welding Products, a producer of nickel alloy and stainless steel welding consumables. Lincoln also completed a deal for Torchmate, a manufacturer of CNC plasma and oxyfuel cutting tables. The combined revenues of the two companies being bought is about $90 million. The deals will allow Lincoln to continue to expand its relationships with customers through broader product offerings.

On the private-equity front, there was also activity as The Riverside Co., Rockwood Equity, SFW Capital and Linsalata Capital Partners all completed acquisitions in July. Again, although the markets and economy appear to be slower than anticipated, Northeast Ohio’s deal activity remains positive.

Deal of the Month

OM Group Inc. receives July’s deal of the month for its recent announcement that the company will acquire Vacuumschmelze GmbH & Co. KG out of Hanau, Germany for $1 billion. VAC is a global producer of advanced magnetic materials and related products, employing more than 4,800 employees in 50 countries. With sales of approximately $503 million, VAC holds more than 750 patents for products used in renewable energies, automotive technology, medical technology and aerospace industries.

OM Group’s acquisition will give the company greater presence in China and India, further mitigating raw material pricing volatility through economies of scale. The acquisition also allows OM Group to add more capabilities in alternative energy as VAC produces products used in wind turbines and solar development. With this move, OM Group continues to become more diversified through providing not just metal materials, but also engineered products.

Wednesday, 06 July 2011 16:51

Public companies on the move in May

May flowers were blooming and so were Cleveland’s publicly held companies. Of the top 10 such companies in the Cleveland area, all have seen market value growth over the past year. In addition, the average annual market value growth has been greater than 35 percent per company.  

Four of the top 10 publicly held companies in the Cleveland area either announced or closed acquisitions in the month of May. This growth and activity is an excellent sign for investment in the Cleveland region as companies remain acquisitive, increase revenues and build solid earnings. Listed below are some of the area’s recent acquisitions by publicly traded companies: 

J.M. Smucker Co. acquired Rowland Coffee Roasters Inc., a sizeable maker and distributor of Hispanic coffee brands in the U.S., on May 16. The acquisition was for $360 million and the deal is expected to be accretive by fiscal 2012. Smucker’s coffee segment has been doing extremely well lately. After improving sales in its coffee segment by 99 percent from 2009 to 2010, this acquisition should be a great investment for continued growth. 

Olympic Steel Inc. announced on May 18 the payment of $150 million in cash and the assumption of $6 million in debt for Chicago Tube and Iron Co. The addition of the almost 100-year-old competitor will allow Olympic Steel to sell piping products to its current customer base, as well as sell its current products to new customers throughout the Midwest. 

The Timken Co. announced on May 27 that it will acquire Philadelphia Gear Corp. for $200 million. With this addition to its industrial services business, Timken plans on profitable growth globally as the acquisition is expected to add to earnings in its first full year. Timken has been on a roll lately, nearly doubling its market value over the past year and increasing dividends by 11 percent in May. 

Some other notable acquisitions by public companies include Applied Industrial Technologies Inc.’s expansion in Texas with the acquisition of Gulf Coast Bearing & Supply Co. on May 3, Eaton Corp.’s completion of its acquisition of the Internormen Technology Group on May 12, and RPM International Inc.’s increased minority stake in its Indian composites company, Kemrock Industries and Exports Ltd., on May 13. Overall, May was a strong month for M&A activity in Northeast Ohio.Albert D. Melchiorre is the president of MelCap Partners LLC, a middle-market investment banking firm. He is also a director on the ACG Cleveland board. For more information on MelCap Partners, please visit www.melcappartners.com. For more information about the Association for Corporate Growth, please visit www.acg.org/cleveland.

 Deal of the Month

 Cliffs Natural Resources Inc. receives the deal of the month for its acquisition of Consolidated Thompson Iron Mines Ltd. on May 12. The $4.9 billion (Canadian) deal for the Eastern Canadian company strengthens Cliff’s ability to meet global demand for steel. The transaction will allow Cliffs Natural Resources to increase its customer base with Asian seaborne customers as more than 50 percent of sales will be derived from outside of North America. Currently, Cliff’s portfolio includes 10 iron ore facilities, six coal mines and a chrome development project. Over the past year, Cliffs has seen incredible results as revenue doubled and net income quintupled in 2010. With this transaction, the company hopes to achieve 60 million metric tons of iron ore by the year 2013. Congratulations to Cliffs Natural Resources for a great acquisition.

Tuesday, 31 May 2011 20:01

Deals surge in April

Private equity groups appear to be on a mission through the first four months of 2011. This surge has been inspired by an improving economy, increasing volume of quality acquisition opportunities and, lastly, the growing availability of debt as banks have conservatively returned to lending.

This has led private equity groups to deploy capital in order to raise new funds while continuing to mend portfolio companies in order to attract limited partners to invest in those new funds.

In an effort to provide much anticipated returns to investors and further support fundraising efforts, private equity groups will look to divest portfolio companies throughout 2011. Considering the improving merger and acquisition market and the re-entry of strategic players to the buyout world, many private equity groups are positioned for divestitures in the very near future. In fact, there are several Cleveland-based private equity groups that have exited investments during the month of April.

Linsalata Capital Partners Inc. and Resilience Capital Partners announced the sale of Lund International Holding Co. on April 28 to an affiliate of Highlander Partners LP. It was 2007 when the two private equity groups acquired the assets of Lund International, a designer, manufacturer and marketer of branded accessories for the automotive market.

Resilience Capital Partners also divested Steel Parts Manufacturing Inc. as it was purchased by Monomoy Capital Partners. Steel Parts is a manufacturer and supplier of close-tolerance precision metal stampings and components in automatic transmission systems. The acquisition of Steel Parts by Resilience in 2006 provided a 51 percent gross internal rate of return.

 Morgenthaler Partners also participated in the divestiture of one of its portfolio companies. Ryan Herco Flow Solutions, a distributor of products used in the flow of purified water, was acquired by Greenbriar Equity Group LLC from Morgenthaler’s Venture Partners Fund VII LP. Ryan Herco sells more than 70,000 products that are used in a variety of industries.

Albert D. Melchiorre is the president of MelCap Partners LLC, a middle-market investment banking firm. He is also a director on the ACG Cleveland board. For more information on MelCap Partners, please visit www.melcappartners.com. For more information about the Association for Corporate Growth, please visit www.acg.org/cleveland.

Deals of the Month

The first recognition goes to The Riverside Co. with its acquisition of The Ostomy Center. The add-on acquisition to its platform company, ActivStyle, will be Riverside’s 54th health care transaction over its history and the sixth transaction for Riverside already in 2011. The Ostomy Center services mostly Illinois patients with incontinence, enteral, urology, ostomy and wound care products for conditions such as ostomy status, autism, spina bifida, cerebral palsy and Down syndrome. The acquisition will allow ActivStyle to diversify its demographics with products targeted toward younger patients.

Garfield Heights-based Chart Industries Inc.’s acquisition of CFIC also receives recognition this month. CFIC manufactures thermoacoustic technology, which converts acoustic sound waves into energy to heat or cool products. The acquisition should help enhance the global portfolio of Chart Industries’ biomedical segment. In December, Chart Industries also spent $40 million to acquire SeQual Technologies for its biomedical segment. Chart Industries has been performing very well as of late, with its stock price increasing more than 1,000 percent from $5.26 in March 2009 to $55.04 in March 2011.

Saturday, 30 April 2011 20:01

Market may be ready to bust out of rut

Those hoping for a boost in merger and acquisition activity in March were disappointed. It continued a trend of slow activity that persisted throughout much of the first three months of 2011. This first-quarter lag can be attributed to the push in the fourth quarter to complete deals due to the threat of an increasing capital gains tax. But fear not, better days may be right around the corner. Despite the slow start, it appears there will be a significant increase in M&A activity, and 2011 should be a robust year.

Some of the key drivers supporting deal activity in the near future are a direct result of the improving economy. Many companies have rebounded from a dismal 2009 and returned to profitability in 2010. The availability of capital has increased as banks have returned to lending, and private equity groups, which have been sitting on the sidelines for the past 18 months, are looking to deploy capital in order to raise new funds.

In addition to seeking new investment opportunities, private equity groups will look to divest portfolio companies over the near term. Furthermore, many corporations have record levels of cash on their balance sheets, which is fueling a flurry of deal activity as strategic buyers look to grow and diversify.

Although M&A activity was sluggish in March, media and print companies were active in the Cleveland area. Cleveland-based American Greetings Corp. acquired Watermark Publishing Ltd. through its European subsidiary, UK Greetings Ltd. Located in Corby, England, Watermark generates around $40 million in revenue annually and has assembled more than 4,500 greeting card designs in their portfolio. This acquisition broadens the product offering of American Greetings and will allow its European subsidiary to increase its market share.

Another entertaining print company located in the Cleveland area is Mental Floss LLC, publisher of Mental_Floss Magazine. The quirky magazine, “where knowledge junkies get their fix,” is located in the Geauga County suburb of Chesterland and delivers informational facts on just about everything from the most dangerous pieces of art to cheat sheets about the theologian Augustine. Felix Dennis, who introduced the magazines Maxim and Stuff to the U.S., announced his intention to purchase the company and move the headquarters to New York.

Albert D. Melchiorre is the president of MelCap Partners LLC, a middle-market investment banking firm. He is also a director on the ACG Cleveland board. For more information on MelCap Partners, please visit www.melcappartners.com. For more information about the Association for Corporate Growth, please visit www.acg.org/cleveland.

Deal of the Month

March was an excellent month for Wickliffe, about a 10-minute drive east of downtown Cleveland, as Berkshire Hathaway Inc. announced it would acquire Lubrizol Corp. for $9.7 billion. The price was a 28 percent premium above Lubrizol’s closing price before the transaction was announced. Expected to close this fall, the transaction would represent Berkshire Hathaway’s third-largest acquisition to date behind General Re Corp. and BNSF Railway Co. The $135-per share bid price is quite a jump from the $23.56 low hit only two years prior in March 2009. However, the company has rebounded with solid revenue and income since the economic downturn of 2008. Lubrizol, a specialty chemical company primarily engaged in the production of lubricants and additives, has itself been acquisitive. It just recently purchased the personal care business of Nalco Holding Co. for $166 million in January. Lubrizol’s headquarters will remain in Wickliffe and the current management team, led by James Hambrick, will continue operations. Congratulations to Lubrizol on achieving great value with excellent performance.

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