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.

Published in Cleveland
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.

Published in Cleveland
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.

Published in Cleveland