Exit Strategies Group Announces Successful Acquisition of Tri-Phase Automation

/in , /by Al Statz

(Milwaukee, WI) – Exit Strategies Group, Inc. is pleased to announce that it recently served as exclusive M&A advisor to the shareholders of Tri-Phase Automation, IMAC Motion Control and i-Tech (“Tri-Phase”) on their successful sale to Flow Control Group (FCG), a portfolio company of KKR & Co. Tri-Phase is a leading regional automation solutions provider in the upper Midwest. The acquisition expands FCG’s geographic footprint and custom control panel capabilities in the industrial automation segment of their business. Deal terms were not disclosed.

Founded in 1992 by Matt Miller, Tri-Phase is a leading value-added distributor and integrator of industrial automation technologies serving Wisconsin and Illinois. The firm provides advanced industrial automation technologies from many premier global manufacturers, including motion control, robotics, vision systems, machine controls, safety and sensors, and electrical panel components. Tri-Phase also designs and builds custom industrial control panels, sub-assemblies, and mixed technology systems. Its engineers serve as an extension of their client’s engineering departments to solve technical problems, reduce time to market, increase productivity and profits, maximize investment returns, and gain a competitive edge in their marketplace.

“Our relationship with Exit Strategies began with them providing an independent value and sale-readiness assessment about a year before we went to market. Al’s insights were invaluable in helping us position the company for a more successful sale,” said Matt Miller, founder and CEO of Tri-Phase. “Their sale process produced several strong offers, and they were instrumental in helping us choose the right partner and negotiate and close a deal that met the needs of our entire team.”

Flow Control Group is a leading solutions provider focused on technically oriented products and services for the flow control, fluid handling and process and industrial automation sectors with locations throughout North America. As a critical intermediary between suppliers and customers, FCG’s distribution and technical services serve an essential function in the movement of mission critical components to a diverse array of end markets and applications.

“Exit Strategies is incredibly pleased to have partnered with Matt Miller and the Tri-Phase shareholders. Tri-Phase Automation is an innovative company doing important work, and we share many of the same values. We are delighted to have helped them navigate this process and we wish them all the best in the future,” said Al Statz, President of Exit Strategies Group. “This deal illustrates Exit Strategies’ continued commitment to providing strategic valuation and M&A advisory services to U.S. industrial automation technology companies.”

Exit Strategies Group (ESG) is a California-based provider of strategic merger and acquisition advice and execution, and business valuation services. Founded in 2002, with offices in San Francisco and Portland, ESG represents private companies on the sell-side and works with private equity, public and private companies and family offices on the buy-side. Our industry expertise spans all areas of industrial automation products and services. Since inception, ESG has advised on well over 100 M&A transactions. For more information visit www.exitstrategiesgroup.com

Exit Strategies Group Advises Shaltz Automation in Sale

/in , /by Al Statz

(Flint, MI) — Exit Strategies Group, Inc. recently served as the exclusive financial advisor to Shaltz Automation, a leading regional industrial automation solutions provider, in its acquisition by Flow Control Group (FCG), a portfolio company of KKR & Co. Inc.  Deal terms were not disclosed. 

Headquartered in Flint, Michigan, Shaltz Automation provides advanced industrial automation products from many global manufacturers. Final mile assembly, manufacturing, engineering services, system integration, application know-how and technical support feature prominently in their business model. Technologies include pneumatics, vision systems, robots, machine controls, sensors and other advanced industrial automation technologies. Founded in 1975, Shaltz is a critical partner to major OEM and end user manufacturers in Michigan and Ohio serving diverse end markets such as medical device, food and beverage, automotive, electric vehicle, electronics and packaging.

“We were looking to partner with a like-minded M&A advisor who could understand and promote our unique capabilities, market position and growth potential. Exit Strategies adeptly connected us with potential partners and ensured that we selected the best option and optimized deal terms. Al Statz and Adam Wiskind were with us at every critical step,” said CEO Phil Shaltz.

Flow Control Group is a leading solutions provider focused on technically oriented products and services for the flow control, fluid handling and process and industrial automation sectors with locations throughout North America. As a critical intermediary between suppliers and customers, FCG’s distribution and technical services serve an essential function in the movement of mission critical components to a diverse array of end markets and applications. This deal expands FCG’s market coverage in the industrial automation segment of its business.

“Exit Strategies was incredibly pleased to partner with Phil, Chris Carpenter and the Shaltz Automation team, as this acquisition provides the right opportunity for Shaltz to continue its impressive growth trajectory,” said Al Statz, President of Exit Strategies Group. This transaction illustrates Exit Strategies’ expertise and continued commitment to providing strategic merger and acquisition services to leading industrial automation technology companies.

About Exit Strategies Group

Exit Strategies Group (ESG) is a California-based firm that offers strategic mergers and acquisitions advice and execution, and business valuation services. Founded in 2002, with offices in San Francisco and Portland, ESG represents private companies on the sell-side and works with private equity, public and private companies and family offices on the buy-side. Our industry expertise spans all areas of industrial automation products and services. Since inception, ESG has advised on well over 100 transactions. For more information visit www.exitstrategiesgroup.com

Biden tax plan driving business owners to market

/in , , /by Al Statz

During his campaign, President Biden proposed tax changes that could have a significant impact on business owners. Any business owner contemplating an exit in the next few years should consider how potential tax changes could reduce their net proceeds from a sale.

If Biden’s tax plans come to fruition, the capital gains tax rate could effectively double, from 20% to 39.6% for income exceeding $1 million. Right now, that means business owners need to shift their focus from maximizing total transaction price to maximizing after-tax proceeds.

Let’s assume your company sells for $10 million in today’s tax environment. Under the current tax rate, you’d net about $8 million after federal taxes. The same company selling for $10 million under Biden’s new tax proposal would net approximately $6 million.

Now let’s say you intend to hold your company and grow it for a few more years. Suppose you grow 5% a year for the next three years for a business value of roughly $12.2 million. Selling under the proposed capital gains taxes you’ll net about $7.3 million. That’s a $700,000 loss in net proceeds, despite three more years of hard work.

These are simplified calculations and other factors will come into play. But under our basic scenario, an owner projecting 5% annual growth would need to run the business for an additional five years to reach a breakeven point after increased capital gains.

Some analysts suggest that new tax legislation won’t pass until year-end 2021 with an effective date of 2022. That could give us a year of breathing room before new taxes go into effect.

As we know, Democrats have control of Congress. And yet, that doesn’t mean tax hikes are a sure thing. With the Senate divided 50-50, and a slim margin in the House, the Democrats don’t have room for dissention in the ranks. Party moderates concerned about economic recovery may push for a more tempered approach.

Business owners contemplating a sale in the next five years should meet with their advisors and consider their exit strategies under different tax outcomes.

Furthermore, business owners without immediate plans to sell should understand the potential impact of increased corporate taxes. Higher ongoing tax bills could have a material impact on an owner’s wealth-building strategies and, consequently, their intentions to sell.

According to the most recent M&A Source and IBBA Market Pulse report, it takes an average of 10 months to sell a lower middle market business. If you’re a business owner and you were thinking about exiting in the next couple of years, start talking to your advisors now.

Begin with an M&A advisor to get a valuation and see if it even makes sense to take your business to market. Then talk to your CPA and run the tax scenarios to understand the best- and worst-case possibilities ahead.

If predictions hold true, M&A deal teams (investment bankers, CPAs, attorneys, and lenders) could have a stressful fourth quarter in 2021 as sellers make a collective push to get deals across the finish line before year end. To my industry colleagues I say, forget those post-COVID travel plans. You’re going to be busy.

Al Statz is the founder and president of Exit Strategies Group, a leading California based lower middle market M&A advisory and business valuation firm. For further information on this topic or to discuss a potential business sale, merger or acquisition, confidentially, Al can be reached at 707-781-8580 or alstatz@exitstrategiesgroup.com.

Exit Strategies Advises Vege-Kurl on Sale to Private Equity group

/in , /by Al Statz

Exit Strategies Group is pleased to announce that its client Vege-Kurl, Inc., a manufacturer of high-quality personal care products, has been acquired by private equity group Hemingway Capital.

Founded in 1959, Vege-Kurl Inc. and its subsidiary Joar Labs is a private label contract manufacturing partner and formulator of high quality organically certified efficacious cosmetic, cosmeceutical, health & beauty, and household products. The company provides a wide variety of products such as shampoos, conditioners, hairsprays, serums, permanent waves and relaxers. Vege Labs specializes in skincare treatments, creams and lotions, alcohol-based products such as colognes and fragrances, plus spa and esthetics products and botanical extracts. It has an inhouse FDA approved R&D OTC Laboratory.

“After decades in the business, owners/executives Eric Huffman and Joe Desens wanted a path to retirement and to find a new owner that was capable of building on their legacy and providing rewarding careers for their loyal and dedicated staff,” said Bob Altieri who led this engagement for Exit Strategies Group.

Exit Strategies represented Eric and Joe through all phases of the sale process, from pre-market assessment and sale planning, to deal book preparation, target buyer identification, confidential outreach and marketing, obtaining bids, negotiation, due diligence and closing. We secured several good offers for our client and Hemingway Capital ultimately provided the right combination of price, terms, capital and business plans.

Hemingway Capital teamed with a seasoned industry executive to take over the CEO role. CVF Capital Partners provided financing acquisition and expansion capital.

If you would like more information about Exit Strategies Group’s M&A advisory or business valuation services, contact Bob Altieri at boba@exitstrategiesgroup.com. Deal terms will not be disclosed.

SBA Covers 3 Months of Payments on New Loans

/in , , /by Al Statz

As part of the Economic Aid Act that passed in December, the Small Business Administration will make borrowers’ payments for three months on new SBA 7(a) and 504 real estate and micro-loan programs.

These incentives were available last summer under a stimulus program that expired in September 2020. Now the program has been revived and enhanced.

The SBA will make the first three months of payments (principal and interest) on new loans approved between Feb. 1 and Sept. 30, 2021. To be clear, these payments will be covered, not deferred or pushed back to the end of the loan period. Payments are capped at $9,000 per borrower per month.

The Section 7(a) loan can be used to buy a business or used for working capital, equipment, or inventory. Qualified borrowers can access up to $5 million.

The SBA’s 504 microloan program can be used for assets that grow your business, including land, facilities, facility improvements, and long-term equipment investments. These loans have similar limits and requirements as the Section 7(a) loans.

Would-be borrowers will have to get approval through an SBA lender. But the good news here is that the new law has increased the federal guarantee for the loans from 75% under last year’s program to 90% this year for most loans. That lowers the risk for lenders and makes it easier for them to extend financing.

Borrowers with existing loans will receive an additional three months of payments and interest, starting February 2021. (These borrowers previously received automatic payment assistance from the SBA.) Plus, borrowers in the hardest-hit industries, such as restaurants, salons, entertainment, arts, and recreation, can receive an additional five months of payments.

The law appears to be written with the intent that the SBA will cover loan origination fees which are 2.5 to 3.5% of the loan amount. That’s something we hoped was coming last summer, but ultimately didn’t come to fruition.

On a loan of $5 million, SBA fees could be about $138,125 or more. That’s free money for buyers who move now and get their loan issued soon. While the program is set to end on September 30, 2021, it could be closed earlier if all funds have been exhausted.

While the law has been approved, the SBA and Treasury Department were still fleshing-out the final rules at the time of writing. The SBA maintains a list of authorized lenders on its website. We recommend reviewing a lender’s SBA loan closure rate to ensure you’re working with an experienced, responsive lender.

If you are acquiring a business, your M&A advisor or investment banker should be able to recommend active SBA lenders with a track record of success.

For advice on financing a business acquisition, contact Al Statz in Exit Strategies Group’s Sonoma County California office at 707-781-8580 or alstatz@exitstrategiesgroup.com.

Exit Strategies Group is a partner of Cornerstone International Alliance.

March 2021 – Now may be the time to sell your business

/in , , /by Roy Martinez

It typically takes 6-12 months (or more) to sell a business. So… if you want to sell your business in 2021, you really need to start now.

Selling a business has many steps:

1. Assess the business to establish probable selling price and validate your decision to sell
2. Create a plan
3. Build a business sale team – intermediary (Exit Strategies), attorney, CPA, others
4. Develop market materials – NDA, Executive Summary, CIM (confidential information memorandum)
5. Build a buyer prospect (BPro) target list
6. Outbound outreach to targeted buyer prospects
7. Business for sale website advertisement
8. Buyer prospect management and qualification (lead → prospect → qualified BPro → Offer)
9. Facility visits and buyer-seller meetings
10. Offers
11. APA – asset purchase agreement
12. Financing
13. Due Diligence
14. Escrow
15. Close

Exit Strategies’ role is to quarterback the seller team through this process – the entire process, from start to finish.

Right now many business owners are sitting on the sidelines (not selling). They are waiting to see what happens as the COVID-19 pandemic winds down. There may be a flood of seller interest starting in Q3 or Q4 of this year. If you want help selling your business, we encourage you to start soon, before that flood hits.

No time like the present.

Roy Martinez is a business intermediary with Exit Strategies Group, a leading California-based M&A advisory firm with almost two decades of experience selling small-to-medium-sized and lower middle market businesses. Prior to Exit Strategies Roy was VP of Finance at WineDirect where he completed two acquisitions. For further information, or to discuss a potential sale or acquisition, confidentially, contact Roy Martinez at 707-781-8583. This post was adapted from Roy’s response to a question from a Sonoma County small business owner.

M&A Financing During the Pandemic

/in , , /by Al Statz

The pandemic has put lower middle market business sales and acquisitions on somewhat of a roller coaster ride. Deal volume declined sharply in Q2-Q3 and came back strong in Q4. Valuations have remained strong throughout the pandemic, at least for COVID-resistant businesses. Though there was a slight Covid-effect in Q2-3.

In terms of M&A financing, capital structures shifted to slightly more less debt during 2020, before edging back up to pre-pandemic levels in Q4. To compensate, the capital stack was being filled in with more buyer equity and more rollover equity.

Interest rates are still low and banks keep lending, but they have pulled back slightly. Lower middle market deals have typically had senior debt of around 3x EBITDA. According to GF Data, that ratio dipped to 2.7-2.8 in Q2-3 (the lowest level in 5 years) and returned to 3.2 in Q4 2020.

GF Data reported an uptick in buyer equity from 2019 to 2020, from 46.1% to 49.1%. We are still seeing buyers bring more equity to the table than pre-pandemic, and showing more interest in seller rollover equity.

Rollover equity is when a business owner retains a minority stake in the enterprise. For businesses valued between $10 million and $25 million, rollover equity accounted for 13.9% of deal funding in 2020.

At the start of the pandemic most of us were expecting to see more earnouts (contingent consideration) in transactions, but that hasn’t materialize. Because demand for acquisitions remained high during the pandemic, most sellers have been able to avoid earnouts.

If risk and uncertainty subside and interest rates remain low, we should see a return to more typical M&A funding levels in 2021.

For further information on M&A financing, or to discuss a current business sale, acquisition or valuation need, contact Al Statz, 707-781-8580 or alstatz@exitstrategiesgroup.com.

 

Market Pulse Survey: Still a Seller’s Market

/in , , /by Al Statz

Despite the effects of the pandemic, we continued to experience a seller’s market in the fourth quarter of 2020, for businesses with enterprise values over $2 million.

Presented by IBBA & M&A Source

For further information on M&A market conditions, or to discuss a current business sale, acquisition or valuation need, contact Al Statz, 707-781-8580 or alstatz@exitstrategiesgroup.com.

M&A ADVISOR TIP: Cybersecurity is a Buyer Priority

/in , , /by Al Statz

New research from Datasite reveals that cybersecurity is the #1 cause of buyers withdrawing from a merger or acquisition during due diligence.

Deal makers said about 1 in 10 deals fell through during due diligence. Cybersecurity issues was the cause in 36% of these failed deals, followed by financial weakness, excessive valuation, financial irregularities, and leadership issues.

To ensure that your data security practices will not be a concern for prospective buyers of your company, Exit Strategies Group recommends that you talk to your technology team about potential issues, and consider obtaining a cybersecurity audit from an independent third-party firm. Ask your M&A advisor or CPA for a referral.

Exit Strategies Group is a partner of Cornerstone International Alliance.

Exit Strategies Group Advises on the Sale of Poly Seal Industries

/in , /by Al Statz

Exit Strategies Group recently advised the owner of Poly Seal Industries on a sale to Goodyear Rubber Company.

Founded in 1974, Poly Seal Industries is a Berkeley, California based manufacturer of molded rubber products for customers in the biopharmaceutical, water & wastewater treatment, chemical, healthcare, food & beverage, and consumer electronics industries. In addition to producing quality custom products, Poly Seal helps customers succeed by providing manufacturing engineering and material science expertise.

Goodyear Rubber Company is a world class custom rubber company with molding, extrusion, mixing and sheeting operations in Southern California and Mexico. They specialize in manufacturing custom elastomer components that facilitate motion. They offer turn-key elastomer solutions, including material formulation and part design as well as both small and large-scale production. This acquisition diversifies end markets for Goodyear and takes advantage of available capacity in its molding operations.

Exit Strategies’ client, Dan Baker, was the owner and full-time president of Poly Seal.  His main objectives were to obtain a good price, retire from the business to spend more time with family, provide an uninterrupted supply of quality products to customers, and retain the real property for future redevelopment.

Detailed planning and execution went into achieving Dan’s objectives. Dozens of carefully selected buyer prospects were identified, contacted and screened, leading to multiple bids. Only buyers that could meet Poly Seal customers’ exacting requirements were considered. A substantial effort was required by the deal team to develop a workable transition plan.

Dan Baker said, “I could not have managed this transaction without Exit Strategies and Roy Martinez. They quarterbacked the deal process from start to finish including deal book preparation, buyer outreach, obtaining bids, negotiations, due diligence, contract, and close.”

Exit Strategies was pleased and honored to deliver a positive outcome for its client and other stakeholders. Roy Martinez and Al Statz led this project for Exit Strategies Group.

Exit Strategies Group is a leading California-based M&A advisory firm with almost two decades of experience selling small-to-medium-sized and lower middle market businesses. Al Statz is the President and Founder of Exit Strategies. He can be reached at 707-781-8580. Roy Martinez has been a business intermediary an certified valuation analyst (CVA) at Exit Strategies for over eight years. Prior to Exit Strategies Roy was VP of Finance at WineDirect where he completed two acquisitions. Roy can be reached at 707-781-8583