Capitalizing on Consolidation in Independent Distribution June 12, 2018
In Introduction to The Fahrenheit Group • Founded in 2010 to help business owners overcome challenges to growth • National focus from three offices: • Richmond, VA • Raleigh, NC • Phoenix, AZ Jonathan Brabrand Managing Director • 75 professionals across four practice areas: 2
The In Independent Dis istribution La Landscape Se Several l tr trends ar are cu currently in in pla lay y with ithin in th the in independent dis istribution sp space. • Economies of scale are driving the need to become larger. • Customers are demanding: • Higher levels of service • Broader footprint • Many business owners are facing succession-planning issues. • Private equity is increasingly becoming a major player. • Audax Group / Imperial Dade is a perfect example. 3
Case Stu tudy: Im Imperial Dade Lo Located in in Jer Jersey City ity, NJ NJ, Im Imperial l Da Dade is is a a dis istrib ibutor of of dis isposable food-servic ice products an and jan janit itorial l su suppli lies. • Imperial was acquired by private equity firm Audax Group in January 2016. • Since then, the company has made ten acquisitions: February 2016: Borax Paper Products, Inc. (Bronx, NY) 1. September 2016: Accommodation Mollen, Inc. (Philadelphia, PA) 2. May 2017: Peninsular Paper Products, Inc. (Tampa, FL) 3. June 2017: Dade Paper (Miami, FL) 4. July 2017: Jersey Paper Plus (Edison, NJ) 5. October 2017: Central Paper Products Co., Inc. (Manchester, NH) 6. November 2017: Kranz, Inc. (Racine, WI) 7. January 2018: PCA Industrial & Paper Supplies, Inc. (Willow Grove, PA) 8. February 2018: Sikes Paper & Chemical Supply, Inc. (Atlanta, GA) 9. May 2018: Gulf Coast Paper Co., Inc. (Victoria, TX) 10. 4
Role of f an M&A Advisor The e M&A Advis visor quarterbacks th the e overall l sale le process and coo oordin inates with ith oth other professionals who o con ontribute with ithin in th their areas of of exp xpertis ise. Transaction CPA Firm Attorney Estate Insurance M&A Advisor Attorney Broker Wealth Tax Specialist Managers 5
M&A Sale Process Overv rview • Kick-Off Diligence with M&A Advisor Phase I • Draft Confidential Information Memorandum Prepare to Go to Market • Create List of Prospective Purchasers (1-2 months) Prepare Virtual Data Room • • Buyers Contacted, Sign NDA, and Review CIM Phase II • First Round Bids (Initial Indications of Interest) Marketing the Business • Management Presentations with Top Buyers (1-2 months) Final Letters of Intent • • Buyer Due Diligence Phase III • Negotiate Purchase Agreement Closing the Transaction (2-3 months) Closing • 6
M&A Sale Process Options • Exclusive Negotiation • Engage with a single buyer on an exclusive basis • Pros: quickest option (3-4 months) and most confidential • Cons: no competition = no leverage; unsure price was maximized • Targeted Process • Approach a limited number (~5-15) of the most likely buyers • Pros: relatively quick (5-6 months) and confidential; competition drives higher price • Cons: uncertainty that the best buyer was contacted • Broad Auction Process • Contact the full universe of possible buyers • Pros: certainty that no buyers were missed and valuation was maximized • Cons: longest (7-8 months) and least confidential 7
Tim iming Considerations Id Ideally ly, favorable le con onditions sh should ld exis ist in in th these th three ar areas M&A Markets The more buyers that are looking for deals, the better the client’s business will be received. Middle market deal activity is currently at record levels, fueled by cheap debt and an overabundance of private equity capital that has been raised and must be invested in private companies within certain time parameters. It is definitely a seller’s market. The Client’s Industry Does the client operate in an industry that is experiencing headwinds or tailwinds? Is it growing or shrinking; the wave of the future or an echo of past glory days? Just as a rising tide lifts all boats, so too does a favorable industry raise the valuations of its participating companies. The Client’s Business Perhaps the toughest to objectively assess, one should bring their company to market when it is hitting its stride. Ideally, the financial metrics of growth and profitability have been strong and improving for the past several years, and the company is posting solid year-over-year growth. Most importantly, you want the outlook for the next several years to be bright. 8
The M&A La Landscape M&A act activity has as been rob obust an and on on th the rise rise for th the pas ast fiv five years, an and it it sh shows no o si signs of of sl slowing. • Mega-deal (multi-billion) activity is more volatile, but overall M&A activity is fueled by transactions in the middle and lower markets. • Debt capital is abundant and at historically cheap pricing levels. • The dramatic rise of private equity funds, which have committed capital that must be deployed within a defined timeframe, drives increased deal volume and higher transaction multiples. • Strategic buyers must remain competitive for acquisitions, though they offer sellers a unique option to PE buyers. 9
Valu luation De Determin inin ing th the valu alue of of a a busi siness in involves a a combin ination of of art an art and sci science. Scie cience/Quantitative: • Formal valuation methodologies • Identification and quantification of potential synergies • Financial, operational, and other assumptions Art rt/Quali litati tive: • Proprietary deals versus efficient auction processes • Impact on the success of acquirer’s broader corporate strategy • Market impact of announcement (Wall Street, competitors, customers) • Defensive versus offensive 10
Q&A with Roy Jorstad Lawrence Environmental Group Jon Jonathan Br Brab abrand (804) 334-3698 jbrabrand@thefahrenheitgroup.com
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