After advising on nine sale closings in the first half 2018 and with several others under LOI, Transact Capital sees continuing momentum for the remainder of 2018. The Richmond-based M&A firm, focusing on sale transactions with valuations under $50 million, served as exclusive financial advisors on the following deal closings:
• Coral Industries Inc., headquartered in Tuscaloosa, Alabama, fabricator of architectural glass and aluminum products, was acquired by Oldcastle Building Envelope®, a CRH Company
• R. Ramsey & Associates, Inc. (WR Ramsey), a Lexington KY-based accounting firm, was recapitalized via a partner buyout.
• R121 Inc., a San Diego-based international IT consulting firm, has been acquired by The Planet Group (“Planet”) of Chicago, a leading provider of outsourced human capital and consulting solutions, and a portfolio company of Mid-Ocean Partners.
• Dominion Dermatology, based in Richmond, was acquired by Wisconsin-based Forefront Dermatology.
• MarTek Ltd., based in Charleston WV, manufacturer switchgear safety products, was acquired by CBS ArcSafe Inc., A Group CBS Company located in Denton, Texas.
• Electrical Staffing, Inc., a prominent Indiana-based staffing company in the electrical and general construction market, was sold to Industrial Skilled Trades, Inc of Elgin, IL.
• Pine Products, Inc., a southern yellow pine sawmill, was sold to the Teal Jones Group.
Steve Zacharias, managing partner, stated “Following several years of robust M&A activity, that trend is expected to continue at least through the remainder of 2018. Besides the traditional drivers such as a growing economy, low interest rates, large private equity cash balances and the need for diversification of asset classes (alternative investments), there are other key factors driving acquisition activity, many times generated by strategic dialogue among owners and their advisors desiring to grow their companies faster in a relatively low-growth economy. We hear reasons such as the need to enter new markets, or to acquire technology convergence to offset competitive threats. Many owners fear competition coming from updated processes and equipment, newer technologies and even disruptive business models. All of this demand adds up to higher price multiples offered for quality companies whose owners may be thinking of an exit over the next five years.”
“One of our focus industries at Transact Capital is Healthcare Services. Despite the relatively high valuations in the market, we expect healthcare M&A to continue to surge throughout 2018 and into next year for all the reasons mentioned above, along with the continued pricing pressures on medical services. Another industry specialization is Business Services, specifically Staffing companies, which through consolidation are benefitting largely from cost-saving synergies supported by technology-driven systems. Our Manufacturing group is seeing similar trends.”
What does this mean for owners contemplating selling in the near future? Transact advisors all firmly believe that if an owner is thinking of exiting their business in the next five years, they should not only be planning it today, but executing on it to enjoy the strong pricing multiples currently being offered. Even if the owner desires to work another five years, most buyers can accommodate that objective, and some PE buyers would even require the owner to stay on board for some length of time.
Many times owners falsely conclude that they can come out ahead by not selling and working five years vs selling at a 5X multiple. The reality is that the capital gain tax rate advantage may push that payback period out to 8 plus years on an after-tax basis. What if you plan to work more than five years? Then it may not make sense to take money off the table today as you could probably ride out another economic downturn if and when it happens. But one should also be prepared to evolve his/her business model in the face of accelerating technological advances and disruptors which may occur during that holding period.