This is the main driving force behind the success of the industry as a leader in the global economy. However, as organizations expand, it is amidst the turmoil and uncertainty of political factors such as trade agreements and tariffs. It is this that seems to be the primary compulsion for most of the merger and acquisition activity. 

Despite the potential threats posed by the politics of trade, many businesses in this area demonstrate tremendous growth metrics, which pitch them as viable targets for acquisitions or mergers. In that sense, 2019 could be one of the most advantageous ears to sell or purchase a company in the manufacturing industry. 

Manufacturing Market Opportunities 

One of the most advantageous factors for companies in the manufacturing industry is the critical nature of the work done, which has fostered continued economic growth. Over the past few years, the industry has seemed to thrive, recovering from the recession of the early 2000s and is likely to surpass growth expectations for the second year in a row. 

Additionally, many businesses in this sector have spent the past few years identifying opportunities to implement technology that will increase production yields. Manufacturers have multiple points across their entire organizations that lend themselves to technological advancements. 

For product innovation and design, three-dimensional prototyping can be integrated. Cognitive technologies, such as artificial intelligence, can be applied to enhance the customer life cycle by creating exceptional experiences which foster continued growth. Engaging automation tactics during the manufacturing process, like using robotic arms on production lines, can increase outputs while implementing automation in other parts of the business, such as the finance office, can shorten the length of time receivables are outstanding and improve cash flow. Positively impacting these business metrics prime the business for a transaction. 

Finally, coming out of 2018, the merger and acquisition activity not only increased, but the average deal size grew as well compared to what we saw in 2017. This seems to have positioned the industry for an active 2019, driven by an increasing focus of U.S. companies to expand their geographic presence and product portfolios. 

Environmental Services Market Threats

However, the growth of the past year was also tarnished by tariff activity and negotiations between the United States and China, two of the most dominant players in the global manufacturing industry. The uncertainty began when the U.S. introduced tariffs on imported steel and aluminum which kicked off a volley of trade restrictions between the two nations. The situation creates several risks for those operating within the industry and leaves many questions regarding the impact such regulations will have on profit margins as the price of raw materials remains in flux. 

Throughout the turmoil of trade restrictions, we have also seen talent retention among top executives becoming an issue. The job vacancies have been growing at double-digit rates beginning in 2017 and are poised to surpass the record high seen in 2001. 

The manufacturing industry also faces a talent shortage of skilled workers, which could significantly impede the rapid growth and regeneration we have seen over the past few years. Without a workforce that has the right skill set, manufacturers will not be able to keep up with growing demand, will be unable to respond to new market opportunities, and will fail to pursue innovations that would continue to propel the industry’s growth. 

How The Hatteras Group Can Help

The Hatteras Group is a collaborative team of professional intermediaries and advisors that guides business owners and entrepreneurs as they navigate the complex process of mergers or acquisitions in the manufacturing industry. Generally, we work with those companies whose annual revenues are $5MM to $100MM. 

If you are trying to value your business in an effort to sell it, we can help you audit the health of your company with an advanced 10-point evaluation checklist to determine if there are any issues that could potentially derail a sale in the future. Contact us today for more information!

The post Manufacturing Industry: 2019 M&A Outlook appeared first on Hatteras Group.

This shift in focus is driving an increasing presence of environmental service subsectors. However, as the industry expands, it is simultaneously consolidating. Larger businesses are investing in the acquisition of niche companies who offer services that can help to round out their existing offerings.

Businesses in this sector tend to exhibit some key criteria that investors find attractive including high barriers to entry, demonstrated track records of organic and acquisitive growth, and a limited number of established regional and national organizations. For these reasons, 2019 could be the most advantageous year yet to sell or acquire a company in the environmental services industry.

Environmental Services Market Advantages

Perhaps the most beneficial element of the environmental services industry is the essential nature of the services provided. From waste disposal services to compliance and regulation training, this relatively small industry will continue to grow as technologies develop and new products come to market both for consumers as well as manufacturers.

Combined with the limited number of players in the game, this could help explain why there has been an explosive uptick in capital markets and private equity investment across a number of environmental services subsectors. As a result, the industry is prime for another wave of consolidation in the coming months and years as regional organizations look to combine in an effort to scale their services to a national level. In fact, this level of consolidation has already begun in certain subsections of the industry including industrial cleaning services and the wastewater space.

Environmental Services Market Challenges

However, the nature of these industries can be fairly technical and unique which leaves many employers with the challenge of not only finding employees capable of performing those tasks but also keeping them. As a result, many firms will need to become more creative in their talent acquisition tactics and proactive in keeping their existing employees happy as they vie for the attention of a limited pool of potential candidates.

One particularly effective way to find potential employees is to partner with local universities and trade schools with programs relevant to the services you offer. Developing and fostering relationships with program administrators can help you connect with talented students that might not be on your competitor’s radar yet.

Similarly, you may consider creating your own employee training initiatives and programs to help provide on-the-job training for new graduates to learn the business as well as for existing employees to further their skill set. While this typically requires a significant upfront investment on your part, your employees will recognize that you care about their future.

In addition to talent considerations, many environmental service firms may be too niche to thrive on their own. While this is great news for a larger company looking to acquire a smaller one, it is a challenge for that second organization. A lack of diversity in the services offered could impact the valuation of your company as standard business metrics may not indicate the true worth of your company. Investing in some new revenue streams prior to selling could help you achieve positive outcomes that would directly increase your negotiating power when the time is right.

How The Hatteras Group Can Help

The Hatteras Group is a collaborative team of professional intermediaries and advisors that guides business owners and entrepreneurs as they navigate the complex process of mergers or acquisitions in the environmental services industry. Generally, we work with those companies whose annual revenues are $5MM to $100MM.

If you are trying to value your business in an effort to sell it, we can help you audit the health of your company with an advanced 10-point evaluation checklist to determine if there are any issues that could potentially derail a sale in the future. Contact us today for more information!

The post Environmental Services 2019 M&A Industry Outlook appeared first on Hatteras Group.

This is expected to drive consolidation of HVAC organizations as they look to increase their ability to scale and grow across both residential and commercial developments. Although there is some expectation of a possible recession in the next one to two years, it does not seem to be slowing any of the merger and acquisition activity we have seen among HVAC companies.

As a result, being aware of the unique advantages and challenges of HVAC businesses in the current financial climate can help you make the best decisions when it comes to your transaction.

HVAC Industry Advantages

One of the most beneficial elements of the HVAC industry is the reliance on and necessity of manual maintenance. With the presence of technology increasing in nearly every industry, many jobs are becoming obsolete as machines are able to perform more work, faster. But in the HVAC industry, automation cannot be used to complete on-site customer repairs. This is part of what gives the industry its stability and protects it from the harshest effects of any potential recession.

Somewhat ironically, the need for manual repairs increases the more advanced HVAC systems become. Due to the complex nature of these new systems, it is unlikely that a customer would be able to repair it themselves, though most don’t attempt this regardless of the technology of the system, or call someone outside of their original vendor. So while advances in automation and technology may be worrisome for other industries, HVAC companies should plan to service their customers and monetize these interactions when possible. Doing so will continue to build the value of your business.

HVAC Industry Challenges

Unfortunately, when your business relies on manual labor, you have to find and hire employees capable of performing the work. Therefore, one of the biggest challenges currently facing the industry as a whole is not only finding well-trained talent to hire, but keeping them with your company once you do. This is why many companies have gotten creative with their recruiting tactics and have been proactive in implementing changes that will increase employee satisfaction.

A quick way to get connected with potential employees is to establish connections with local vocational or trade schools with HVAC training programs. When you develop and foster relationships with program administrators, they will likely take the time to introduce you to some of their most talented students. After all, they want to help students find job placements upon the conclusion of their training.

Alternatively, some companies have begun to develop their own comprehensive employee training programs in an effort to attract hungry, young talent. This means that your trainees will start contributing to your workforce much faster as they receive on-the-job training while they progress their skills. Going this route, however, requires significant upfront investment on your part as time, money, and other resources will need to be devoted to creating and implementing the program.

Finally, keeping strong talent continues to threaten the success of many HVAC companies. Technicians are often required to work long hours filled with strenuous activity, no matter where they are. You can stand out from other employment options by showing them how much you value them as employees. Initiatives such as improved healthcare coverage, increased wages, and enhanced time off policies can go a long way in making your employees feel more like family.

How The Hatteras Group Can Help

The Hatteras Group is a collaborative team of professional intermediaries and advisors that guides business owners and entrepreneurs as they navigate the complex process of mergers or acquisitions in the HVAC industry. Generally, we work with those companies whose annual revenues are $5MM to $100MM.

If you are trying to value your business in an effort to sell it, we can help you audit the health of your company with an advanced 10-point evaluation checklist to determine if there are any issues that could potentially derail a sale in the future. Contact us today for more information!

The post 2019 HVAC Industry M&A Outlook appeared first on Hatteras Group.

Selling a business is a very emotional decision, and many are too busy to think about succession or believe selling their company is too far in the future.  However, we’ve seen where that can lead to varying results. In one company, the owners were set to retire but found a cost of goods sold problem that setback their schedule another year or two.  With another business, there was no clear buy/sell agreement between the partners—one wanted to sell, one didn’t—which left them in a vicious circle at 72.  Then, one company watched their favorite 1972 VW micro-bus they used for tradeshows drive off to California as it was included in the asset sale.

Your exit strategy is simple—build a business that attracts buyers.  However, you need to start early and often.  A company’s health is no different than your own—it requires annual checkups.  A regular checkup will help you prepare to sell your business when the time is right.  By reviewing your motivation, valuation, and potential, you can get out of the waiting room faster.

Motivation

Many entrepreneurs have spent a lifetime building a business. Some pass it on to their children, but bankers are fond of telling clients that less than one-third of family businesses survive the transition from first to second generation.  A few owners pass their company on to employees in the form of a management buyout or ESOP, but accountants are fond of advising on the tax and payout consequences of those.  The outright sale of a company soon becomes a reality for many.

The motivation can be pending retirement, health challenges, or asset diversification.  Perhaps your business continuation would benefit from some added investment and energy, and you might want to stay on a few more years.  Your motivation will set the pace of the sale, and also how wide the buyer pool is.

Sometimes younger business owners (say millennials) have a clear exit strategy as they’re off to the next venture and want to leave their first one in excellent shape.  They want to be entrepreneurs, not managers. Regardless of age, it’s best to perpetually run your business as if it’s going to sell someday because there’s a 100% chance it will—by design or default.

Value

It was once said that valuing a company is like trying to value an aging rock star.  Can they still fill up a stadium or just a local venue? Rod Stewart would get a very high valuation as he can still fill a stadium.  Al Stewart may not be as lucky.

The rock star looks back and still perceives themselves as a “rock legend.” Likewise, owners are also entitled to feel they have successfully built a legendary company.  Some are home-town heroes.  However, buyers are looking from the audience and to future ticket sales.

The value of a company is its capacity to generate cash flows, the projected rate of growth, and the uncertainty in between.  To reduce doubt, buyers are going to compare you against other companies who have recently sold in your segment.  However, it’s not like selling a house where there are many comparisons and much publicity associated with the market. Business owners have to be careful in broadcasting their company is for sale.

Most company sales are tied to a “multiple” or multiplier of EBITDA. In smaller companies, the multiples are based on seller’s discretionary earnings which adds back the owner’s salary, benefits, and certain one-time investments.  Multiples reflect risk and behavior in a market. A low-risk business in a high demand market garners a stronger multiple. Higher valuations are also a function of how fast you can enter or grow a market. This is why some social media or app-driven companies get elevated valuations as they can reach millions in months.

Some buyers may also build a myriad of spreadsheets to calculate discounted cash flows. This is estimating the money a buyer will receive from future growth rates and adjusting it for the time value of money. It’s the mathematical estimate of “show me the money” and only a framework. The company should be positioned on its foundation—the historical trends and story.  Prepare to sell your business and maximize your return.

To build a good story, we also look at the intrinsic value attributes such as how many referrals your business is getting, customer satisfaction levels, and customer acquisition costs. Each sale is unique. However, when it comes to valuation, we position your company like rock promoter Bill Graham used to say of the Grateful Dead, “They’re not the best at what they do, they’re the only ones that do what they do.”

Potential 

Selling a company is not like picking from a menu of what you want to do. Everything is negotiable including that VW micro-bus. If the timing is right and the valuation within a marketable range, the next question is what is the potential for a sale?

The buyer pool can include local buyers, competitors, strategic buyers looking for a “bolt-on,” and buyers interested in geographic expansion. There are now boutique private equity investors specializing in key segments like industrial products and services, healthcare, or even SaaS technology.  Family offices are a trend of high net-worth investors managing their own investments.  Then, there’s always the elusive angel investor.

Each buyer has a specific criteria they’re after and knowing this saves months of time.  Selectively and confidentially are a vital concern in determining who gets to see the final marketing memorandum.

The potential for a sale also depends on deal structure. Most small-to-medium size acquisitions are going to be asset sales because that limits the liabilities for the buyer.  The seller receives the purchase price and a negotiated amount of excess networking capital (cash and AR less the AP) at the time of closing date.

Cash deals will often get discounted as opposed to acquisitions using earn-outs or notes payable.  Many owners are wary of earn-outs while others find them well-worth putting into place.  Buyers may request a note payable as part of the sale, but make sure that it is not subordinate to other debt. There’s also SBA loans, seller-financing to consider, and publicly-traded companies might offer stock.

These are all potential appetizers for a deal.  In addition, tax implications need to be considered in advance as depreciation recapture, personal goodwill, and business goodwill are all taxed at different rates.  If you own land with the business, there are all sorts of creative ways to include it, exclude it or have a continuation of the lease, preferably at fair market value.

Selling a company has a big menu of entrees to consider then put into a great-looking marketing memorandum which will drive letters of intent. However, if you start early and often, you can eat it one bite at a time.  We’re here to help, and also ask the final question—where would you want to have your closing dinner? That is non-negotiable.

Prepare to Sell Your Business

Prepare to sell your business now, not later.  Contact the team at The Hatteras Group to check on the health of your company with our 10-point checkup to determine your MVP.  We are an experienced team of former business owners who have sold their companies, and now help others efficiently do the same. info@hatterasgroup.com or 704-307-4166.

The post Prepare to Sell Your Business – Who is your MVP? appeared first on Hatteras Group.

Checklist to prepare your business for sale in the 2018 M&A market

The M&A market in 2018 offers an exciting time to sell your business, valuations are high and financing is flowing. Here is a great article related to preparing your business for sale. But even for those with no intention to sell, it is a great checklist to review as you work to improve your business.
https://www.axial.net/forum/3-things-to-consider-before-selling-your-business/

Axial is a great resource for our firm to connect with strategic and private equity buyers for mid-market companies.  We also use it to network with lenders and other capital providers for our clients.

As the article says, take some time this Summer to asses your business the way a buyer would.  It may reveal opportunities to improve your business even if the time is not right to sell your business.

We are available to explore the market on your behalf to determine the current market value, level of interest and the options you may have available.  Your business is likely your most valuable asset and current market feedback is the best way to determine the value and marketability of your business.  Conditions are only certain to change, for good or bad.  Your circumstances may change as well, why not be prepared so you can maximize the value of your asset on your schedule.

About The Hatteras Group
The Hatteras Group is a collaborative team of professional intermediaries and advisors, leading business owners and entrepreneurs as they navigate the complex and often emotional process of selling or buying a business. We represent owners to sell their businesses, lead proprietary acquisition searches, source equity and debt and provide business valuation services, generally working with companies whose annual revenues are $5MM to $100MM.

Contact Alan Clark to schedule a 30 minute call to learn how we can help you explore the M&A market or sell your business.

The post Sell Your business in 2018, Tips to Prepare for M&A appeared first on Hatteras Group.

Economies of scale are virtually impossible in trucking at $250 million and above. Instead, it’s about synergies of size—balancing flows, dealing with problems, running in more lanes. New technology allows companies to run much larger operations with the same span of control. Yet only well-run companies can efficiently operate at large scales. And as always, market conditions matter.

Here’s what we predict—and what we’re already seeing—for 2018:

• A surge of M&A activity. There’s plenty of capital out there, but who gets it depends on a number of factors. Buyers want to ensure they can improve upon their investments. Their eyes are on their next 12-month multiple. Many buyers still remember the terrible market of 2016, and are going to be more cautious about what they buy.
• A slow market for big acquisitions, and a mixed market for smaller firms. Investors who started out giddy over the “Trump economy” may have undermined the market. They’ve pushed stocks so high that big acquisitions may now be too pricey. Valuations are high, and economies of scale are low. This means that buyers may now begin to balk at premium prices for smaller carriers.
• Higher market premiums. When things look better, buyers have to pay more. Equities have increased by double digit percentages. So while there may be more bidders and higher cash flow, those bidders must be willing to pay more.
• A change in the market’s appetite for debt. Historically, there wasn’t much debt in this industry. As carriers grow through mergers, there may be greater willingness to take on more debt. We don’t yet know how the market will react to this.
• A strong labor market. This corresponds to greater difficulty retaining drivers. Carriers may have to pay more, and offer more benefits. This translates into a greater appetite for carriers with highly qualified drivers. A trucking firm with a low turnover rate and a committed team suddenly becomes much more appealing to an acquirer.

2016 saw a slow down in production of new Class 8 trucks, with similarly weak production in 2017. But by the end of 2017, production picked up, with several months of 30% year-over-year growth of new truck deliveries. While carriers may be cautious about expanding their capacity, preliminary figures suggest high confidence in 2018. This is rooted in highly favorable market conditions.

The trucking industry has already gone through two boom-and-bust cycles since 2009’s Great Recession. 2010 saw tepid growth, followed by rapid growth in 2011 and a plateau in 2012. The second cycle began with a small contraction in 2013, followed by rapid growth in 2014-2015, and a significant contraction in 2016. This suggests we can reasonably expect one more year of growth in 2018, followed by a contraction. It’s important to plan M&A transactions with this timetable in mind.

About The Hatteras Group

The Hatteras Group is a collaborative team of professional intermediaries and advisors, leading business owners and entrepreneurs as they navigate the complex and often emotional process of selling or buying a business in the Transportation & Logistics industry. We represent owners looking to sell their businesses, lead proprietary acquisition searches, source equity and debt and provide business valuation services, generally working with companies whose annual revenues are $5MM to $100MM.

Transportation & Logistics Practice Group

Contact Bill McBane or Rod Randolph in our Trucking & Logistics Practice Group to schedule a 30 minute call to learn how we can help you explore the M&A market or sell your business.

The post Transportation & Logistics – 2018 Trucking M&A Outlook appeared first on Hatteras Group.

ELD-Induced Chaos
Electronic logging devices seem to have caused thousands of trucks to vanish on December 18. DAT solutions reported growing load to truck ratios that rose to 10:1 in January. Truckers were left dealing with angry customers, with drivers demanding higher pay or promising to leave. ELD has been the source of utter mayhem. Companies that previously hoped to grow through acquisitions are waiting for the market to balance out.

More Chaos: Trump
Donald Trump was long treated as a long shot candidate, so when he won the presidency, everyone was shocked. His ongoing threats to kill NAFTA have sent many buyers and sellers scrambling. This protectionist bent could alter the entire shipping industry. In the wake of this fury, many offers were removed from the table.

Things remain in flux, and it’s unclear what Trump will do next. In Canada, high tariffs could affect other industries, making international mergers more risky. Carriers are waiting to see what comes next as NAFTA negotiations break down and Trump continues to make threats.

The Real Estate Market
Real estate is a major player in trucking M&A. Carriers that own property have wealth tied up in land, not just trucking. So selling a fleet may also mean selling land—a double headache, but also a double windfall. On the other side of the coin are carriers who lease properties. Landlords increasingly demand longer leases. Consider how this might affect owners in their fifties who hope to soon retire.

As demand for commercial real estate skyrockets, many truckers will make decisions more motivated by real estate than by transportation. Some are making their decisions earlier than expected, amid great pressure.

The Broker Landscape
This time last year, carriers were hastily acquiring freight brokers. The world of ELD has changed all of that. Carriers already have too much freight. Now they’re getting even more customer calls than ever, eliminating the middle person of the broker. Carriers are anxious that the broker model may not be sustainable in this new world. Rather than seek deals, carriers may wait until the dust settles on the new world to see who’s left standing, and decide what to do next.

What Hasn’t Changed
While there’s plenty of uncertainty in the market, three things haven’t changed. Truckers are aging and hoping to cash out. They want to know what their companies are worth—and they have high hopes for that worth. And finally, the most important determinant of value is what someone will pay for a trucking company. The market matters, yes, but the needs of the buyer and seller are the major determining factors.

About The Hatteras Group
The Hatteras Group is a collaborative team of professional intermediaries and advisors, leading business owners and entrepreneurs as they navigate the complex and often emotional process of selling or buying a business. We represent owners to sell their businesses, lead proprietary acquisition searches, source equity and debt and provide business valuation services, generally working with companies whose annual revenues are $5MM to $50MM.

The post Key Variables in the Trucking M&A Equation appeared first on Hatteras Group.

The Deloitte M&A trends report looks at activity by surveying more than 1,000 executives at corporations and private equity firms about the current year and their expectations for the next 12 months.

To find out more, explore the M&A Trends report.

The post State of the Deal: M&A Trends 2018 appeared first on Hatteras Group.

The post Baby Boomer-owned Business Driving M&A Growth? appeared first on Hatteras Group.

The post Middle-market M&A delivers best first half in 10 years appeared first on Hatteras Group.