Here are five of our top takeaways from the panel, which focused on the Tech, Media and Telecom sector. Prepared by TresVista Financial Services

1 Convergence of Tech, Media and Telecom: The discussion started on whether ‘Netflix’ is a technology company or a media company. Dating back to December 2012, Netflix had a market cap of $5bn. Post this the company made an investment of $100m in February 2013, which led to the greenlight of two new shows namely, ‘Orange Is The New Black’ and ‘House Of Cards.’ In December 2013, the market cap rose to a staggering $22bn. During this short period of one year, there were only 10m new subscribers that joined the Netflix family; this did not lead to the surge in the market cap. “The 4x increase in market cap had nothing to do with the fact that they had increased subscribers, it was squarely the fact that Netflix had truly converged. They entered into the content creation business in a meaningful way and they began to blur the lines between being a technology company and a media company”, said Martez Moore of Moore Freres and company.
2 Multiple choices for the consumers: There are a lot of facilities available these days targeting some specific groups of entertainment. Netflix gives a plethora of series to watch, but it does not have the provision for watching sports; Amazon Prime, on the other hand, has its own perks but does not cover the news channels; whereas FuboTV covers all of the above genres but does not provide NBC shows. The real struggle is when it comes to deciding whether to subscribe for all of the above and get their respective services or subscribe for On Demand TV like Spectrum and get everything under one roof. The need of the hour is to get everything the consumers need, under an À La Carte, so that they can get want they want. Christine Frank of Waller Capital Partners says, “There is a little bit of confusion in the market right now but I think it’s going to really get to a point where there’s going to be scale players that allow the consumer to do what they want to do, when they want to watch what they want to watch and pay for what they are watching”
3 Power of video in the hands of the consumer: There is a new wave of user-generated content and people are creating businesses out of their own content which they upload on “YouTube.” The expansion of the same can be seen in the other businesses and enterprises, thus making professional video creation a lot more accessible. There is a kind of democratization of being able to make money. The content that few had access, now Facebook, Google and other platforms has enabled people to make and furthermore run their own respective businesses. The issue that these platforms face is whether they monitor these businesses. If they don’t, what happens if the content is not acceptable and they end up putting an advertisement on that platform? Christine Frank concludes by saying “There is a lot of balancing act and a lot of lessons that people are trying to learn along the way.”
4 Engagement matters as much as reach: In the engagement business, the job is to deliver as many eyeballs to advertisers as possible. This is majorly done through television, but it is also done by using the brand in other ways, via the experiences or through digital and social platforms. Michael Armstrong said “Reach is super important, I don’t want to downplay the importance of reach, it will always be important but how you engage your customer to pay attention. Our job is to go from attention to intention whether it is an intention to buy, an intention to spend more time with our products for our partners.”
5 Gaming companies are the new media companies: Applications and console games have monetization models and media models. Twitch is a business model of watching people play video games and its content about video games, not even the actual video games. Andrew Rosen emphasized saying, “Looking ahead, I think gaming companies may infact be the business model for media companies in the future just because they have a better sales conversion funnel.” The video leads to an app download, which leads to a player, the player may lead to converting it into downloadable content or add-ons. It is a powerful funnel if done right and can lead to a wide range of other applications which will then bear fruition.



Made in America: The Resurgence of US Manufacturing

1. Increased manufacturing output not translating into job growth:  Manufacturing output has risen, moving closer to the all-time high of 2007, primarily because of  productivity. Manufacturing employment has been trending lower since the late 70s, owing to the advent of the computerization of  manufacturing processes. “What took a thousand workers to produce in 1950 as of last year takes fewer than 200,” said  William Strauss of Federal Reserve Bank of Chicago. Even though manufacturing output has been rising over time, the  share of the economy represented by manufacturing has been falling. Blue Chip Economic Indicators is expecting industrial  production to improve in 2017 and 2018, but at a pace below historical trends. Regarding new job creation, Ryan Sullivan of  Xenith said, “Investment in R&D and new product creation will ultimately result in having more stuff to make and therefore  help to continue creating opportunities for the manufacturing sector.”

2. ‘Education’ as the number one concern:  Over the last 25 years, the major growth in jobs has been for people educated beyond high school while the need for less educated workers is diminishing. Talent availability and acquisition is the major problem going forward across industries.  To achieve above-average industry growth, highly skilled workers are required, which are hard to find and expensive.  “What we have not come to grips with is the policy and strategy to address education and the skills gap in this country,”  said Joseph Anderson of TAG Holdings. As technology and automation take over jobs, skilled labor is required to control  them, thereby increasing the need for a highly skilled and educated workforce. According to Ryan Sullivan, automation/ technology adaptation over time is going to be a net positive for society, as freeing up manual labor to be applied toward  higher-value parts of the economy will be a net benefit in the long run.

3. Local government authorities attract talent through creative solutions:  People are making choices regarding where to work and live; marketing the whole region will not yield results in attracting  a workforce. According to John Sampson of Northeast Indiana Regional Partnership, people’s perception of different  regions is rooted in history and not in the current state; as a result, the challenge is to get them to know the current
situation. Building the region around what the existing employees need is the right way. “The incentives game might  get you some big wins, but it is not going to win in the long run,” said Don Cunningham of Lehigh Valley Economic  Development Corporation. Availability of land, labor, capital, access to market and a competitive cost structure along with  incentives and cooperation by federal, state, county and city councils make a difference. Appropriate incentive levels help settle roots faster; however, it is the core factors that attract companies in the long run.

4. Supply chain transition—offshore and onshore:  Diversification of offshore and onshore supply chain has changed from being offshore-centric to more local in the past
decade.  “We are still buying a lot of products from China, but total control of everything seems to have evolved to a lot  more into NAFTA’s arena, with Mexico being the primary beneficiary,” said Joseph Anderson. According to Eric Fish, the  capability required for quality products does not move easily. Ryan Sullivan said, “I think it’s a mix for us to try and find the right partners here in the US to drive our business forward.” Consumers are not willing to pay more for something  produced in the US. Protectionism can be politically correct, but it’s the quality of the product and its value and use proposition that matter in the competitive world.

5. Uncertainty around investments:  Investments in companies having global operations established in North America is prominent. There is a level of general optimism and positivity regarding the manufacturing industry. Cheap feedstocks, cheap energy, and the legal protection  that the companies enjoy in the US along with the level of growth are some factors keeping investments active in the US.  Global companies are concerned about the new policies that can be undertaken which can act as a headwind for exports
of goods. Regulatory uncertainties around FTA and NAFTA pose a challenge without stopping M&A activity. Apart from  recession-resilient industries, speculation around the next recession period is keeping some companies from investing.

Prepared By TresVista
As of 7/31/17 Source: PitchBook

Using the Voice of the Customer to Chart a Winning Innovation Roadmap


The First in a Series of Four Voice of the Customer Case Studies

submitted by Anthony Bahr, Vice President, VOC Strategic Practice, Strategex
abahr@strategex.com; 312-357-5219

Voice of the Customer (VOC) is the methodology by which a mix of quantitative and qualitative customer feedback is collected, analyzed, and transformed into insights and recommendations which accelerate and sustain profitable growth.

At the core of virtually every VOC program is the Net Promoter Score ® (NPS®). An index ranging from -100 to +100, the NPS measures the willingness of customers to recommend a company to others. Based on their response to the question, “How likely are you to recommend Company X to a friend or a colleague?”, customers are segmented as one of the following:

  • Promoter: A customer that is highly satisfied; they tend to be repeat buyers, allocate a majority of their share of wallet to the company, and actively promote the company’s products or services
  • Passive: A customer that is somewhat satisfied; they would consider lowering their share of wallet if a competitor offered a better value proposition, and while they are unlikely to spread negative word of mouth they are not strong advocates for the company
  • Detractor: A customer that is dissatisfied; they are unlikely to purchase from the company again and could potentially damage the company’s reputation through negative word of mouth

It is paramount for a business to measure and track its NPS on an ongoing basis, because it has been proven time and time again that an increase in customer loyalty predicates an increase in market share. In fact, the ability of the NPS to accurately predict a business’ future growth outlook is why more than two-thirds of Fortune 1000 companies rely on the NPS and the VOC methodology to boost customer loyalty and market share.

Unfortunately, many VOC programs are designed to measure the NPS and little or nothing else. This approach, while rapid and cost effective, is a missed opportunity to engage with your customers and derive deep insights from them as it pertains to any strategic business objective that may be on the agenda.

A well-designed VOC program goes beyond measuring the NPS because the methodology, which is highly scalable and entirely customizable, can be used to answer a variety of complex questions, including the following examples:

  • Is the time right to raise prices? How will customers react to a price increase?
  • What is the quickest and most effective way to organically grow revenue?
  • I’m considering a merger or acquisition. How can I be sure that the target company’s customers will be retained post-close? And, what is the best playbook for kickstarting value creation after the deal closes?
  • Recent attempts to innovate have fallen short. Why? What can be done to develop a more successful innovation platform?

In this first article in a four-part series, we will present a case study that demonstrates how VOC can be used to chart a winning innovation roadmap.

The Challenge

Our client, a global manufacturer of specialized chemistry solutions, was investing heavily in the research and development of new products. However, its customers were not expressing a strong interest in these new offerings. The result was little return on the R&D investment and compressed margins.

The client suspected the reason there was little interest in these new offerings was because their customers themselves were not innovating, thus there was limited demand for a broader portfolio of products.

If this hypothesis turned out to be valid, it would give senior management the confidence they needed to reduce the scope and scale of its R&D program. However, if it turned out the hypothesis was invalid, the VOC methodology would provide an alternative explanation and present opportunities to effectively evolve the client’s approach to innovation.

Strategex partnered with this client to develop a VOC program that was designed to:

  1. Improve market share by measuring customer loyalty via the NPS and identifying opportunities to improve customer loyalty.
  2. Boost customer satisfaction by uncovering opportunities to enhance the customer experience.
  3. Reinforce competitive advantages and shore up competitive weaknesses by benchmarking the company against the competitive set across a variety of key purchase criteria.
  4. Determine if an ongoing innovation program was a worthwhile purist by validating or invalidating the hypothesis that their customers were not interested in a broader portfolio of products.
  5. Develop an approach to innovation that was more likely to succeed by securing a robust understanding of each customers’ internal innovation efforts, outlook for the category, and unmet needs.

The Solution

 To generate the insights needed to answer these questions, Strategex conducted 49 customer interviews across 34 of the client’s top accounts. All of the interviews were conducted over the phone and, on average, the interviews lasted 45 minutes.

The researchers conducting the interviews followed an objective-based discussion guide that was prepared in collaboration with our client.

As interviews were completed, transcripts of each conversation were provided to the client on an ongoing basis. Once all of the data was collected, the results were aggregated, coded, and synthesized. Key themes and recommendations were outlined in a management report, which included an in-depth analysis of the data and customer commentary in total, but also across a variety of segments (region, vertical, etc.).

The Results

The VOC uncovered that:

  • The company had a loyal customer base. It’s NPS was +46 – a score which tends to be indicative of a company that is well-positioned to outperform its category.
  • Lead times were a major weakness and one of the primary barriers to generating customer loyalty. Not only were customers were dissatisfied with lead times, they also perceived competitors as offering much faster lead times.
  • The company’s prices were perceived to be relatively high; however, few customers said that prices were a barrier to repeat purchases since there was near unanimous agreement that the company offered a better overall value proposition than lower-priced competitors.

In respect to the innovation question, the VOC revealed that:

  • The hypothesis was false. Our client’s customers did, in fact, consider themselves to be innovative, and 16 of the 34 accounts interviewed said they considered themselves to be highly innovative.
  • The approach to innovation was out of touch with customer needs. The reason customers expressed little interest in the client’s new products was because they were not relevant to the needs of their respective businesses.
  • There was no shortage of innovation opportunities. Over 200 potential innovation opportunities were identified by simply asking customers about their unmet needs, pain points, and outlook for the categories in which they work.

Armed with these insights, our client responded by increasing its R&D budget rather than cutting it, and by implementing joint innovation programs with key accounts. This ultimately led to the development of new products that were highly relevant and in high demand.

Innovation is just one of many objectives that can be addressed in a VOC. Look for another VOC case study in the October 26th edition of the ACG NYC newsletter. In the meantime, feel free to contact Strategex if you have any questions about the process or the benefits of conducting a VOC for your organization.

Anthony Bahr (abahr@strategex.com) is a Vice President in Strategex’s Voice of the Customer Strategic Practice. Through the VOC process, he provides deep insights into a customer’s level of satisfaction and loyalty, as well as competitive positioning, innovation pathways, pricing optimization, etc. Ultimately, his work enables clients to transform research findings into actionable growth strategies. Anthony holds a BBA from Loyola University Chicago and graduate degrees from the University of Oklahoma and University of Chicago.


Permian ‘Silica Valley’ not likely to see consolidation for some time – conference insight

Provided exclusively by Mergermarket, an Acuris Company

  • Sand mine boom could lead to oversupply
  • Buyers could include upstream, oilfield services and coal companies
  • Public capital markets could help fund consolidation

A construction boom in Permian Basin frac sand mines could result in oversupply and disrupt the larger industry, but corporate consolidation is not imminent, said speakers at the 6th Annual Frac Sand Supply & Logistics Conference in Houston on 28-29 September.

In the Permian Basin of West Texas and eastern New Mexico, there are at least 19 frac sand mines in operation, under construction or in development with a nameplate capacity of 70 million tons per annum (MTPA), said Joseph Triepke, founder of Infill Thinking, an oil and gas analysis firm, during a panel.

The Permian is experiencing a “sand land rush,” said Dave Frattaroli, EVP of Business Development, High Roller Sand. Christopher Haymons, an investment banker with Industria Partners, referred to the sand mine boom as “Silica Valley.”

Meanwhile, Credit Suisse analyst Jake Lundberg put it more bluntly during his presentation, “Everybody and their grandmother have announced three-million-ton-per-year Permian Basin sand mines.”

Fear of oversupply has driven down the stocks of publicly traded sand companies, said Lundberg. U.S. Silica Holdings [NYSE: SLCA], Hi-Crush Partners [NYSE: HCLP], Fairmount Santrol Holdings [NYSE: FMSA], and Emerge Energy Services [NYSE: EMES] have seen their stock prices decline almost 70% in 2017, he said.

Almost 50% of all US land-based drilling rigs are active in the Permian Basin in West Texas and East New Mexico, he said.

Seeking to control costs, upstream producers have sought ways to replace the premium-grade Northern White Sand (NWS), speakers said. Those efforts have included using sand with a lower crush strength, 7,000 psi versus 10,000 psi for NWS; smaller grain size, 100 mesh versus 40/70 for NWS; and closer proximity, Texas versus Wisconsin. Those dynamics have driven developers to focus on the Kermit sands in West Texas, speakers said.

Despite plans for 70 MMTPA of total frac sand capacity, only 25 MMTPA to 35 MMTPA would ultimately come to market, Haymons said, speaking on the sidelines.

Overall proppant demand, which is dominated by frac sand, is expected to reach 121 million tons in 2018, said George O’Leary, analyst, Tudor Pickering Holt. The Permian represents 45% of that demand, split evenly between the Midland and Delaware sub-basins.

Deals on the horizon 
Speaking during a panel, Frattaroli said he didn’t see “merger mania yet.” InFill’s Triepke agreed and thought corporate consolidation, if it were to happen, would wait until later in 2018.

The bid-ask spread is just “too wide,” said Laura Fulton, CFO, Hi-Crush Partners, speaking during the same panel. The opportunity right now is to build, she added.

This news service has previously reported that Emerge, Hi-Crush Partners, Fairmount Santrol, Unimin, US Silica, and Smart Sand[NASDAQ:SND], are likely to be buyers.

Companies from adjacent industries could move into the frac sand space, such as coal companies, said Haymons, speaking on the sidelines.

High Roller’s Frattaroli saw both upstream and oilfield services companies as potential buyers as frac sand becomes a larger portion of the overall cost of an onshore well. Schlumberger [NSYE: SLB] owns a sand mine in Wisconsin and plans to build one in the Permian, he noted.

Pioneer Natural Resources [NYSE:PXD] and EOG Resources [NYSE:EOG] are both upstream companies that own their own frac sand mines.

Frac sand previously represented around 10% of the cost of well but sharp increases in the amount of sand being used has raised that fraction to as much as 25% of a well, said InFill’s Triepke.

Rise of public sand companies
During a question-and-answer session, Black Mountain Sand CEO Rhett Bennett said a new group of frac sand companies, both publicly held and private equity backed, could have an impact on consolidation.

Black Mountain Sand itself is backed by Natural Gas Partners and has invested USD 500m in its sand mine projects, which includes 26,000 acres of sand resources, he said, speaking on the sidelines.

Black Mountain Sand is affiliated with a number of other Black Mountain companies, including an upstream production company, a mineral and royalty company, a midstream company, and an oilfield services company, according to previous reports by this news service. In the last year, all those Black Mountain affiliates have exited their positions except the mineral company, Fort Worth Minerals, and this news service reported it would be coming to market by year-end.

Black Mountain Sand will pursue a strategy different than its affiliates, Bennett said, but declined to provide further details.

Multiple frac sand-related companies are looking at public stock offerings and positioning themselves for a potential debut in 1Q18, said Ryan Maierson, partner, Latham & Watkins. He noted that there have been more oilfield services IPOs in the last year than in the last ten years combined.

Frac sand companies are less likely to pursue a master limited partnership structure, said Maierson, as high-growth companies have other needs for capital than paying distributions to investors.

Meanwhile, Hi-Crush’s Fulton said her company was able to pursue an MLP because of term and structure of its contracts.

Solaris Oilfield Infrastructure [NSYE: SOI] CEO Greg Lanham agreed on the importance of properly structured contracts and noted that currently its contracts wouldn’t fit an MLP but that could change in the future.

Other-than-Permian plays
Although the Permian is receiving the bulk of attention, proppant demand outside the Permian is 55% of the market and may be an underserved opportunity, said Tudor Pickering’s O’Leary.

The Eagle Ford will represent more than 12% of the market and the Marcellus more than 11%, according to figures presented by O’Leary. Meanwhile, the Williston, Niobrara, Haynesville, and SCOOP/STACK each represent more than 6% of the demand.

Although no other basin offers the same scale of opportunity as the Permian, said Frattaroli speaking on the sidelines, East Texas sand mines to serve the Haynesville could be of interest because the company is headquartered in that area. On 20 September, Frattaroli told this news service High Roller could look at other buys once its Permian sand mine becomes operational.

by Mark Druskoff in Houston

Write to: mark.druskoff@acuris.com

As seen in the Mergermarket, an Acuris company, newsletter on 04/10/2017

ACG NY Member Highlight: Marcia Nelson


Marcia Nelson is Managing Director at Alberleen Family Office Solutions and is the founder of Deals & Divas. Her focus is impact investing. Every month, an active member of the ACG New York community is featured in a brief interview. Reflecting industry insight and personal perspective, this feature will introduce industry leaders and offer advice on the tools you need
to succeed in the ever-changing middle market. 1. How long have you been an ACG member? What role do you play in ACG New York? I have been an ACG member for over eight years. I’ve been involved with several committees, including Programming and Women of Leadership. I’ve chaired the ACG Champions Award for two years, I’m currently the chair of the Programming Committee, and I serve on the board.

2. What do you think are the biggest obstacles in the middle market today?
The biggest obstacles facing the middle market today include a couple of factors. The bigger PE shops are moving downmarket as they try to add to their portfolios, which puts pressure on the middle market. And just generally, there is a lot of competition in the marketplace to find really good deals—it is very competitive.
3. How has ACG helped you in your career?
ACG has helped me from an educational standpoint—I really enjoy learning about different sectors of the market and what’s happening in areas I’m not as familiar with. The ACG programming has been instrumental in helping me keep up with the changing landscape. Additionally, ACG has helped me broaden my network and expand the people I can talk to when I’m working on a deal.
4. Can you tell us about your greatest success/proudest achievement?
From a personal standpoint, I’m incredibly honored to have received the ACG Women of Leadership award at our June 15th Champions Award Ceremony. I feel so strongly about supporting women in the middle market, and although I think we have a long way to go, I am thrilled to be part of the solution that is helping women achieve success. 5. What changes do you foresee happening in the middle market in the next three to five years?
Family offices are going to become more and more part of the mainstream and will become vital players in providing capital to middle-market companies. That will put some pressure on PE funds, but those funds that align with family offices and co-invest alongside them will be successful.


October Member Highlight: Anthony Caudle

Anthony Caudle
Anthony Caudle 2017

ROLE/FIRM: Founder & CEO at RedTail Capital Markets LLC
FOCUS: Investment Banking

Every month, we will feature an active member of the ACG New York community in a brief interview. Reflecting industry insight and personal perspective, this feature will introduce industry leaders and offer advice on the tools you need to succeed in the ever-changing middle market.

1. Quick basics – role/firm/focus?
I am the Founder and CEO of RedTail Capital Markets LLC. We are an SEC/FINRA-registered boutique investment bank. The firm provides various financial services, including corporate advisory, public and private capital raising, equity and debt capital markets solutions, and mergers and acquisitions advisory. We cater to both corporations and private companies.

I recently completed my first year as a board member of ACG New York and the most recent Chair of the ACG New York Manufacturing Conference. I am currently in my third year as a member of ACG.

2. What do you think are the biggest obstacles in the middle market today?

I think pairing capital with the right deals in the marketplace continues to be critical. We look at multiple deals of all sizes, but those that are on the lower end of the spectrum sub $25 MM in revenue can provide great value. Awareness of particular industry sectors is critical as opposed to a non-industry focus approach. Perhaps there are some deals that are borderline in terms of acceptance, which can create great value over the long run as opposed to quickly writing the opportunity off up front. A greater industry knowledge along with a solid strategic developmental plan for some investments are opportunities within the industry.

3. How has ACG helped you in your career?

Network, Network, Network. Need I say it any more. ACG has been a great platform to expand my network while providing greater distribution potential for deals that we bring to market in the private marketplace.

4. Can you tell us about your greatest success story/ proudest achievement in association with ACG?

Creating a 100% minority owned and operated FINRA/SEC regulated investment banking firm. Creating a platform like RedTail Capital Markets, which helps to tackle the issues of diversity on Wall Street and is a bridge connecting high talent to a demanding and technical marketplace.

5. What changes do you foresee happening in the middle market in the next 3-5 years?
I think that the flow of capital from the public to private markets will continue. It continues to amaze many of us how this phenomenon has continued to evolve. Personally, I have been in the industry for 25 years and began my career primarily in the public markets and could not have imaged the amount of activities which take place today across multiple industries.

4 Hot Industry Sectors

1. 2016 was a substantial year for the M&A industry: According to Pitchbook, PEs and VCs saw an enormous amount of fundraising and dry powder during 2016. Global dry powder in 2016 was at an all-time high of about $754bn and the average PE fund size increased over 6% to $765mn, while the median fund size increased to a decade high of $280mn. ~88% of PE funds hit their capital raising targets, which is the highest rate ever recorded. The M&A market, in general, is very cyclical in nature and is currently at one of its peaks.

Despite that, some funds prefer to move downstream to find less expensive deals at smaller companies, yet the indicators show that funds with commitments under $100mn form a small part of the market space. Median EV/EBITDA multiple jumped to 11.0x for M&A transactions in the USA, partially driven by competition amongst strategic acquirers and PE firms.

Add-ons made up 64% of the buyout activity last year, which is one of the highest levels ever recorded. With respect to deal closure time, it took on an average of 6 months to close a deal across multiple sectors.

2. High capital flow in the insurance sector: Multiples are at an all-time high with TAG Financial selling an agency in 2016 for 12.0x EBITDA up from ~6.0-7.0x in 2012.
Pure acquisition strategies of insurance brokerages, especially in the Property & Casualty (P&C) sector, are progressing because 92% of people renew their insurance over and over again. Obamacare alternatives were growing, but now have difficulty retaining growth in Trump’s administration, while self-funded plans are experiencing a rise. There are capital requirements for insurance carriers driven by the lack of regulatory capital, leading to high capital flows in P&C and Reinsurance sub-sectors. The M&A activities will continue to grow in 2017, given the volatility in the sector.

3. Solid waste sector has a high degree of optimism for 2017: In 2016, the industry had about $50bn of annual revenue. In this business, there are three big players that control 45% of the market: Waste Management, Republic, and Waste Connections. About 35% of the market belongs to privately owned companies and the balance 20% is municipal. Solid waste companies are valued at about 8.5x EBITDA as compared to 6.5x two years ago. The Hazardous Waste business had $7bn of activity in 2016. Two major companies in this sector are Clean Harbors and US Ecology. Hazards and industrial waste are a strong part of new Environmental Protection Agency regulations. “One of the reasons for regulations is that a lot of owners of the privately-owned companies are  second generation wealthy people who want to retire and whose kids don’t have an interest in the sector,” said John Quirk of Cronus Partners LLC. Even public utilities and old non-functioning power plants need to be cleaned up and cost a few million dollars. Back in 2008, TVA Kingston Fossil Plant in Tennessee had a spill, which cost them between $675mn and $975mn. There is a lot of activity in this sector and the global factors don’t affect the industry much. A lot of $50mn deals are coming out this year. Growing regulatory complexity and aging infrastructure will continue to drive the demand for
these services.

4. PE acquirers are competing aggressively for consumer space: Dollar Shave Club was acquired for $1bn by Unilever and IT Cosmetics for $1.2bn by L’Oreal. These companies are relatively young and are yet to return profits. PE companies are very aggressive in competing with its strategic counterparts. A high-growth brand’s valuations are often based on revenue as supposed to EBITDA. Previously in the grocery store, finding the next brand, good shelf space, and center aisle was the main focus, while today, the brands around on the perimeter of the grocery store are the assets to look out for. Traditional retailers are eying technology companies to improve their in-store experience and value proposition. Increased focus on health and wellness is expected to fuel activity in the Food & Beverage sub-sector.

5. The technology sector has a lot of new entrants: The valuations for this sector are based on Revenue multiple as opposed to EBITDA. The biggest deal last year was the
acquisition of Cvent by Vista Equity Partners for 7.1x Revenue. Software, as a sector, has a Revenue multiple of 4.0x. There is a scarcity in the supply chain in terms of selling companies in other sectors–a lot are shifting to tech. The strategic acquirers are buying innovative companies in the sector. There are two phases for the M&A activity in the technology sector: (1) A lot of money was invested into Cloud, SaaS and mobile three to five years ago, and the mature companies are now being sold. (2) New sectors like Artificial Intelligence, Virtual Reality, Analytics and Network Security are emerging
where the capital is employed and will be harvested in next two to three years.

Currently, Artificial Intelligence is the best bet in this sector.

Prepared by TresVista
As of 7/31/17 Source: Pitchbook

Staying Ahead of the Curve in the Middle Market

The dynamics of the middle market are changing faster than ever before. It’s more competitive, more efficient and presents a number of challenges to finding the right deals – and, ultimately, getting those deals done. Although there is an abundance of capital and the lending market continues to be highly robust, multiples remain high and firms are having a harder time identifying deals that fit their investment strategies and yield a return that will satisfy principals and limited partners.

So how do we navigate this challenging environment?
Based on our knowledge of the middle market in general, and New York-based firms in particular, we suggest that our members consider the following four steps for success: Recognize the deal environment has changed. For continued success, firms must be cognizant of today’s market dynamics and adjust their approach to align with the new reality of readily available equity and debt, a highly efficient deal market, sophisticated sellers (both sponsor- and founder-owned businesses) and an embedded, professional business development function across much of private equity. Good deals are still out there, but the road to success is quite different than it was just five or 10 years ago Higher multiples aren’t going away any time soon. Private business owners are inundated with calls from investment banks, buyside specialists and private equity. Ten or 15 years ago, business owners generally didn’t know what a multiple or private equity was.

Today, business owners are much more savvy and are and educated on their liquidity options. Sometimes it’s rational, sometimes it’s not. We call it the “country club effect.” If one owner tells his golfing buddy that he got 9x for his business, the golfing buddy thinks, “We’ll I’m going to get 10x.” It can be a hard battle to fight, but firms must do their due diligence and make a rational case for why their offer is the right deal for the seller. Commit to value creation. Buying a business and hoping you can pay down the debt is not a viable strategy in today’s market. This may still work with distressed deals, but healthy deals require more. We’ve seen a proliferation of firms developing operating partners and operating strategies that are focused on value creation as a central part of their investment thesis. It’s no longer just about stripping out costs; it’s about growing the business. When you buy a business at 10x, you can’t simply rely on creating cost efficiencies alone, you must find ways to grow the business. ACG New York has recognized this and last year we hosted our first-ever value creation conference. We have a growing membership of value creation consultants that can help with scaling strategies, online marketing strategies and talent management as well as with improving cost efficiencies and gross margins. The value creation approach is becoming more and more important to success in private equity investing.

Talk to your peers. To be sure, our industry is highly competitive and we have an understandable tendency to keep our best ideas to ourselves. However, it is also true that private equity firms sell to other private equity firms. If your peers have better understanding of your business, your portfolio companies and how you might work together, there are opportunities for you. Understanding this, ACG New York is launching the first ever invite-only “private equity-to-private equity” deal-sourcing event in November. Exclusive to private equity firms, this event will allow our members to share deals they are bringing to market with other members and promote relationship building, collaboration and deal making. This will be the first private equity-to-private equity program we have ever sponsored, but we believe it will be the first of many. Additionally, we have a quarterly gathering of private equity professionals at the Control Investors Roundtable. At ACG New York we are committed to helping our members prosper—and helping you stay ahead of the curve in the everchanging middle market is just one way we can provide value. We have a broad range of programs coming up this fall and we hope you will take advantage of as many as your schedule allows. When we have a robust deal-making environment, all of our members—including members in transaction advisory (attorneys, accountants, valuation firms) and value creation consultants—benefit.

David Hellier is President of ACG New York and a Partner at Bertram Capital.
See full report here: http://bit.ly/ACGNY2017PresidentLetter

Lucid Candle to study acquisition opportunities on path to diversification, owner says

Provided exclusively by Mergermarket, an Acuris Company

Lucid Candle, a privately held manufacturer of candles, is in the process of a diversification strategy that may see it turn to M&A to enter new market segments, said Stephen Fendler, the company’s owner.

Headquartered in Armonk, a hamlet in Westchester County, New York, Lucid Candle has been supplying churches with candles ever since its founding.

Established by Clarence Almy in 1892 in New York City, CM Almy & Son started its operations as a master tailor, specializing in clergy apparel, liturgical vestments and altar cloths for local churches. In 1952, Clarence’s grandnephew, Stephen’s father, moved the New York shop to central Maine and the company expanded. As it stands, around 40,000 churches use the company’s products, according to its website.

The company is now shifting gears as it seeks to diversify its revenue streams by selling its products straight to consumers, amid rising demand for candle products, Fendler said.

Lucid Candle recently launched its first collection of home candles that use liquid paraffin, Fendler said. The next step will be to enter niche markets to tap into the growing popularity of aromatic candles, he added. This strategy will see Lucid Candle’s management take an opportunistic approach to M&A and study any opportunities that could facilitate its growth plan, he said.

Any targets would fall in the revenue range of between USD 4m to USD 10m, said Fendler, adding that deals would be funded with existing resources. At this stage, the company is not intending to hire any external advisors to handle acquisitions.

US-based producers of candles that serve market segments such as home accessories and the fashion industry would be of particular interest, he said. American producers of home fragrances and air fresheners would also be viable targets as they would fit into Lucid Candle’s diversification strategy, he added.

Suitable targets would need a robust manufacturing base and distribution network, he said, adding that exposure to the European and Australian markets would offer added value, since the company aims to start exporting its candles overseas.

Lucid Candles has been acquisitive in the past, embarking on a series of strategic deals that saw it buy small rivals and distributors to add to its production capacity and reinforce its distribution channels, said Fendler.

Fendler would not disclose the company’s financials, but said it is highly cash generative.

The American candle market is highly competitive, said Fender, who said his company holds a market share of around 35% to 40% in its area.

While the company’s owners have regularly received takeover approaches from suitors over the years, Fendler said he intends to pass ownership of the company to his son, Daniel, who is already involved in the family business on a part-time basis. Daniel will represent the sixth generation of the Fendler family to run the business, he said. Fendler’s brother, Michael, also works in the family business, as Vice President.

by Micaela Osella in New York

As seen in the mergermarket, an Acuris company, newsletter on 24/08/2017