Capitalizing on Consolidation in Independent Distribution June 12, - - PowerPoint PPT Presentation

Capitalizing on Consolidation in Independent Distribution

June 12, 2018

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In Introduction to The Fahrenheit Group

Jonathan Brabrand

Managing Director

• Founded in 2010 to help business owners
• vercome challenges to growth
• National focus from three offices:
• Richmond, VA
• Raleigh, NC
• Phoenix, AZ
• 75 professionals across four practice areas:

3

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.

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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

• f

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:

1.

February 2016: Borax Paper Products, Inc. (Bronx, NY)

2.

September 2016: Accommodation Mollen, Inc. (Philadelphia, PA)

3.

May 2017: Peninsular Paper Products, Inc. (Tampa, FL)

4.

June 2017: Dade Paper (Miami, FL)

5.

July 2017: Jersey Paper Plus (Edison, NJ)

6.

October 2017: Central Paper Products Co., Inc. (Manchester, NH)

7.

November 2017: Kranz, Inc. (Racine, WI)

8.

January 2018: PCA Industrial & Paper Supplies, Inc. (Willow Grove, PA)

9.

February 2018: Sikes Paper & Chemical Supply, Inc. (Atlanta, GA)

10.

May 2018: Gulf Coast Paper Co., Inc. (Victoria, TX)

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Role of f an M&A Advisor

CPA Firm Transaction Attorney

The e M&A Advis visor quarterbacks th the e overall l sale le process and coo

• ordin

inates with ith oth

• ther professionals who
• con
• ntribute with

ithin in th their areas of

• f exp

xpertis ise.

Tax Specialist Wealth Managers Estate Attorney Insurance Broker M&A Advisor

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M&A Sale Process Overv rview

Phase I Prepare to Go to Market

(1-2 months)

Phase II Marketing the Business

(1-2 months)

Phase III Closing the Transaction

(2-3 months)

• Kick-Off Diligence with M&A Advisor
• Draft Confidential Information Memorandum
• Create List of Prospective Purchasers
• Prepare Virtual Data Room
• Buyers Contacted, Sign NDA, and Review CIM
• First Round Bids (Initial Indications of Interest)
• Management Presentations with Top Buyers
• Final Letters of Intent
• Buyer Due Diligence
• Negotiate Purchase Agreement
• Closing

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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

Tim iming Considerations

Id Ideally ly, favorable le con

• nditions sh

should ld exis ist in in th these th three ar areas

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.

M&A Markets

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 Industry

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.

The Client’s Business

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The M&A La Landscape

M&A act activity has as been rob

• bust an

and on

• n th

the rise rise for th the pas ast fiv five years, an and it it sh shows no

• si

signs of

• f 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.

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Valu luation

De Determin inin ing th the valu alue of

• f a

a busi siness in involves a a combin ination of

• f

art art an 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

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Jon Jonathan Br Brab abrand

(804) 334-3698 jbrabrand@thefahrenheitgroup.com

Q&A with Roy Jorstad Lawrence Environmental Group