GOOD NEWS for owners of mid-sized companies who thought their window of opportunity to sell had closed for good--the combination of available, competitive debt and equity financing, an interested and large number of buyers and a seemingly resurgent economy is resulting in crowded auctions and higher prices.

In the article below, Stewart Dolin, Esq., presents a persuasive case to sellers for taking action now. Mr. Dolin, a Partner in the Chicago law firm of Sachnoff & Weaver, is Chair of the S&W Business Services Department. A recognized authority on mergers, acquisitions and divestitures; corporate finance; equity investments and alliances and joint ventures, Mr. Dolin is a member of the Chicago Advisory Board of the Entrepreneurship Institute and TEC Worldwide.

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Active FOCUS Deals

Although our firm has over 22 years of experience across many verticals, FOCUS currently has active transaction engagements in the following specific business sectors:

• Business Services
• Construction
• Consulting
• Digital Printing Services
• Distribution
• Government Contracting (multiple assignments)
• Healthcare
• Healthcare Business Services
• IT Outsourcing
• Leisure
• Manufacturing (multiple assignments)
• Medical Devices and Equipment (multiple assignments)
• RFID Technology
• Security (multiple assignments)
• Software
• Specialty Flooring
• Supply Chain Management Solutions
• Systems Integration
• Video Surveillance and Network Integration

Our transaction process provides us with up-to-the-minute market knowledge in these sectors that may be of corporate development interest to you.

Inquiries should be addressed via e-mail to info@focusbankers.com, by telephone to 202-785-9404, x341 or by fax to 202-785-9413.

Wood Flooring International Acquires MINTEC Corporation

MINTEC Corporation has been acquired by Wood Flooring International. FOCUS initiated the transaction, acted as financial advisor, and conducted the negotiations as the representative of the investors of MINTEC Corporation. Established in 1991, MINTEC Corporation specializes in the manufacturing and importing of manufactured bamboo flooring. The company's products are sold under the brand name BAMTEX. MINTEC serves the specialty flooring market in the U.S. and in Europe with a variety of bamboo flooring products.

Established in 1998, Wood Flooring International (WFI) is the premier manufacturer and importer of exotic wood flooring sourced from around the globe. WFI specializes in exotic species and selected straight grained/quartered offerings in the common North American woods. Their unique collections are available in a complete array of flooring styles which afford a full range of installation choices including nail down, glue down and floating applications in both pre-finished and site-finished options. For more information about WFI, visit www.wflooring.com.

For additional information, contact William Stettinius, Partner, at william.stettinius@focusbankers.com.

Why It's a Near Perfect Environment
for Mid-Sized Companies to Sell
By Stewart Dolin, Esq.

The years 1998 through 2000 could well be described as bell-weather times for merger and acquisition activity. At that time, the Dow Jones Industrial Average was trending at an all time high of 11,722 points. Corporate profits were strong and rising. Unemployment rates were relatively low.

At the same time, the number of announced mergers and acquisitions in the U.S. on average exceeded 11,000 per year. Although economic trends in the last several years have been anything but positive, 2004 is shaping up to be the best time in recent history for an active M&A market, one in which mid-sized companies could benefit the most.

PRICING IMPROVES

From 2001 to 2003, when M&A activity remained relatively flat, many previously active buyers were forced to spend a considerable amount of time integrating their acquisitions into their existing businesses, while others were in turn-around mode just hoping their new acquisitions would survive.

Even potential buyers who did not face these problems found it difficult to obtain the debt financing necessary to leverage their equity in order to reach the EBITDA multiples (earnings before interest, taxes, depreciation and amortization) that potential sellers would accept.

As a result, many owners of mid-sized companies abandoned all hope of selling their companies at the prices-typically six-to-eight times EBITDA-they could have received just a few years earlier. Yet despite recent history, there were 5,501 M&A transactions announced during the first and second quarter of 2004. Even better, M&A deals are up across an array of industries, as are EBITDA multiples. Sales of mid-sized companies in particular are receiving some of the best prices in years.

In June, Bob Evans Farms said it would buy Mimi's Café Inc. for $182 million, including the assumption of indebtedness; a price of over 9 times EBITDA. In February 2004, Sentinel Capital Partners, a private equity firm, acquired Nivel Parts & Manufacturing Co., a maker of golf carts from Koda Enterprises Group, a private investment firm. Sentinel acquired Nivel for approximately $30 million-7 times EBITDA. The creation of this near-perfect selling climate has been the result of a number of confluent factors.

CHEAP DEBT, GREATER LEVERAGE

Currently, debt financing is remarkably low-priced and easy to obtain. The historically low LIBOR (London InterBank Offered Rate) and prime interest rates, coupled with competition between lenders have kept the cost of borrowing low. Mezzanine lenders are facing competition from an attractive high-yield debt market, as well as from an array of new loan products.

Banks have relaxed their requirements for leveraged acquisitions, and banks that had stopped funding buyouts altogether are back in the game again. After sitting on cash during the past few years, many banks are asking buyers for less equity in prospective deals. In 2003, a standard M&A deal often required 35 percent or more in equity from a buyer. Now, that requirement has been relaxed below 30 percent in some cases.

Private equity also is available and relatively easy to obtain. Like banks, prospective buyers have available cash after holding it for several years. Lately, increased stock prices have given leveraged buyout firms more cash either through the sale or extraction of dividends from their portfolio companies. Some industry observers estimate that approximately $100 billion in private equity capital is available for investment.

MORE RATIONAL RETURNS

Moreover, just as banks have made it easier for potential buyers to borrow funds, private equity firms have lowered their investment standards as well as their rate of return (ROR) requirements during the struggling equities market of the past few years. Just five years ago, leveraged buyout firms needed to offer investors as much as 30 percent or more annualized ROR on investments. Now, the rates of return often range from the high teens to nearly 20 percent.

In addition, potential buyers not only have available cash, but also are highly motivated to use it. Several buyout funds are nearing the end of their investment period, after which uninvested capital must be returned to the funds' investors.

MORE BUYERS THAN SELLERS

Today, for the first time in recent memory, there are more buyers than sellers in the market. After lying low for the past few years, corporate strategic buyers have returned to the market. Corporate strategic buyers are those companies that seek to acquire another company because of the operational benefits that will result from the two businesses working together.

Leveraged buyout groups, also known as financial sponsors, are in the market too. Previously, small financial sponsors frequently could not compete with strategic buyers in larger deals. However, having developed effective "clubbing" strategies, where several financial sponsors band together for a one-time deal, financial sponsors are able to compete with strategic buyers for attractive companies.

The increase in the number of buyers also has resulted in much more robust auctions. Several years ago, an auction for the sale of a mid-size company may have attracted three to five participants. But today, there may be 10 or more participants in an auction. One leveraged buyout firm's recent auction for a company that provides luggage carts at airports attracted more than 50 private equity firms.

IT'S THE ECONOMY...

Fueling much of this activity is buyers' confidence in the economy. Improving economic conditions-whether actual or perceived-have potential buyers rushing to get ahead of the market. Analysts are projecting only limited increases in interest rates, increased corporate profits and reduced unemployment for this year and next. As a result, buyers perceive that they can afford to pay more for a company now to take advantage of improved financial performance and stock price appreciation in the future.

The combination of available, competitive debt and equity financing, an interested and large number of buyers and a seemingly resurgent economy have resulted in crowded auctions and high prices. For those owners of mid-sized companies who thought their window of opportunity to sell had closed for good, take note: now may be the time to act. After all, if this seems too good to be true, it may be, the longer you wait.

This article originally appeared in the ACG Network Newsletter. Stewart Dolin, a Partner in the Chicago law firm of Sachnoff & Weaver, frequently lectures on topics relating to mergers and acquisitions and strategic alliances. Mr. Dolin can be reached at 312.207.3855 or at sdolin@sachnoff.com.

FOCUS Expands Atlanta Office, Adding Two Partners: Ulysses C. Knotts and James C. Harper

Two new FOCUS Partners, Ulysses C. Knotts and James C. Harper, are joining the firm's growing Atlanta Regional office. George M. Shea, Managing Partner, Southeastern Region, also is actively recruiting additional FOCUS partners to further build an Atlanta hub for growing investment banking activity in the entire southeastern United States.

Ulysses S. Knotts

Ulysses S. Knotts has successfully completed over 25 transactions and brings to the firm a record of exceptional achievement in creating winning business strategies and profitable business operations. For the past 25 years, Mr. Knotts' extensive knowledge of business strategy, operations and effective use of technology has guided companies and provided strategic vision for organizational growth. Through his industry involvement, Knotts also supplies unmatched insight into business processes improvement. ...more

James C. Harper

James C. Harper brings to FOCUS over 30 years of financial advisory expertise plus extensive management and investment banking experience in both large and smaller company operations as a senior executive, advisor and investor. Mr. Harper's unique skills and solid background provide the firm with an expanded ability to both evaluate and assist firm clients with financial and operational issues as well as with investment banking and financial advisory matters across a broad range of industries...more

About FOCUS Enterprises, Inc.

Headquartered in Washington DC, with offices in Atlanta, Chicago and San Francisco, FOCUS is an investment banking firm serving middle-market clients. FOCUS processes are optimized and proven effective in our target marketplace: public companies, private companies or operating units with revenues in the $5 million to $100 million range.

For 22 years, FOCUS has successfully integrated corporate development consulting and transactional expertise with its extensive research capability. The firm has long standing experience in completing mergers, acquisitions, divestitures, capital formation assignments, corporate development consulting projects and financial advisory engagements.

Operating nationally and internationally, sixteen FOCUS Partners and Principals provide over a century of C-level operating experience in a variety of industries:

• Aerospace
• Government Contracting
• Healthcare
• Manufacturing and Distribution
• Media and Communications
• Technology (hardware, software and services)
• Telecommunications

Please contact us at: info@focusbankers.com
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