Yellow Cardinal Business Succession Services Breakfast Panel Discussion Recap

We recently hosted an event in Dayton to provide an update on trends/conditions in the Mergers & Acquisitions market as well as to address key issues relating to the sale of a business. The primary focus was a panel discussion which provided the unique perspectives of three panelists. The panelists included:

• Beth Savage, former owner and CEO of PQ Systems. PQ Systems is a provider of software solutions to help manufacturers optimize quality. We recently assisted Beth in navigating the sale of her business to Advantive, a Private Equity backed market leader in mission critical software for specialty manufacturing.
• Augie Pence, Leader of Centerfield Equity's Control Equity strategy.
• Mike Mendenhall, Managing Director of First Financial's National Corporate Banking Group.

It was a lively and interactive discussion including the panelists, the moderators (Roger Furrer and Steve Ford of our team), and members of the audience. Here are some of the key takeaways:

Market conditions

• Remains a good time to be a seller of a Middle Market business…if you are prepared!
• Valuations for Middle Market companies remain strong as rising interest rates and concern regarding the potential for a recession have been offset by abundant capital and fewer quality companies for sale.
• Deal flow has slowed on larger/Wall Street type deals.
• Great businesses still coming to market and with strong valuations.
• Banks started pulling back in the 3rd quarter last year which has resulted in less leverage and more equity (cash, seller financing and/or roll over equity).
• Higher interest rates have caused fixed charge coverage to be tighter which affects the amount of Senior Debt available.

Key drivers of value

• Recurring revenue.
• Diversified customer and supplier base.
• Margin profile. Strong Gross Profit and EBITDA margins indicate the business is providing more than a commodity.
• Quality and depth of the management team. “Would rather invest in a good business with a strong management team than a great business with a mediocre management team.”
• Understand the driver of recent growth. “Is it from higher volumes or from raising prices?”
• Creating a Board of Advisors and utilizing resources such as Aileron are invaluable in helping the owner manage the business in a more intentional/less reactive manner…which increases value.

Navigating the deal process

• Build a strong advisory team including an experienced M&A attorney, sophisticated CPA, and knowledgeable Investment Banker.
• Good financial systems/information are key. Important to be able to provide data on gross profit by customer, product, location, etc.
• Best time to discuss/negotiate key items is before a Letter of Intent (LOI) is signed.
• Understand the deal is not “done” when the LOI is signed. There are still numerous hurdles to clear but good preparation and a well-coordinated plan will minimize the chances of stumbling.
• Consider/understand post transaction goals. Full or partial exit? Time horizon?
• Providing incentives or “thank you” bonuses to the employee base can be effective.

Please don’t hesitate to contact us if you have any questions or would like to discuss any of these topics in more detail.

The information on this page is accurate as of May 2023 and is subject to change. First Financial Bank, Yellow Cardinal Advisory Group, Yellow Cardinal Mergers & Acquisitions, and Yellow Cardinal Business Succession Services are not affiliated with any third-parties or third-party websites mentioned above. Any reference to any person, organization, activity, product, and/or service does not constitute or imply an endorsement. By clicking on a third-party link, you acknowledge you are leaving bankatfirst.com. First Financial Bank, Yellow Cardinal Advisory Group, Yellow Cardinal Mergers & Acquisitions, and Yellow Cardinal Business Succession Services are not responsible for the content or security of any linked web page.

Yellow Cardinal Mergers & Acquisitions, a division of First Financial Bancorp., and Yellow Cardinal Business Succession Services, a division of First Financial Bank, offer merger and acquisition advisory services to non-retail clients. None of Yellow Cardinal Mergers & Acquisitions or Yellow Cardinal Business Succession Services or their affiliates provide legal, tax, or accounting advice. Any restricted securities placed in connection with merger and acquisition advisory services made available by Yellow Cardinal are: not insured by the FDIC, not a deposit or other obligation of, or guaranteed by First Financial Bank, or any government agency, and may involve restricted securities which are subject to investment risk including possible investment loss.