Established in Lexington, Tennessee in 1990, DeWayne’s specializes in providing environmentally sound and cost-effective metal finishing solutions to OEMs in a wide variety of industries such as agricultural equipment, automotive, fasteners, heavy truck, industrial, and lawn and garden equipment.  DeWayne’s prides itself on providing creative problem solving and the highest level of customer service possible for its clients.  The company employs approximately 110 full time employees.

Having remained a strong and viable business throughout the recession, DeWayne’s management determined that in order to take advantage of available growth opportunities, they would need a partner that would increase the company’s financial, managerial and corporate development capabilities.  After careful consideration, DeWayne’s selected Acuity Capital Partners as the partner best suited to further their growth agenda.

“It has been a pleasure working with Jim Terry and his management team.  Founded on the old-fashioned values of hard work and integrity, they’ve built an exceptional business, in which customers and employees are treated as partners,” said Greg McKinley, Managing Director of Corporate Finance Associates in Nashville. 

Transaction Information

On May 1, 2012, Acuity Capital Partners and Tenth Street Capital recapitalized DeWayne’s Quality Metal Coatings in a private transaction. The terms were not disclosed. Greg McKinley of CFA advised in the transaction.

About Corporate Finance Associates

Corporate Finance Associates is a major investment banking services firm, providing middle-market companies with a wide range of financial advisory services in support of mergers, acquisitions, divestitures, capital sourcing, and corporate restructuring. From project inception to completion a senior principal guides clients through every challenge, advocates on their behalf, and leverages CFA’s experience and extensive resources. CFA has over 20 offices in United States, three in Canada, three in India and 16 partner offices in Brazil, China and throughout Europe. More information is available via the internet at www.cfaw.com

About Acuity Capital Partners

Based in Chicago, Illinois, Acuity Capital Partners is a middle-market private equity firm that invests in growth-oriented low to mid-technology manufacturing, value-added distribution and select services companies.

About Tenth Street Capital

With offices in Chattanooga and Nashville, Tennessee, Tenth Street Capital provides capital to lower middle-market companies in the form of subordinated debt and equity for later-stage growth, acquisitions, management buyouts and recapitalizations. The firm focuses on investing in lower middle-market companies, in a broad range of industries across the United States.

We advised him to refinance his mortgages using the new SBA 504 program.  Based on a more favorable appraisal, he successfully closed on loans funded by the SBA and his new lender.  As part of the refinancing, his debt service payments were reduced by $6,000 per month.  We were able to negotiate a refund of nearly $50,000 worth of related expenses imposed on his company by the previous lender.  In addition, a recalcitrant partner was bought out.  Our client now has a great relationship with his new bank and is enjoying record sales and profitability.

Posted by David Sinyard.

1.    Not separating yourself from the business.  In order for owners to sell and retire, there must be a management team that can run the company after you’re gone.  This is the #1 shortcoming we see most often.  It’s is never too early to begin hiring and training the team that will take over for you.  Otherwise the company owns you, not the other way around.

2.    Incorrectly valuing the business.  Your company isn’t worth exactly how much you need to retire, it isn’t worth the same as your cousin sold his company for in 2007, and it’s not worthy it’s “book value”.  If you ask too little, you’ll leave money on the table, if you ask too much, you’ll never complete the sale.  Ask an investment banker to give you an idea of what is a realistic value for you company before you start, and use an investment banker to manage a process designed to wring the best price from a competitive process.

3.    Falling for the “too good to pass up offer”.  We often have owners become clients after a failed exercise with a buyer that made a very attractive offer, only to try to “haircut” the seller right before closing.  Make sure you are talking to qualified, serious buyers and you understand that the price is fair and the buyer has the resources to close the deal.  The highest price is no price if the deal can’t get done.

To read the Wall Street Journal article, click here.

Posted by John Hammett.

Michael is an 18 year veteran of the middle-market M&A industry, representing clients in all areas of mergers,  acquisitions and corporate finance.  As a current owner of two manufacturing companies and a former CPA, Michael is uniquely positioned to understand the complex issues facing today’s business owners.  CFA Seattle offers a full range of investment banking services including business sales, capital raises, partial liquidity events and family transitions. 

“We are pleased to welcome Michael Weiss to our organization.  Michael’s extensive business background and M&A and corporate finance experience will be of great benefit to CFA clients,” said Peter Heydenrych, Chairman and CEO of Corporate Finance Associates.

For those businesses that survived, 2012 may be the first year that sales, revenues and profits are trending up. If that is the case and you are still “waiting” to begin your next life phase…stop waiting.  There is no crystal ball and no way to predict what the future holds.  Many variables that you do not control can derail the best laid plans: health and family, industry changes, and changes in capital gains rates, to name a few.  Maybe it’s time to sell?   Or, maybe it’s time for a partial sale, to take something off the table and hedge your bet.  By selling a 70% stake in your company now to a larger financial partner, you leave open the opportunity to take that second bite of the apple and potentially make equally as much when the additional 30% is sold at some point in the future.  It’s truly all about managing the risk.     

 Download the Ten Biggest Mistakes Sellers Make.

 Posted by Peter Ventre.

To read the entire press release, please click here.

Posted by Greg McKinley.

If all the prerequisites have been properly put in place, the seller has at least one more tool to extract the highest price and best terms from the PEG marketplace. That is a well constructed, competitive sale process consistent with the protocols and expectations of the PEGs. As with selling to any third party, competition among potential buyers can help maximize the outcome for the seller.

When the most viable PEGs emerge from the competitive process, the seller should conduct due diligence on them just as it can be expected they will do on the seller. Chemistry with the PEG principals should be evaluated because they will be the ones serving on the seller’s board post-close and as partners for the next five years or so. The seller should also speak with the CEOs of the PEG’s current portfolio companies to learn from them what it is like to work with their PEG owners. A good PEG will be happy to make introductions to its CEOs.

To summarize, there can be many advantages to a recap for a seller. First, sale to the right PEG can produce the same full valuation and price as that from a strategic buyer. Second, the seller gets to retain an ownership stake in the company post-close while, at the same time, reducing their investment risk through the harvesting of some equity (i.e. “taking some chips off the table”). Third, the seller can maintain employment typically under the requirements of an employment contract. Fourth, the seller gets with a PEG a strong financial partner that can help grow the company at a faster pace than would have been possible otherwise. Fifth, that faster pace of company growth can significantly increase the value of the seller’s retained ownership stake, which will be realized (i.e. “the second bite of the apple”) when the PEG eventually resells/IPOs the company.

So, should you consider a recap? The answer is yes, if you want a fair price for your business plus a retained ownership stake with good upside potential plus continued employment. A recap executed with the right PEG can be the restart of a great future.

Posted by Robert St. Germain.

Although, as previously discussed, each Private Equity Group (PEG) has its own specific investment criteria, most of them are attracted to acquisition targets with certain general characteristics that independently and, in aggregate, help reduce the risk of their investment. Therefore, sellers interested in exploring recap opportunities should be aware of these and put as many as possible into place before marketing themselves to the PEG community.

The first prerequisite is a strong management team willing to stay on post-close because PEGs, as also earlier discussed, are not constituted to run the day-to-day operations of the companies in which they invest. If necessary, they will recruit managers to selectively fill holes in and strengthen a team; but inheriting a strong intact team is better from their perspective. “Lone Ranger” type business owners who wear many hats and have no depth to their management bench transfer to any buyer the risk of hiring, training, and integrating new players to form a complete and effective team. To a PEG, in particular, that would at least diminish the valuation of a target company and might eliminate any interest altogether.

The second prerequisite is a diversified customer base where a general rule-of-thumb is that no single customer should account for more than 10% of a company’s sales. As customer concentration increases, the target company is deemed riskier and will elicit a lower valuation from a PEG, assuming their interest is maintained at all. Business owners may be making a good living off just a couple or a few customers; but, before considering an exit, they should broaden their customer base to reduce that risky posture.

The third prerequisite is a large percentage of revenue being of the recurring type (e.g. rents, maintenance agreements, service agreements, licensing fees, per use fees, royalties, long term supply contracts, etc.). The more recurring revenue contributes to the P&L as a percentage of total revenues, the less risk there is from the PEG’s perspective. Contrast that with the risks associated with a business model where all revenue is completely dependent upon discrete short term projects and the continual need to replace them with the next set of projects.

The fourth prerequisite is a history of strong margins and revenue growth allowing the PEG to buy into and build upon positive momentum. Though some PEGs focus exclusively on or will otherwise consider distress situations, more are interested in healthy companies with previously demonstrated success and a convincing business plan that addresses future growth.

The fifth prerequisite is some sustainable competitive differentiation/advantage arising from having a niche specialty, proprietary products/processes, market leadership, strong intellectual property, an enduring brand, etc. Being a “me too” provider of a commodity product or service dependent upon pricing as the main differentiator is typically of little or no interest to a PEG.

The last prerequisite that will be covered here is that the seller should have complete and clean fiscal records. That is best demonstrated by having the last several years of financials available in audited form. Yes, that is an additional expense; but it lends credibility and transparency to financial claims and reduces the investment risk for the PEG. To the benefit of the seller, there is also empirical evidence that, all other things being equal, audited financials increase the purchase multiple by a fraction.

Posted by Robert St. Germain.

A financial buyer, for this discussion, is a private equity group (PEG). This is a type of investment manager that raises funds specifically to be invested in the private equity of operating companies in accordance with a limited partnership agreement between it and its sources of those funds (e.g. pension plans, universities, insurance companies, foundations, endowments, and high net worth individuals). The funds typically have a ten year life, during the first half of which, capital is invested into companies and, during the second half of which, that capital and any appreciation thereon is harvested back out through the resale or IPO of those companies.

It is estimated that there are over 1800 PEGs in the U.S. with some $500 billion ready to be invested as of this writing. Each has its own investment criteria that define its targets of interest by industry, stage of company, EBITDA and/or revenue minimums/maximums, geographic location, purpose of investment, amount of investment, and minority/majority ownership requirements.

A recap in its most general sense could be considered any adjustment made to the liabilities/equity side of a company’s balance sheet. However, in the context of this discussion, it means the sale of a company to a PEG via a transaction that includes reinvesting or rolling over a portion of the seller’s proceeds from the sale to buy an interest in the PEG’s new entity, which holds the seller’s original operating company.

When considering a recap, sellers should pay particular attention to those PEGs with companies already in their portfolios operating in the same space as the seller. This is because, much like strategic buyers, they can afford to pay more in anticipation of synergies post-close and may even be competitive with what strategic buyers might offer.

An important feature of all PEGs is that they are necessarily focused on the management of their funds. Therefore, they rely upon the sellers of the companies they acquire to stay with and continue managing the enterprises post-close. Thus, continued employment of the sellers is standard practice in a recap.

Additionally, because the objective of a PEG is to generate a high a rate of return on its investment for itself and on behalf of its limited partners, sellers can expect to receive from them not only capital, but also helpful management expertise/experience, active board participation, coordination/integration with existing portfolio companies, and introductions to new suppliers and customers, as necessary, to rapidly improve operations and the company’s value in anticipation of the eventual resale or IPO.

Further, because the sellers typically stay on in an active operational role after receiving what could be “life-changing” amounts of money, the PEGs require them to reinvest some of those sale proceeds to retain some “skin in the game”. The percentage of ownership can be anywhere on the continuum of minority to majority depending upon the criteria of the particular PEG.

Posted by Robert St. Germain.