July continued many of the M&A trends that we’ve seen over the first half of 2018.
Cash is abundant and valuations remain high while deal volume declines. Real GDP increased at an annual rate of 4.1 percent in the second quarter of 2018, according to the Bureau of Economic Analysis, the highest rate since the first quarter of 2013. The economy is in the full employment range with July being the 93rd straight month of job gains.
Following a trend that was touched on earlier in the year, corporate divestitures remain a popular trend among U.S. companies. In July, three prominent Cleveland-based companies either divested or purchased a divested business.
J.M. Smucker Co. announced the divestiture of its U.S. baking business and Dana Inc. announced the acquisition of the drive systems segment of Oerlikon. In addition, Ridge Tool Co. has purchased the tools and test business of Textron Inc.
All three transactions were driven by a defined strategy to accelerate profitable growth. Many prospects and clients have mentioned their motivation for selling their business is based on the current M&A market dynamics.
These factors alone won’t result in a full value, but having a clearly defined strategy built specifically around potential buyers will help. When developing that universe of buyers, it’s important to analyze how a company’s products or services can create significant value for a buyer when combined with its current portfolio of products or services or operating expertise.
Executing that buyer strategy through a controlled sale process should result in a full value and excited parties on both sides of the transaction.
Matt Roberts is vice president and Anthony Melchiorre is an analyst with MelCap Partners LLC, a middle-market investment banking advisory firm. For more information, visit www.melcap.com or email [email protected].
