Mergers & Acquisitions – Q4 UpdatePosted 11/19/2020
This update is brought to you by Pompeo Group and its strategic merger and acquisition partner Tounge Associates.
We hope you and yours continue to weather the COVID-19 pandemic safely! It has been a challenge but taking it a day at a time we all seek to move forward. Here are some observations of what has transpired in the lighting, electrical, controls and IoT since our last update.
COVID continues to affect the industry in multiple ways, including cancellation and/or postponement of national and regional trade shows where so much networking occurs. The shutdowns in many areas have also made in-person sales calls difficult, if not impossible. We are now all living in a ZOOM world which, while frustrating to many, is seemingly the only viable option for the immediate future.
Having said that, we find that the more savvy lighting, electrical, controls and IoT companies are using this period to seize the moment to take bold action (even as their competitors are holding firm or retreating) so as to be in a more dominant position once the COVID crisis is behind us. And it’s not just lighting companies as evidenced by Southwest Airlines in a front page story in the WSJ this week.
Another trend we have observed is an increase in alliances and strategic partnerships. These can be established much more quickly and easily than a merger or acquisition. The upside: if a partnership or alliance does not show the anticipated results, it can easily be dissolved. The downside is not having control of the other party, so while an alliance or SP is developed based on trust and perceived synergies, there does need to be specific documentation and regular review so that both parties understand the expectations and operating parameters for each side.
We continue to advocate for long term growth through acquisition or merger which gives more control and strategic position to a wise acquirer. For companies that are flat, or struggling to grow, a sale to a strategic buyer or PE firm with a lighting platform could help the owner to cash out but also give them the opportunity to continue working for some period of time to realize their growth vision but at a lower risk factor.
There are still business closures and bankruptcies occurring but there is good news to be found. A recent case in point is Edison Lighting, a legacy manufacturer which recently filed for bankruptcy protection due to a slow but continuous decline in sales and profitability. In a surprising last-minute twist, they were bought out of Chapter 11 by Elite Lighting at a much higher price than expected beating out GE Current. This should give new life to the company and preserve many jobs.
As COVID continues the challenges of maintaining a company let alone growing it remain daunting to many family or entrepreneur-owned businesses. Larger companies or PE groups with cash reserves are weathering this storm better and seem to be on the lookout for companies to acquire that help grow lines that are suffering organically.
We mentioned last update that we do see an increase in both interest and appetite for Smart and IoT technology companies The lighting and electrical industry is at an inflection point looking for some of this emerging technology to become the industry ‘standard’ that can be built upon so many competing technologies are vying for that distinction.
To help business owners, Pompeo Group and Tounge Associates are pleased to continue the offer we made in the last update of a 20% discount from our regular valuation fee through the end of the year which can help facilitate both your internal business planning for 2021 and beyond, whether that decision is to sell in the near future or to simply establish a benchmark for growth to attain the value you desire to ultimately retire in comfort many years from now. In the meantime, despite the upheaval and uncertainty in many circles we are still seeing acquisitions moving forward.
Here is what we saw in merger and acquisition activity in lighting, controls, electrical and IoT over the past 60-90 days:
In September, 60-year-old perennial independent manufacturer Lamar Lighting purchased by Autronic Plastics. Agencies also saw merger activity—Foley Group and Convergence, two Kansas City agencies agreed to combine forces.* Luminii continued its string of acquisitions with their purchase of iLight Technologies in September.* This series of bold moves by Luminii started with their acquisition last year of Optic Arts (a transaction facilitated by Tounge Associates and Pompeo Group) followed by their purchase of SENSO 11 months ago. Late last month, SPI out of Wisconsin was purchased by Bukas Lighting Group. And, in the most intriguing M&A news in the greater lighting world recently was Edison Price’ roller-coaster ride of misfortune (and ultimately fortune) this year.* The long-respected Queens, NY manufacturer had fallen on hard times over the last few years finally resulting in them filing for bankruptcy protection in May. 5 months later the lighting world was surprised to hear that Edison Price had entered into an assets purchase agreement with none other than GE Current (a Daintree company). However, with the ink barely dry and seemingly out of nowhere, Elite Lighting (a small LA-based lighting manufacturer) entered the picture two days later with an offer of 4.15 million, more than triple the offer of GE Current. Current made a counterbid of $4.1M, but it was too little, too late.*
In recognition of many companies’ desire to at least do a ‘sanity check’ of their true financial health or to explore the viability of considering an acquisition or merger opportunity, Pompeo Group and Tounge Associates are extending our discount of nearly 30% off our standard business valuation through the end of this year. This business valuation by our professional M&A advisory partners can be used for exit/succession planning, estate planning and buy-sell agreements between partners (and yes, even divorce settlements).
Tounge Associates’ excellent source of M&A experience combined with Pompeo Group team’s nearly three decades of lighting and electrical industry recruitment experience will help firms—whether it is a manufacturer, wholesaler or design firm—to source the right buyer, the best merging partners or the most strategic acquisition targets. Both Tounge Associates and Pompeo Group understand the importance of confidentiality and base our reputations on extreme sensitivity to this matter. As a result, much of our work comes through recommendations from satisfied clients.
*Merger information courtesy of EdisonReport and **Inside Lighting.
If you would like to arrange an initial confidential discussion to discuss these options, please complete the form below and we will be in touch as soon as possible.