Mergers & Acquisitions – September UpdatePosted 9/23/2020
Our September M&A update is brought to you by Pompeo Group and its strategic merger and acquisition partner Tounge Associates.
While COVID effects range from business closures to bankruptcies, there is still some good news to be found. A Bloomberg article featured in the National Real Estate Investor online publication cites nearly 1,000 new hotels opening during the pandemic. While occupancy rates dropped below 30% across Europe in March and domestic occupancy declined by half firms like Hilton and Marriott continue to open new properties as do many independents. The article cites an additional 775 hotels are scheduled to open in the Americas by the end of 2020. Due to the long development cycle, these projects with significant development costs will go forward.
Another effect of COVID is that many companies’ management teams are seeing that much of their staff can successfully work remotely, so to save money they are not renewing leases. Consequently, large city office markets like New York are unfortunately seeing a decline that may take years to recover from. But, while one market declines, another increases as the general exodus from large cities is providing a real estate boom in neighboring suburbs. Sadly, many small businesses have been seriously impacted because of COVID and the restrictions placed on them by state and municipal governments. Conversely, manufacturing seems to be staying fairly strong and is positioned to move forward in many sectors. Manufacturing in many cases has been able to respond quickly by a variety of methods—staggering work schedules, 24/7 manufacturing with rotating teams, restructured floor layouts to allow for social distancing and in some cases setting up parallel manufacturing in different buildings to allow for work to continue in one building in the event of a COVID outbreak in the other. Segments of the lighting and electrical industry may be down but certainly not out and IoT should see an exponential increase as cybersecurity is ramped up to protect critical infrastructure systems.
We wrote in our last update that business owners who weathered the 2008 recession and worked for years to rebuild are looking at the possibility of a repeat and wondering if they have the resources, and the stamina to do it again. Now that COVID has impacted many of us for a much longer period than expected, the ‘comeback’ scenario is still a major concern for many owners of companies under $50M. If you find yourself in that group, we are available to discuss options to plan an exit or just discuss and share best practices of how leaders of companies are successfully navigating the current climate.
In late July, Leviton Manufacturing out of Melville, NY (in their continued string of acquisitions) picked up Berk-Tek (a LAN [local area network] cable manufacturer) from Nexans, a Paris, France-based global wire titan. Seven years earlier Leviton had signed a marketing alliance with Berk-Tek, so this was a continued reinforcement of that relationship. August was a quiet month for lighting, electrical and controls acquisition news but earlier this month Chelsea Lighting, a lighting distributor based in New York Citywas acquired by Kinzie Capital Partners out of Chicago*. Looking at some of Kinzie’s other investments, our guess is it’s more of a technology play than a specific lighting one. Also, this month, CEP (Construction Electrical Products) a company based in Livermore, California was acquired by Southwire, a Carrolton, GA-based manufacturer. Southwire has somewhat quietly been one of the most aggressive companies in the lighting and electrical space in terms of their acquisition activity, with 11 acquisitions in the past 20 years (almost an acquisition a year over the past five years). The addition of CEP will provide them additional depth in lighting and electrical safety products as well as expand their tools and component product groups.** Also this month Clayton, Dubilier & Rice (CD&R), a private equity firm purchased Epicor. Epicor is not only an ERP software provider, but the largest in electrical distribution. While CD&R’s previous investments have been in various building products wholesalers, CD&R also pursued Anixter but was ultimately outbid by WESCO International. Epicor sells to over half of the top 200 electrical distributors as ranked by Electrical Wholesaling.**
To help business leaders and owners during this unusual time, Pompeo Group and Tounge Associates are pleased to continue the offer we made in our last update of a 20% discount from our regular valuation fee for 60 more days which can help facilitate both your internal business planning for 2020 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. The upheaval and uncertainty undoubtedly had an effect on the level of acquisitions in the lighting, electrical and IoT markets over the past 60-90 days, though we’re aware of many other electrical and lighting companies currently seeking acquisition targets or a merger with a larger company.
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 **Electrical Connections
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.