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Page 1: Piper Jaffray Middle Market Mergers & Acquisitions · Piper Jaffray Middle Market Mergers & Acquisitions M&A Monitor: Analyzing M&A Activity—June 8, 2005 Sections: Feature Article

Piper Jaffray Middle Market Mergers & AcquisitionsM&A Monitor: Analyzing M&A Activity—June 8, 2005

Sections:Feature ArticleFeature TransactionDomestic M&A TransactionsLTM Transaction MultiplesPublic Company PremiumsDeal FinancingBuyout Fund MarketMiddle Market M&A Group Contacts

Feature Article

M&A Spotlight On Adhesives and Sealants: An Industry That Is Holding Firmly Togetherby Bob Frost,

Since 1895. Member SIPC and NYSE. Securities products and services are offered in the United Kingdom through Piper Jaffray Ltd., which is authorized and regulated by the Financial Services Authority.

© 2005 Piper Jaffray & Co., 800 Nicollet Mall, Minneapolis, Minnesota 55402-7020

[email protected], 612 303-8248

This article provides a brief overview of M&A activity in the adhesives and sealants industry. Information on activity in this industry will be provided in greater detail in our adhesives and sealants industry report that will be released later this month. In our report, we provide more in-depth information on the industry, a look at both large and middle market industry participants, a deeper look at industry M&A activity and private equity involvement and general valuation metrics for adhesives and sealants companies.

The adhesives and sealants industry, approximately $27 billion in sales globally and $9 billion in the United States, remains one of the most highly fragmented sectors in the chemical industry. The continued consolidation in this industry has drawn both strategic and private equity interest in recent years, and is expected to remain strong in the years to come. Growth and M&A activity in this industry has been driven by the need for new technology, desire for expanded geographic or end-market reach, a change or realignment in product focus and changing environmental regulation.

The development of new technology is an important driver for growth in this industry, and larger companies are acquiring smaller, more specialized firms as a way to capture additional product development expertise. In addition, specialty and emerging markets within the broader industry are growing at faster rates than the commodity markets, creating the need for focused companies to either expand (both product and geographically related) organically or through acquisition into these markets. Finally, there has been increased pressure to manufacture “green”products that are friendlier to the environment. This factor will continue to create increased competition on a global basis, and will be another catalyst for consolidation in the industry.

Since 2000, there have been more than 280 transactions announced in which all or a portion of the target’s business was involved in the manufacturing of adhesives and sealants. Large industry consolidators and other strategic buyers have continued to be aggressive in pursuing acquisitions in the industry. A recent landmark transaction was the acquisition of Sovereign Specialty Chemicals, a manufacturer of commercial and construction adhesives, by an industry consolidator, Henkel Group. The transaction, announced in October 2004, had a total transaction value of $575 million. This equates to implied transaction multiples of 1.5x revenue and 11.6x EBITDA, based on Sovereign’s LTM 6/30/04 results.

Visit our Web site—no password required: www.piperjaffray.com/ma

Global Industry Growth

Source: American Chemistry Council

$0

$5

$10

$15

$20

$25

$30

$35

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004E 2005P 2006P 2007P

$ in

bill

ions

Regional Sales Breakdown

Source: DPNA and Company Reports

Far East27%

North America35%

Western Europe28%

Latin America2%

Rest of World8%

Adhesives & Sealants M&A Transactions Per Year

Source: Thomson Financial

48 4333

26

46

17

1316

1113

7

7

0

10

20

30

40

50

60

70

2000 2001 2002 2003 2004 YTD 2005

International Domestic

Page 2: Piper Jaffray Middle Market Mergers & Acquisitions · Piper Jaffray Middle Market Mergers & Acquisitions M&A Monitor: Analyzing M&A Activity—June 8, 2005 Sections: Feature Article

Piper Jaffray Middle Market Mergers & AcquisitionsM&A Monitor: Analyzing M&A Activity—June 8, 2005 Page 2

Feature Article, Cont.

M&A Spotlight On Adhesives And Sealants: An Industry That Is Holding Firmly Togetherby Bob Frost, [email protected], 612 303-8248

Over the past decade, there has also been increased interest in the adhesives and sealants industry by financial sponsors and the private equity community. This dynamic has arisen for a number of reasons, including (i) the highly fragmented nature of the industry, (ii) the continually increasing amount of funds seeking investment, (iii) the willingness of larger chemical companies to divest non-core businesses and (iv) cash flow stability provided by companies in the industry. In addition, the sluggish economy in recent years has slowed acquisition activity among many strategic industry participants, which are now just starting to become active again.

Within the adhesives and sealants industry, private equity investors have shown particular interest in specialty products or technology and companies with international exposure. Many manufacturers of these products compete in niche markets offering attractive dynamics and high barriers to entry. Acquisitions have ranged from the purchase of small private companies to the takeover of large public companies, to tuck-in asset acquisitions of product lines or specific business units. The following table outlines select private equity holdings with involvement in the adhesives and sealants industry.

The Middle Market M&A Group at Piper Jaffray publishes M&A industry reports that identify industries with consolidation opportunities and valuation trends and M&A technical reports that focus on technical issues in the M&A market place. To request a copy of our adhesives and sealants industry report, which will be published later this month, please contact Bob Frost at [email protected] or 612 303-8248.

Feature Transaction

Piper Jaffray Advises Andersen Corporation on Acquisition of Eagle Window & Door, Inc.by Ryan Jordan, [email protected], 612 303-6831

On May 24, 2005, Andersen Corporation (“Andersen”) completed its acquisition of Eagle Window and Door, Inc. (“Eagle”), a portfolio company of Linsalata Capital Partners, for an undisclosed amount.

Andersen, located in Bayport, Minnesota, is the world’s largest manufacturer of wood windows, patio doors and storm doors for the residential new construction, replacement and commercial markets. The Andersen® brand is the most recognized brand in the window and patio doorindustry. The company is privately owned and has a strong history of commitment to its business partners, employees, community and the environment.

Eagle, located in Dubuque, Iowa, is a leading manufacturer of wood and aluminum clad windows and patio doors, and steel entry doors for the high-end residential and commercial markets. Linsalata Capital Partners, located in Cleveland, Ohio, is a leading middle-market buyout firm having raised $565 million in equity capital for five funds, and completing more than 60 acquisitions with a transaction value of more than $1 billion.

Piper Jaffray served as exclusive financial advisor to Andersen Corporation.

Company PE Firm DescriptionEstimated Revenue

(MM)

Year Acquired

Adco Global Aurora Capital Partners Global supplier of adhesives, sealants and tapes, primarily serving the transportation, construction and industrial end markets. The company operates seven manufacturing facilities across North America and Europe, serving customers in more than 65 countries.

$200 1999

Borden Chemical Inc. Apollo Advisors, L.P. Borden is a worldwide manufacturer of adhesives for a multitude of applications in the consumer, aerospace, coating, fiber optics, optical disk, industrial, wood composite & panel, wood furniture and wood millwork manufacturing industries.

$1,513 2004

Claire-Sprayway, Inc. Goldner Hawn Johnson & Morrison Manufacturer of aerosol packaged chemical products; including household, institutional and industrial cleaning agents and adhesives.

$50 1997

Laybond Close Brothers Private Equity One of the UK’s leading manufacturers of specialty adhesives and smoothing compounds for the flooring market and liquid roof coatings for the roofing market.

$23 2000

Northwest Coatings Corporation American Capital Strategies / Caltius

Developer and manufacturer of customized specialty curable and water base adhesives and coatings. Products are primarily sold to the tag and label, packaging, printing, textile and automotive industries.

$22 2002

Pecora Corporation Mellon Ventures Manufacturer of adhesives, sealants and coatings for the commercial building and construction industries.

$40 1998

Quest Specialty Chemicals Huron Capital Partners Through the Quest holding company, the group acquires specialty coatings, adhesives and sealants, and films companies. Products typically focus on applications within the architectural, transportation or general industrial markets.

$40 2003

Since 1895. Member SIPC and NYSE. Securities products and services are offered in the United Kingdom through Piper Jaffray Ltd., which is authorized and regulated by the Financial Services Authority.

© 2005 Piper Jaffray & Co., 800 Nicollet Mall, Minneapolis, Minnesota 55402-7020

Page 3: Piper Jaffray Middle Market Mergers & Acquisitions · Piper Jaffray Middle Market Mergers & Acquisitions M&A Monitor: Analyzing M&A Activity—June 8, 2005 Sections: Feature Article

Piper Jaffray Middle Market Mergers & AcquisitionsM&A Monitor: Analyzing M&A Activity—June 8, 2005 Page 3

Domestic Transactions

*Total value based on deals with reported valuesSource: Thomson Financial Securities Data CorporationLTM median deal value for 2005 is $27.1 million compared to $26.7 million for 2004.

LTM Transaction Multiples

Current data as of June 6, 2005Source: Thomson Financial Securities Data CorporationBased on multiples between 0x and 25x; excluding media and telecom.

Public Company Premiums

Current data as of June 6, 2005Source: Thomson Financial Securities Data Corporation

Deal Financing

Current data as of June 6, 2005Source: Portfolio Management Data, The Wall Street Journal and Gold Sheets Daily*Represents leverage statistics for middle market LBOs (less than $50 million of EBITDA)

($ in billions) Value* Volume

LTM: 2004 $707.7 7,650

LTM: 2005 $821.7 7,692

LTM 2004 vs. LTM 2005

01,000

2,0003,0004,000

5,0006,0007,000

8,0009,000

LTM 2004 LTM 2005

Volu

me

$0$100

$200$300$400

$500$600$700

$800$900

Value ($ in billions)

Volume Value

1 week prior to announcement 23.4%

4 weeks prior to announcement 28.3%

Current 1 Year Ago

Leveraged Bank Loan 5.66% 4.57%

High Yield Bond Rate 7.72% 8.16%

Senior Debt/EBITDA* 4.4x 3.0x

Total Debt/EBITDA* 4.4x 4.6x

By Size ($ in millions) EBIT EBITDA

Less than $25 11.6x 5.8x

$25 to $100 11.3x 8.1x

$100 to $250 9.2x 7.7x

$250 to $1,000 15.2x 9.5x

Over $1,000 14.7x 10.2x

Since 1895. Member SIPC and NYSE. Securities products and services are offered in the United Kingdom through Piper Jaffray Ltd., which is authorized and regulated by the Financial Services Authority.

© 2005 Piper Jaffray & Co., 800 Nicollet Mall, Minneapolis, Minnesota 55402-7020

Page 4: Piper Jaffray Middle Market Mergers & Acquisitions · Piper Jaffray Middle Market Mergers & Acquisitions M&A Monitor: Analyzing M&A Activity—June 8, 2005 Sections: Feature Article

Since 1895. Member SIPC and NYSE. Securities products and services are offered in the United Kingdom through Piper Jaffray Ltd., which is authorized and regulated by the Financial Services Authority.

© 2005 Piper Jaffray & Co., 800 Nicollet Mall, Minneapolis, Minnesota 55402-7020

Piper Jaffray Middle Market Mergers & AcquisitionsM&A Monitor: Analyzing M&A Activity—June 8, 2005 Page 4

Buyout Fund Market

Data as of April 25, 2005Source: Buyouts

Middle Market M&A Group Contacts(General and Deal Related Questions)

The M&A Monitor is published every two weeks by the Middle Market Mergers & Acquisitions Group within the Investment Banking Department at Piper Jaffray. To report any technical difficulties with this e-mail transmission, please contact Cindy Zebro at [email protected] our Web site—no password required: www.piperjaffray.com/ma.

The following disclosures apply to stocks mentioned in this publication if and as indicated: (#) Piper Jaffray was making a market in the Company’s securities at the time of this publication. Piper Jaffray will buy and sell the Company’s securities on a principal basis. (@) Within the past 12 months, Piper Jaffray was a managing underwriter of an offering of, or dealer manager of a tender offer for, the Company’s securities or the securities of an affiliate. (~) A Piper Jaffray analyst who follows this Company, a member of the analyst’s household, a Piper Jaffray officer, director, or other Piper Jaffray employee is a director and/or officer of the Company.

Information contained in this publication is based on data obtained from sources we deem to be reliable, however, it is not guaranteed as to accuracy and does not purport to be complete. Nothing contained in this publication is intended to be a recommendation of a specific security or company nor is any of the information contained herein intended to constitute an analysis of any company or security reasonably sufficient to form the basis for any investment decision. Nothing contained in this publication constitutes an offer to buy or sell or the solicitation of an offer to buy or sell any security. Officers or employees of affiliates of Piper Jaffray & Co., or members of their families, may have a beneficial interest in the securities of a specific company mentioned in this publication and may purchase or sell such securities in the open market or otherwise.

Notice to customers in the United Kingdom: This publication is a communication made in the United Kingdom by Piper Jaffray & Co. to market counterparties or intermediate customers and is exclusively directed at such persons; it is not directed at private customers and any investment or services to which the communication may relate will not be available to private customers. In the United Kingdom, no persons other than a market counterparty or an intermediate customer should read or rely on any of the information in this communication.Additional information is available upon request. www.piperjaffray.com

($ in billions) 2005 2004 2003

Funds Raised $56.2 $42.2 $24.0

Deals Completed $52.4 $136.5 $94.8

Minneapolis Chicago London

Glenn A. GurtcheffCo-Head of Middle Market M&A612 [email protected]

Jeff A. RosenkranzCo-Head of Middle Market M&A312 [email protected]

David I. WilsonManaging Director44 20 [email protected]

John A. HoganHead of Financial Sponsors612 [email protected]

Douglas J. LawsonPrincipal312 [email protected]

Matthew J. FlowerPrincipal44 20 [email protected]

Michael R. DillahuntManaging Director612 [email protected]

Walter D. MurphyPrincipal312 [email protected]

James O. SteelVice President44 20 [email protected]

Robert D. FrostPrincipal612 [email protected]

Matthew S. SternVice President312 [email protected]

Daniel A. EfronVice President612 [email protected]

Matthew M. SznewajsVice President612 [email protected]