M&A wrap: Riverside, Watermill, Battery Ventures, Brentwood, Sun Capital, Center Rock, IOP, Manufacturing M&A
Manufacturing in the U.S. has contracted to its lowest level in more than a decade. The Institute for Supply Management said that its manufacturing index fell in December 2019 to 47.2. That’s its lowest level since June 2009, when it hit 46.3. This, in addition to a tight labor market, China’s retaliatory tariffs and the upcoming presidential election, has made manufacturing a tricky sector to do business in these days. Still, despite some of the headwinds facing the manufacturing industry, the M&A deal market remains active. Interest rates are low, and companies as well as investors have cash to invest. Additional factors come into play, including the need for consolidation and globalization in the manufacturing industry. Robots are playing a role as well, and manufacturing automation has become appealing. A tight labor market hampers manufacturing companies, but it also leads to dealmaking, especially in robotics. Historic unemployment numbers have led to an extremely tight labor market. Manufacturers have turned to robots for help to meet demand. At the beginning of 2020, filings for U.S. unemployment benefits fell to a four-week low—just one of the latest signs that the labor market remains robust. In fact, in 2017 and 2018 the U.S. consistently added more than 200,000 jobs each month. Private equity firms see the labor shortage as an opportunity to purchase companies that can help with production and push portfolio companies to become more productive and efficient. “The tight labor market and increasing wages have led us to pursue a number of different initiatives at our companies to counteract the resulting pressures created,” says Brad Roberts, a Riverside partner. “Automation is an option. We have also worked closely with our portfolio companies to optimize the productivity and efficiency of our existing workforce and have established new incentives where necessary to increase throughput.” Read our full coverage: 5 trends driving manufacturing M&A.
Battery Ventures has raised two new funds totaling $2 billion, almost double its last total and highlighting investors’ growing interest in companies that cater to other businesses, rather than consumers. The new funds, a $1.2 billion Battery Ventures XIII, along with an $800 million side fund to help back extra-large bets, will keep investing in sectors like business-to-business software, information infrastructure and cybersecurity. Battery’s successes include tax-compliance software maker Avalara Inc., which first received an investment in 2012. Several of Battery’s portfolio companies were also acquired by bigger companies or private equity firms, including WebPT, ClearCare and Glassdoor. Read the full story by Bloomberg News: Battery Ventures raises $2 billion to go after enterprise companies.
Brentwood Associates has acquired Parchment. The target is a credential service that allows academic institutions and employers to request, verify and share credentials in simple and secure ways. Parchment will merge with Credentials Solutions, an education transcript services provider that was purchased by Brentwood in 2018. Goldman Sachs (NYSE: GS) and Quarles & Brady LLP advised Parchment. Shearman & Sterling represented Brentwood.
Sun Capital Partners has bought West Dermartogolgy from Enhanced Healthcare Partners. West operates 55 dermatology clinics throughout Arizona, California and Nevada. “Dermatology is a recession-resistant and growing industry within the broader retail health landscape," says Sun co-CEO Marc Leder. Jefferies advised West.
Entrepreneurial Equity Partners has acquired Kronos Foods Corp. Kronos makes ready-to-eat Mediterranean foods and is known for its Greek gyros meat. Harris Williams advised Kronos. White & Case advised the buyer.
Center Rock Capital Partners-backed Linc Systems has bought Blackhawk Industrial Distribution's dealer services business. The latter is a distributor of fasteners and packing supplies to lumberyards and construction materials dealers.
Industrial Opportunity Partners-backed Royston Group has bought Hamilton Laboratory Solutions, a manufacturer of labortory equipment.
Align Capital Partners-backed E Source has acquired predictive analytics company Trove Predictive Data Science.
ADI Global Distribution, a subsidairy of Resideo Technologies Inc. (NYSE: REZI), has acquired Herman ProAv. Herman supplies original replacement parts to the consumer electronics repair industry. The Dak Group advised Herman.
Broadly Syndicated Loan volume in the middle market declined throughout 2019, as a result of a rise in direct lending, a quiet leveraged buyout market, and a conservative approach from lenders. Interest rate spreads for institutional mid-market loans increased 30 basis points in Q4 2019 compared to Q3 2019 and have increased more than 50 basis points throughout the year, according to Capstone Headwaters, while leverage multiples declined during 2019 by 0.25x to 0.5x depending on the sector.
Family office Watermill has launched WMX, an initiative that brings private equity access and resources to women-led teams. About 28 percent of Watermill’s recent acquisitions have been women owned or led. Investors, advisors, and partners are collectively committed to growing this percentage and providing female leaders with the capital and resources needed to take their businesses to the next level. “We’re widening the path to private equity by making late stage investments in great teams led by women with a vision to build enduring businesses,” says Watermill president and COO Julia Karol. “As a women-led firm, we are committed to using our seat at the table to make more space for more companies with high growth potential. WMX is a mechanism to increase access to key financial, strategic and corporate resources that smart leaders need to thrive.”
Merchant bank the Raine Group has formed a strategic partnership with Brazilian investment bank G5 Partners that will focus on M&A and investment opportunities in the digital media and technology sectors in Brazil. “The TMT sector in Brazil is poised for significant growth,” say Raine co-founders Joe Ravitch and Jeff Sine.
Derick Prelle has joined private equity firm Butterfly as a partner and head of portfolio operations. Prelle was previously with KKR.
Malcolm Tuesley has been named head of national security regulatory practice at Simpson Thacher & Bartlett. He joined the law firm in 2018, and advises clients national security reviews before the Committee on Foreign Investment in the United States (CFIUS).
Artificial intelligence in healthcare saw about $4 billion in funding across 367 deals in 2019, according to data and research firm CB Insights. Amazon.com Inc. (Nasdaq; AMZN) is no exception. The tech conglomerate is using its recent deals for Health Navigator and PillPack to launch new software services in healthcare. Health Navigator works with companies like Microsoft Corp. (Nasdaq: MSFT) in offering services such as remote diagnoses, and with triage to help patients figure out whether to stay at home, see a doctor or go straight to the emergency room. Read our full coverage: How Amazon is using M&A to revolutionize healthcare.
Pushed by a groundbreaking California law mandating it, more companies are putting women on their public corporate boards. The law faces pressure in court and may not stand, but its rippling effect has already started to increase the visibility and awareness of the important benefits of board diversity. Investors are taking notice and trying to get ahead of the curve. According to a study published by MSCI in March 2018, having three or more women on a company’s board of directors translates to a 1.2 percent median productivity above competitors. Read the full guest article by Venable's Belinda Martinez Vega: Why businesses are adding women to their boards.
If there’s anything M&A professionals dislike, it’s uncertainty. And heading into 2020, there’s more than enough uncertainty to go around, including questions about the economy, international trade, impeachment, domestic politics and more. The funny thing is, the lack of clarity may actually make the first half of the year a great time for M&A, as dealmakers push to close transactions before the looming uncertainty of Election Day and its outcome. We conducted interviews with 8 investment bankers and other M&A advisors. Some said the first half of the year will be robust, while others said the uncertainty may have a negative impact throughout 2020. Read the full story, What’s ahead for M&A in 2020? We ask 8 advisors.
Mergers & Acquisitions examines the impact of 7 technologies on M&A in the retail sector. Read the whole series:
Overview: Retail Tech M&A: 7 Technologies Driving Change
Retail Tech M&A #1: Nike, McDonald's, PayPal, add customization, IoT
Retail Tech M&A #2: Why Walmart and other retailers are buying artificial intelligence startups
Retail Tech M&A #3: Amazon leads race to build fulfillment centers
Retail Tech M&A #4: Do robots fill orders faster?
Retail Tech M&A #5: Voice recognition gives retailers more ways to communicate
Retail Tech M&A #6: Data improves customer service
Retail Tech M&A #7: Demand for convenience drives growth in mobile ordering
To celebrate deals, dealmakers and dealmaking firms, Mergers & Acquisitions produces three special reports every year: the M&A Mid-Market Awards; the Rising Stars of Private Equity; and the Most Influenital Women in Mid-Market M&A. For an overview of what we're looking for in each project, including timelines, see Special reports overview: M&A Mid-Market Awards, Rising Stars, Most Influential Women.
ACG New York is hosting the 12th annual healthcare conference and bourbon tasting at the Metropolitan Club in New York on Feb. 27.
ACG Raleigh Durham's 18th annual capital conference is being from March 31-April 1 at the Raleigh Marriott Crabtree Hotel in Raleigh, North Carolina.
InterGrowth 2020 is taking place at the Aria Resort & Casino in Las Vegas from April 20-22.