Markets Letters and Briefs
May 31, 2011
Deal Brief – Specialty Chemicals
Ashland to acquire International Specialty Products
Ashland (NYSE:ASH) announced plans to acquire International Specialty Products (ISP) in an all-cash deal for $3.2 billion. The transaction values ISP at 8.88 times its 2010 EBITDA. Despite the premium price, Ashland’s stock rose on the announcement. Ashland is expected to benefit from vertical integration opportunities.
Manning Advisors sees the deal at the high end of the range for specialty chemical companies. In data collected by Bloomberg, the average deal multiple has been 7.34X across 45 transactions over the last five years.
--- --- --- ---
May 10, 2011
Deal Brief – Specialty Materials
Ametek acquires Coining Holding Company
Ametek (NYSE:AME) announced on May 9th that it had acquired Coining Holding Company from an investor group led by River Associates Investments. The transaction was done at $148 million in cash. Coining’s annual sales are estimated at $65 million. Coining manufactures preforms, bonding wire, and other components used in electronics assemblies.
While profitability information was not made public, Manning Advisors sees this deal in excess of 10x EBITDA should standard electronic materials multiples hold for Coining. If accurate, this multiple is two to three multiple units above the 7.3X average currently in place for specialty material transactions.
--- --- --- ---
Q1 2011 MARKET LETTER
Executive Summary –
Deal revival has gathered strength in the first quarter of 2011.
M&A Activity Drivers in the Manufacturing Markets
There are compelling reasons for the M&A deal increase in 2011, both in number and in transaction size. Private equity companies (PE) will be a strong driver as:
- Ample PE funding is available The PE firms that survived the shakeout of the last few years are successfully raising new funds. An estimated $400 billion has been committed to PE around the world. While not all is aimed at the manufacturing and materials sectors, a significant portion is poised to enter these markets
- Funding should grow. Manning Advisors thinks PE firms will continue to raise funds through 2011 as the global economies improve. Volatile credit conditions could, however, delay this expansion
- Supply and demand will effect valuations. There is a disparity between the number of companies available for acquisition and PE firms’ need to put money to work. Look for upward pressure on valuations across the board but we do not expect outsized multipliers to recur any time soon
Strategic buyers are also poised to make acquisitions:
- Manufacturers around the world are remarkably healthy. Significant cost cuts made in 2009 and 2010 have boosted profitability as revenues have grown for the last 12 months. Even entering the 2008/2009 recession, most industrial companies had historically strong balance sheets and low borrowing costs. This situation has not changed other than cash balances have increased, auguring well for transactions
- CEO caution abating. CEOs, largely cautious through 2010, are beginning to gain confidence in the global recovery. They have seen increasing sales and profitability for three or four quarters coupled with decreasing market volatility
- Boards will push for action. Most boards will eventually press management to increase corporate value. While stock buybacks and special dividends may be accepted as one time events, there will be call to put the company’s balance sheet to work. Manning Advisors thinks this development will be more apparent in the last half of 2011
The combination of motivated PE and strategic buyers should lead to more deals in the specialty materials and precision manufacturing industries in 2011.
By the Markets
Medical Supply Chain
- Manning Advisors estimates overall average revenue growth of 6% for North American medical device manufacturers and their suppliers for 2011. First quarter 2011 revenue increases make us more confident with the estimate.
- Driving M&A issues will be the continuation of consolidation around larger, more capable suppliers
- The “Chosen Few” suppliers will be buying specific capabilities they currently lack to offer a more complete portfolio of services to their customers. They will also be considering acquisitions to establish a foothold in a low-cost country or near a customer cluster. Market share plays will take place but will not be the most significant driver for acquisition
Electronics and Electronic Materials
We estimate overall growth in global electronics of 6%. While photovoltaics will see growth rates of over 20%, many segments of the electronics market will be taking a breather from a torrid 2010 recovery. Semiconductors will be on the 6% to 7% path, buoyed by cellular communications and energy saving technologies but will held back from more rapid growth as demand for older Flash memory and DRAM technologies decline. Drivers to watch include:
- Continued strength for mobile and wireless products around the world with Chinese and Indian domestic consumption leading the charge
- Increased automotive production, a major consumer of electronic components, will also have a noticeable effect
- A critical point for photovoltaics will be whether governments will continue subsidies
- Manning Advisors expects valuations to remain at or near current levels
Industrial and Specialty Materials and Metals
Materials and metals companies should see rising valuations through 2011 as:
- Even small increases in today’s larger global economy puts stress on the supply chain. Most mineral-based materials cannot be scaled supply sufficiently rapidly to global upticks
- We expect this sector to see higher valuations.
Aerospace/Defense
- Mild revenue growth of 3-4%. Watch for slight growth in commercial projects in the US and Canada. Military will be stable in 2011 but could face limited declines in the coming years, particularly as new weapons systems are delayed or canceled to address deficit issues in the United States and Europe
- One M&A opportunity will be AS9100 contract manufacturers to whom heavily unionized aerospace companies can outsource more key systems and sub-assemblies
As always, we welcome your thoughts and comments. Please contact Tony Freeman, our Managing Director at tfreeman@manningadvisors.com.
Tony Freeman
Managing Director
Manning Advisors LLC
tfreeman@manningadvisors.com
(917) 868-0772
For more information on Manning Advisors please visit www.manningadvisors.com
© 2011 by Manning Advisors LLC. All rights reserved.
About Manning Advisors
Manning Advisors specializes in mergers and acquisitions of specialty materials and precision manufacturing companies. We offer acquisition, valuation, and consulting assistance to middle-market companies in the medical, aerospace, defense, electronics, specialty chemicals, general industrial, and precious metals industries.
To unsubscribe please email unsubscribe@manningadvisors.com
Markets Letters and Briefs
Recent Transactions
-
The equity recapitalization of
Ames Goldsmith Corporation
- a specialty materials manufacturer focused on precious metals products,
by a
Shareholder Group -
The acquisition of
Bargas Medical Manufacturing LLC
an orthopedic components contract manufacturer,
by
Interplex Industries Inc. -
The sale of
Reactive NanoTechnologies, Inc.
a manufacturer of the advanced bonding materials and processes, to
Indium Corporation of America. -
The acquisition of
Techni-Met, LLC,
a precious metals specialty coater focused on the medical market,
by
the Williams Advanced Materials business unit of Brush Engineered Materials Inc. -
The acquisition of
Anura Plastics Engineering Corporation (APEC),
a medical device component injection molder, by
the Helix Medical LLC business unit of Freudenberg-NOK General Partnership -
The acquisition of
Popper and Sons, Inc.
A medical device component manufacturer,
by
Specialty Blades, Inc. (now Cadence, Inc.) -
The acquisition of E. I. du Pont de Nemours and Company/Detaclad Division
an explosive welding and cladding operation,
by
Explosive Fabricators Inc. (now Dynamic Materials Corporation) -
The acquisition of
VPS, Inc.
a veterinary medical instrument manufacturer,
by
Medical Engineers, of India (now Vet DRE International)
Our Address
1560 Broadway
Tenth Floor
New York, NY 10036
Tel. # (212) 295-2180
Fax # (646) 833-1001