Positioning Your Company for an M&A Exit

The normal sell-side M&A process takes seven to nine months. Your preparation of a data room is critical to a successful outcome.

Acompetitive Sell-Side process requires a significant time commitment of the management team over a nine-month timeframe. The owner of the firm should ensure their direct reports understand their role in building confidence in the overall business model. The lack of senior management participation will most likely lead to a lower valuation. Too many times, a business owner thinks that going down the path of “trusting” only their intuition will lead to a great outcome in valuation and meeting the personal goals of the selling family or shareholder. That assumption generally is not correct.

Proper preparation is a key to a successful transaction. Many middle market company owners are reluctant to pull together the necessary data – either because they do not have good record keeping systems or they want to avoid the extra time and effort to collect the data. Other owners do not believe the bidder needs certain information.

Recently, the day after “exclusivity’ was granted to the winning bidder in a competitive auction, that bidder introduced me to 65 third-party consultants that needed access to the data room. The seller felt this was similar to having a couple of root canals at one time.

Momentum is the key to a successful transaction. The lack of momentum usually results from a weak data room with many missing documents that bidders look to review. For instance, a key performance indicator (KPI) report that has been kept on a napkin by the owner needs to be transcribed to an Excel file and the management team has to review four years of data. This type of activity takes time and it better be accurate. Does the management team feel comfortable under pressure to create such a document? The answer is “no.” The solution is to start early.

In one example, we requested a business owner begin the process of pulling together items on our high-level Due Diligence List in August. She refused our suggestion saying, “I will wait for the questions” and promptly negotiated in earnest with a larger firm before striking the deal in October. The deal was scheduled to close by year-end, but was delayed into the following year. Why? The bidder came in with a list of 100 questions on a Due

Diligence List during Q4 and the seller had already made vacation plans to be out of the country for nearly three weeks over the holidays – she refused to ruin her vacation.

Representative Due Diligence questions that are typically addressed in the first 30-days of a new sellside mandate:

1. Provide a description and timeline of the formation of the company and expand on its operating history, including any significant events contributing to its development and current position from its date of inception.

2. Discuss the competitive landscape of the business. In particular, discuss the company’s competitors and how company value proposition is differentiated.

3. Describe the business development process and expand on how the company attracts and retains customers who purchase its product and service offerings. Provide the company’s sales breakdown by product line for 2018-2024 by year.

4. Describe the pricing strategy for the company’s product mix offerings. Distinguish between the pricing strategy for one-time services/solutions and recurring services.

5. Describe the types of material utilized in the company products.

6. List any current or outstanding product returns or service issues due to warranty/contract issues since 2015.

7. Does the company provide any long term product warranties? If so, describe in detail.

8. Made in the USA versus other brands. Is this a requirement? If yes, for whom? Specific certifications required of vendor to prove USA source?

9. Discuss why customers in the past have exited or terminated their relationships with the company.

10. List of current work backlog and forecast start/ end dates of each project.

11. List of open quotes with project value + start/ end dates of each quote.

12. What % of business involves competitive bidding through RFQ process?

13. Provide a list of the company’s suppliers/vendors and total vendor/supplier spend for 2018-2023 by year; length of relationship, products/services received, and key contract terms, if any.

14. Describe the salesforce of the organization, its structure, and any key performance indicators (KPIs) used to measure performance.

15. Provide a list all IT, software, or information systems utilized by the company and detail how each is leveraged in tandem with benefits received (e.g., ERP systems, financial reporting software, HR systems, software tools used for project management, billing, or compliance, etc.)

16. Describe how the company processes order fulfillments for its product offerings and how services are managed across its many service and customer types.

17. Provide information on covenants, not-to-competes, and any other management contracts, employment agreements, or confidentiality agreements that the company uses.

18. Does the company have third-party sales person/group actively looking for new opportunities for the company? If yes, what commission structure utilized?

19. Provide a breakdown of the company’s sales and profit margin for 20182024 by business segment within its product and service offerings.

20. Provide a list and detailed description of the company’s capital expenditures and depreciation between 2020-2024 and the anticipated capital expenditures and depreciation in the 2025-2026 forecasted period. Please distinguish between expansion, maintenance, and facility improvements capex.

21. Disclose any contingent assets and/ or liabilities that do not appear on the company’s balance sheets.

22. Discuss any existing or threatening litigation, as well as any other legal issues including open workers’ compensation claims.

23. Discuss any change of control provisions embedded within customer or vendor contracts.

Now might be a good time to learn about the timeline to complete a sell-side process for 2025. The more comprehensive and complete the data room – the better. We would encourage you to ask your professional advisors to invite an investment banking team to speak with you.

Ahlstrom Adds new Line in Brazil to Support Filtration Customers

Ahlstrom, in its ongoing dedication to addressing the global need for clean air and water, has successfully completed a EUR 2 million investment for a new laminator at its Louveira plant in Brazil. This investment not only reinforces Ahlstrom’s 50-year commitment to the global filtration industry but also marks a significant expansion of its product offerings in the South American market for industrial air, industrial liquid, and fuel filtration, including products currently produced in European and North American markets.

“The new laminator increases our manufacturing capabilities and brings needed flexibility to supply our local customers with the best-in-class filtration solutions,” said Andre Pereira, Head of Sales, Filtration, Latin America. “Efficient supply chain management prevents interruptions to the supply stream, and shorter transport distances reduce carbon emissions and lower environmental impact,” he continues.

Combining filtration materials by lamination offers several advantages: enhanced efficiency, extended service intervals, and reduced energy consumption of filtration units. Laminated fuel filtration materials adapted for EURO 5 and EURO 6 standards optimize fuel consumption and reduce the emissions of harmful pollutants. In industrial filtration applications, multilayer materials support the trend for higher filtration performances and the ability to purify air and liquids to protect people and the environment. www.ahlstrom.com

Pall Opens $150 Million Facility in Singapore

Pall Corporation, a leader in filtration, separation and purification technologies, recently held its opening ceremony for a new stateof-the-art manufacturing facility in Singapore that will serve regional and global customers within the growing semiconductor industry. Pall has invested approximately US$150 million on the facility which will primarily produce lithography and wet-etch filtration, purification and separation solutions that will help meet the high demand for advanced node semiconductor chips.

“Throughout an almost 80-year history, Pall has been on the forefront of solving some of the world’s most complex challenges using advanced filtration. This new facility is not only an important development for advancing semiconductor manufacturing technology, but also an important next step for Pall. We will continue to leverage our experience and expertise to help solve global challenges, from the increased demand for advanced chips to aiding in the transition to greener manufacturing,” said Mr. Naresh Narasimhan, Danaher Group Executive, High Growth Markets & Pall Corporation.

The now-completed seven-acre facility will include more than 18,000 square meters of high-volume manufacturing (HVM) and office space and will integrate core research and development capabilities in the future. The new facility will allow customers in highly demanding industries to meet growing end market demand for data processing and storage.

It is expected that the new site will create up to 300 jobs over the next few years across science, engineering and advanced manufacturing, with an emphasis on training and developing new talent as well as enabling transfer of knowledge to contribute to the growth of the sector as part of Singapore’s longterm strategy. There will be a consistent focus on talent development aligned to broader strategic national priorities to ensure that the advanced manufacturing industry can thrive in Singapore. With the addition of Pall’s new facility, Pall is building more capacity to support cutting-edge technologies and help scale new applications like generative AI. www.pall.com

Hengst Filtration Acquires Canadian-American Filter Company

German filtration company Hengst Filtration is acquiring North American hydraulic filter manufacturer Main Filter, which is based in both Sault Ste. Marie, Ontario, and Lincolnton, North Carolina. Hengst described Main Filter as a “respected manufacturer of hydraulic filters for more than 35 years.” The acquisition comes three years after Hengst acquired the hydraulic filter business of Bosch Rexroth.

“We are working hard to be the most competent partner for our customers and to provide them with the best possible service. Main Filter is a crucial piece of the puzzle, especially in the North American market,” CEO of Hengst Filtration, Christopher Heine said.

According to Hengst, Main Filter has a wide range of products and is key to Hengst’s ability to supply local customers in North America through local production.

“This is a win-win for the industry and in particular, we are delighted to have partnered with Hengst, who will, as a filtration specialist, continue to provide great service and quality products for our clients. I’m confident, that the culture and leadership of Hengst, aligned with our values and long-term aspirations, will be a great home to all of our employees,” said Bill Horne, CEO of Main Filter. www.hengst.com