At the Winter Conference of the AM&AA Alliance of Merger & Acquisition Advisors, Nperspective CFO & Strategic Services cast a broad shadow as bronze sponsor and organizer of two panels: International M&A by Region and International M&A by Industry.
The regional panel was moderated by Laura Holm, Partner, Fox Rothschild, with panelists Robert Q. Lee, Partner, Rimon Law; Phillip Lee, Vice President, Governance Solutions; and Andrew J. (Josh) Markus, Partner, Carlton Fields.
Gary Colbert, President of Nperspective, moderated the industry panel. The panelists were Jaret Davis, Co-Managing Shareholder, Greenberg Traurig Miami; Max Poliav, Principal, Nperspective South Florida; and Aviv Tzur, CEO of Avbiz Aerospace Ventures, and President, Greater Miami Aviation Association.
For those of our readers who were unable to attend the Winter Conference, the following is a summary of the industry panel discussion. Bottom line: everyone is bullish about M&A in 2018.
Aviv Tzur was the first panelist to express optimism about M&A in general and specifically in the aviation industry where he called the deal flow “robust” with no slowdown in sight. He said he gets many requests from private equity firms, not surprising to him because “the aviation sector is always hot for private equity.”
Underlying the robust market is the appreciation in value of public companies in Tzur’s industry. Multiples of 12 and 13 have become the new norm. What is perhaps changing is the emphasis, “cascading from airlines to suppliers.” He also noted the increasing number of non-U.S. sources including three deals last year with Chinese companies.
They are more and more aggressive here, said Tzur, adding that a shortage of pilots in China led to the acquisition of an American flight school. A Chinese airplane maintenance and overhaul company looked at a niche American company to broaden its technology. “The trend is to buy American companies,” concluded Tzur.
FMCG (Fast Moving Consumer Goods)
Max Poliav said that world economic trends favor the continuance of deal flows. One trend is the growing force of business in emerging markets. Today 40% of FMCG sales are in emerging markets. By 2027 that number may reach 75%. The search for new distribution platforms and new ways of meeting consumer preferences means that no one in the industry can stand still. For example, the demand for natural foods and products led Amazon to acquire Whole Foods. It is also behind the incubation of the tea drink Fuze by Coca Cola and the skin care line Genius by L’Oreal.
The new reality in FMCG is “a level of substitution” by consumers that never existed before. Customer loyalty can’t be counted on. It has to be re-established, repeatedly, primarily through social media. Old brands have to be revitalized, especially as a result of the growth in online sales from 2013 to the present. Tight margins get tighter, and the struggle to manage customer perception is a constant.
Therefore, FMCG companies work on long-term strategies to “leverage synergies of transactions” by consolidating small brands to unlock value and gain access to new markets and distribution platforms.
Jaret Davis said that private equity is “primary” in technology because “you have to deploy the capital” and that attracts available money, so-called dry powder, to the deals. Although the total number of deals in 2017 was smaller than in other years, their size was greater, particularly in healthcare.
More buyers were looking for companies to acquire than there were companies available. That led to “valuations spiking” and competition among buyers. Davis said he was “shocked” at the prices that attracted “hungry buyers.” The situation led to “more creativity in terms of how people are structuring deals,” and less objection to legacy management than might be expected.
The tax bill that was passed near the end of 2017 has created a climate for more deals, said Davis. “Uncertainty kills the market; clarity alone will impact deals.” The lower tax on repatriation of overseas funds and reduced tax rates for U.S. companies will lead to more strategic investment, more M&As.
2018 and Beyond
Technology transfer is a factor in some of the deals in which Davis and Tzur are involved. In aviation, telecommunications, even healthcare, potential concerns of national security are vetted by CFIUS, the Committee on Foreign Investment in the U.S. However, that process doesn’t seem to be a significant barrier to impede the continual flow of M&A activity across a wide spectrum of industries as the deals keep coming.