Highlights From "What's the Deal With Deals?"

It was fantastic to see such a huge turnout at our annual “What’s the Deal with Deals?" Conference on September 6 and hear from our expert panel members on the outlook for deals. You can click here to access the entire conference, or, if you are looking for a quick read, here are some important themes that panel members shared with us.

Mergers and Acquisitions Panel:

M&A Picture.jpg

From left to right:

  • Tom Goldblatt, Managing Partner, Ravinia Capital LLC
  • Rahul Sawhney, Senior Managing Director, Z Capital Partners, L.L.C. 
  • John May, Managing Partner, CORE Industrial Partners
  • Brian Boorstein, Managing Partner, Granite Creek Partners, L.L.C.
  • John Hatherly, Co-Managing Partner, Wynnchurch Capital
  • William Spizman, Partner, RSM US LLP

Everyone agrees it’s a sellers’ market; more capital chasing fewer deals which is making business more competitive, more demanding and making it more challenging to deploy capital in an intelligent manner. The opportunities are there, but finding the right one from a value standpoint is harder. It’s also more important than ever to invest “with honest people who can run businesses,” said John Hatherly. “Otherwise, you will get burned.”  

Bill Spizman presented a slide showing that the PE strategy of buying the platforms and then doing add-ons to raise performance remains constant at about 65 percent. But that strategy can often be easier said than done, panel members agreed.  The hardest part with add-ons is the culture fit.  “No two companies run the same and trying to merge cultures is extremely difficult and risky,” Brian Boorstein emphasized.

Our panelists pointed to family offices as an active player in the deal market because of the wealth they have accumulated and because they are willing and able to hold their investments over a long time period, a “message that resonates with sellers,” John May explained. Panelists also noted that more and more investment bankers are using an auction process to sell companies rather than granting exclusive agreements, which is an approach we like at Ravinia Capital.   But widely held auctions where one relies on heavily leveraged returns and inherits the winner’s curse are not where one is likely to win said Rahul Sawhney. “That is why we have invested heavily in operating resources, and have pursued situations that are more direct where we can add value such as go-privates and corporate carve-outs.”

Lending panel:

Lending Panel.jpg

From left to right:

  • Eric Welchko, Partner, Ravinia Capital LLC
  • Bob Shanahan, President, Wintrust Business Credit
  • John Todd, Director of Originations, AloStar Capital Finance
  • Bruce Denby, Managing Director, The PrivateBank
  • Ted Koenig, President and CEO, Monroe Capital

My colleague Eric Welchko moderated the banker panel where participants concluded that competition is fierce, with a supply/demand imbalance caused by an abundance of capital. It’s definitely a borrowers’ market, with even distressed companies trying to dictate terms. The good news is everyone is looking at more deals, but the bad news is they are working twice as hard to get the same results.  Fundamentally, they agreed, relationship banking is back in vogue.  Here are some highlights from that discussion:

Bob Shanahan: Many of us grew out of the old LaSalle Bank and American National Bank traditions which were all about relationships and working with our customers. We picked our fights and worked with those customers that were a good fit. Then after a series of acquisitions relationship banking was laughed out as it fell out of favor.  But with banks our size, relationship banking is resonating again. 

Bruce Denby:  In this environment you have to love the business and find your niches and find transactions that fit your model. And you have to look at the whole transaction and plan to keep it for a longer period of time. It’s all about the relationship. The reality is that you have to be there for your clients when they need you and go to bat for them.

John Todd: We realized it was too expensive to keep onboarding new clients and much more efficient for us to hold clients for a long time.  We have worked to establish trust with our clients, to be there when something adverse happens because something always does. It’s powerful when you can get your customers to speak for you.

Lenders talk about the potential for an unexpected “Black Swan” event that could derail markets:

Ted Koenig: Everything is very fast right now, and discipline is suffering. We could experience some self-inflicted wounds because of the pace that we are forced to deal with today in all of our businesses.  That is the greatest risk because you miss things no matter how good your infrastructure is.

John Todd:  It’s hard to underwrite to a specific event so the best thing you can do is diversify, pick your spots, hope you are capitalized the right way, and pick the horses that can survive. We would be willing to do a stretch piece, but we have to get it back quickly to avoid getting hurt by a black swan event.

Write back and let me know your thoughts about the conference and if you have any specific topics you would like covered when we meet again next year.

Tom Goldblatt

Ben Schmidt