EXCLUSIVE: 2008 FOCUS MIDDLE MARKET M&A FORECAST
In the article below, “2008 FOCUS Middle Market M&A Forecast,” Douglas E. Rodgers draws upon the collective wisdom and insight of 30 FOCUS investment bankers to define 10 significant issues that will be particularly important to U.S. middle market companies in 2008.

Doug Rodgers, FOCUS CEO and Managing Partner since early 2002, led the firm’s growth from one office in Washington, DC, to four offices across the US. Before joining FOCUS, Mr. Rodgers was Vice President of the Strategic Business Consulting unit of Holland & Knight Consulting LLC.

He also served as the President and CEO of Corcentric, Inc., CEO of Global Software Corporation and President and CEO of Perfection Equipment Company. Doug, an active pilot with ATP and jet ratings, has a BS in Aerospace Engineering and was educated at the U.S. Air Force Academy and the University of Kansas.

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Active FOCUS Deals
Operating nationally and internationally, FOCUS is currently working with buy- and sell-side corporate clients, private equity groups, holding companies, and early stage venture capital firms in the following areas:

• Aerospace
• Automotive
• Building Products
• Business Process Outsourcing
• Business Services
• Call Center
• Construction
• Distribution
• Education and e-Learning
• Energy, Oil and Gas
• Food and Beverage
• Government Contracting
• Healthcare
• Information Services and Databases
• Information Technology: Hardware
• Information Technology: Services
• Information Technology: Software
• International
• Manufacturing
• Media and Publishing
• Medical Devices and Equipment
• Medical Diagnostics
• Metals and Mining
• Payment Systems
• Professional Services
• Retail
• RFID Technology
• Satellite Communications
• Security Systems and Services
• Sports
• Supply Chain Management
• Systems Integration
• Technology
• Telecomm and Wireless
• Transportation

We have executed dozens of transactions in a range of market segments, but the same fundamentals apply across all of them. Our on-going transaction process provides us with up-to-the-minute market knowledge in these sectors that may be of corporate development interest to you.

Inquiries should be addressed via e-mail to info@focusbankers.com, by telephone to 202-470-1973 or by fax to 202-785-9413.

Camber Has Acquired Complex Solutions

FOCUS acted as financial advisor to and assisted with the negotiations as the representative of Camber Corporation, a leading provider of full-service education, training, acquisition management, and engineering solutions. Complex Solutions works with military and civilian planners worldwide to create multi-disciplinary education and training solutions. FOCUS currently is interviewing candidates for the next Camber acquisition which is targeted for completion by mid 2008.
Read more...

Audiovox Has Acquired Technuity

FOCUS acted as financial advisor to and assisted with the negotiations as the representative of Technuity, Inc. and Batteries.com. Technuity designs, manufactures and markets batteries, carrying cases and accessories for imaging, computing, communication and entertainment devices. Audiovox Corporation, a leading international supplier and value added service provider, conducts its business through subsidiaries, marketing mobile and consumer electronics and accessories. Read more...

TouchStar Has Acquired Data-Tel Solutions

FOCUS acted as financial advisor to and assisted with the negotiations as the representative of TouchStar, a Denver-based firm that develops and supports world class call center technology with on-site and hosted deployment options, serving over 2,500 businesses on six continents. Data-Tel Solutions, one of the first companies to develop and utilize advanced predictive dialer technology, has been providing call center systems since 1991. Read more...

2008 FOCUS Middle Market M&A Forecast

By Douglas E. Rodgers, Chief Executive Officer and Managing Partner, FOCUS

Drawn from the collective insights of 30 FOCUS investment bankers, the new 2008 FOCUS M&A Forecast outlines 10 significant issues flowing from four major economic trends that will be affecting U.S. middle market companies this year.

The Global Economy

Compared to the strength of foreign currencies, the weakening U.S. dollar is creating compelling investment opportunities for overseas buyers, particularly from Europe , the Middle East and India. With the rise in overseas buyers, some U.S. business leaders express concern that foreign acquisitions could threaten national security. However, in 2008, middle market companies should embrace, not fear, international investors. International investments are mutually beneficial both for the middle market American company and the overseas buyer.

The U.S. dollar – and economy – will stabilize by encouraging overseas investments, and thus, help offset the looming predictions of a 2008 recession. Despite 2008 recession predictions, 64 percent of U.S. middle market companies with revenues between $25 million and $1 billion are expected to grow in the next 12 months according to a study from the Economist Intelligence Unit and CIT Group, Inc.

What is the driving force behind 2008 middle market growth? It is the same force that has revived Fortune 500 companies: foreign acquisitions. The additional capital being supplied by stable, deep-pocketed overseas investors allows promising U.S. companies to pursue attractive growth opportunities. In many cases, international buyers are the ideal acquirer for U.S. middle market companies for the following distinct reasons:

• Foreign investors are willing to pay excellent premiums as they are using the relative valuation of the U.S. dollar to their advantage.
• Many foreign companies want to enter the U.S. market with a strong presence, and the best way to enter is through an acquisition of an existing American company.
• Like U.S. executives, foreign executives understand that many business processes are ingrained in our society, and they are more likely to be attracted to existing U.S. management that will remain in place after the acquisition.

With the weak U.S. dollar, FOCUS has witnessed firsthand the tipping point of our new global economy and predicts that European and Indian buyers are most likely to lead in the purchase of U.S. companies during 2008 and beyond.

1. European Buyers

The weakening U.S. dollar has resulted in more European buyers purchasing U.S. companies. For middle market companies, exchange rates greatly impact the M&A marketplace. Compared to the Euro, the imbalance of the U.S. dollar has created enormous opportunities for foreign buyers in numerous ways, and as a result, U.S. companies have become likely targets for European buyers seeking to take advantage of their currency’s immediate buying power. At FOCUS, this trend is evidenced by the fact that seven out of the last 20 FOCUS transactions involved Western European buyers.

2. Indian Buyers

With the continuous decline of the U.S. dollar value, the U.S. remained the favored hunting ground for Indian firms in 2007. According to The Wall Street Journal, Indian firms concluded 125 deals in the first half of 2007. Of those 125 deals, 70 were completed in markets outside India. Again, FOCUS is experiencing this trend firsthand as the firm assisted Dunn Solutions Group in its sale to Cranes Software International, an Indian firm. In 2008, this trend is expected to continue providing U.S. companies with another very attractive group of buyers.

Changing Demographics

3. Retiring Baby Boomers

There are 78 million baby boomers in the United States – the largest population segment in America. According to the Exit Planning Institute, more than 8 million privately held U.S. companies will be sold by baby boomers seeking retirement in the next 12 to 15 years. In 2001, 50,000 baby boomer business owners retired, while 750,000 are expected to retire in 2009 according to NFO World Group.

The vast number of companies for sale should inherently reduce purchase prices due to simple supply-demand economics. Some sellers will want to stand out in the crowd, planning and executing their exit strategy now, providing early market entrants with a more attractive supply and demand environment.

As baby bloomers plan their exit strategies, many second- and third-generation family-owned businesses are not staying in the family. This is occurring for two reasons:

• Current business owners do not have children for passing down the business.
• Children of retiring business owners are opting for alternative careers.

According to the Family Firm Institute, only 33 percent of U.S. business owners will successfully transfer their family business to the next generation. Thus, two-thirds of business owners with or without children have life-changing decisions to make, and many will opt to sell their businesses domestically or internationally.

Meltdowns and Slowdowns

4. Residential Construction Meltdown

The residential construction meltdown has not only affected the residential real estate industry, but the impact is now seeping into the commercial real estate industry as well. All industries servicing construction and real estate development have fallen out of favor with the bursting of the housing bubble.

5. Subprime Credit Meltdown

While Americans continue to hear about and feel the subprime credit meltdown ramifications, we believe financing in the middle market arena will be available in 2008. Private equity firms, which have become a large part of the lower middle market in recent years, are still flush with cash. However, firms needing debt financing to achieve a targeted yield on equity investments will find it difficult to source attractive terms, as compared to the first half of 2007.

Lenders will be more diligent, but they are eager for a good deal. With 2008 transactions, there may be one less turn of leverage available – one spin less of earnings before interest, taxes, depreciation and amortization (EBITDA). This means the marginal deal will not be completed, and the financial buyer will be willing to pay less because leverage is reduced.

6. Election Slowdown

History tells us that investors tend to have a “wait and see” attitude for the 90 to 150 days preceding a presidential election, creating a reduction in the number of transactions. Buyers prefer to see how the election unfolds and its potential effect on global markets and the domestic tax environment.

We expect this wait and see period may extend two to six months after the presidential election as well. With the upcoming 2008 election, many business owners will not want to wait until mid-2009, and as a result, may opt to sell in early 2008.

7. IPO Slowdown

In 2008, a dramatic slowdown in initial public offering activity may stimulate middle market M&A activity. Many small- and medium-sized companies see fewer reasons to go public, and the decreased attractiveness in being publicly traded will push more sellers to strategic corporate and private equity buyers.

The Rise of Green Deals

With the buzz surrounding global warming and alternative energy, emphasis on the environment has soared. Middle market companies want to improve their environmental footprint, and in 2008, there will be a rise in green deals to accomplish this objective.

Therefore, venture capitalists have started investing in green startup companies backing experienced management teams with promising intellectual property in alternative fuels, water purification, renewable energy and recycling programs.

8. Clean Technology Opportunities

Clean technology (“clean tech”) improves operational performance, productivity and efficiency while reducing costs, energy consumption, waste and pollution. It encompasses air and water purification, advanced materials, distributed power generation, renewable energy and process control. Acquisitions in these industries are beginning to happen as companies realize that they can be more environmentally sound by purchasing such promising technologies.

According to energy analysts at Clean Edge Inc., annual revenues from wind, solar, fuel cells and biofuels increased 39 percent in 2006 from the previous year, and the clean tech industry is expected to grow more than four times by 2016. In 2007, FOCUS witnessed an increase in green deals, and in 2008, the firm predicts an expansion of clean technology investments.

9. Consolidation of Energy and Natural Resource Companies

Middle market M&A transactions in the energy and natural resources industry will increase as companies continue consolidating. Most companies realize they cannot stay competitive without becoming a part of the larger select businesses remaining in their industry. For example, there once were 30 U.S. companies building shafts for U.S. coal mines -- today there are only three. Strong consolidation forces will continue in 2008, increasing the number of businesses interested in merging in the energy and natural resource segment.

10. Increasing Energy Prices

Rising energy costs affect all industries, and the shoe has not completely dropped. Apprehension over these increasing costs remains in the forefront of middle market companies’ concerns. While consumer product companies are more concerned about energy prices than other industries, we still expect a fairly good M&A year in 2008 as these companies continue to find new ways of dealing with increasing energy prices. Meanwhile, we expect businesses providing products and services to the energy sector to thrive.

For more information about FOCUS or to find an investment banker in your industry, please visit www.focusbankers.com.

Phil Clarke Joins FOCUS as Managing Director in Chicago

Philip R. Clarke III has joined FOCUS as a Managing Director in the firm’s Midwest office. Mr. Clarke has more than three decades of experience in providing investment banking and financial advisory services to middle market companies.

According to Fred Floberg, FOCUS Midwest Regional Managing Director, “Phil has long-standing and deep relationships in the Chicago business community generally and in the financial services industry in particular. His addition to the firm is another step in our growth strategy and will allow us to expand our Midwest region services.”

About Philip R. Clarke

Prior to joining FOCUS, Mr. Clarke co-founded and was a manager of Shikaakwa Partners LLC, a firm specializing in providing financial consulting and merger and acquisition advisory services. He also has investment banking experience from Prairie Advisors, LLC; Heller Financial Advisors; ABN AMRO Incorporated and The Chicago Corporation. Read more...