FOCUS ANNOUNCES RECORD-BREAKING
2006: Every January, FOCUS releases an open letter to business
associates and friends of the firm, candidly reviewing the
past year, summarizing completed transactions, citing Partner
and staff additions and generally looking ahead to prospects
for the coming year.
Both in terms of revenue and professional growth, FOCUS
shattered records in 2006. You will find details in the article
below, “Reviewing a Record-Breaking 2006: Looking Confidently
Ahead to 2007.”
Also included in this issue is, “Dry Bulk Shipping
Market Overview and Outlook: 2007 and Beyond,” by Gianpiero
(JP) Balestrieri. This fascinating overview -- supported
by solid research and informed insight -- of the global dry
bulk shipping industry can help mitigate the risks and maximize
the rewards of acquiring, financing, and operating dry bulk
Mr. Balestrieri, a FOCUS Partner and Global Head of the
Structured and Project Finance Group, has extensive international
experience in managing and closing very complex multi-party
transactions in Europe, Latin America, Africa, and Asia,
among other emerging market regions.
With over 25 years of experience across many verticals,
FOCUS currently has nearly 60 active transaction engagements
in its four offices in Atlanta, Chicago, San Francisco,
and Washington, DC in the following specific business sectors.
- Asset Management
- Building Materials
- Business Process Outsourcing (multiple assignments)
- Business Services
- Call Center Software and Services
- Construction (Infrastructure)
- Financial Services
- Fire Protection
- Food Processing
- Food Service Management
- Government Contracting (multiple assignments)
- Healthcare Business Services
- Home Automation
- Information Management
- IT Outsourcing (multiple assignments)
- IT Services (multiple assignments)
- Library Services
- Maritime Shipping
- Market Research
- Medical Devices (multiple assignments)
- Medical Diagnostics
- Medical Staffing
- Software (multiple assignments)
- Sports Apparel
- Transaction Management Services
- Truck/Transport Capital Equipment
Our transaction process provides us with up-to-the-minute
market knowledge in these sectors. Are any of them of corporate
development interest to you? Give us a call or drop us a
Inquiries should be addressed via e-mail to email@example.com,
by telephone to 202-470-1973 or by fax to 202-785-9413.
Reviewing a Record-Breaking 2006 -- Looking Confidently Ahead
Both in terms of revenue and professional growth, 2006 truly
was a record-shattering year for FOCUS Enterprises with revenue
up by 104 percent and the number of FOCUS Partners increasing
by almost 25 percent.
The addition of five new Partners brought the firm’s
professional total to 22 bankers. A Director of Marketing
and Business Development, as well as three Regional Business
Development Managers joined the Director of Research to round
out the expanding team.
In the past year, the firm’s record of closed deals,
revenue growth, and expanding engagement list validates the
firm’s vision and strategy:
“Our mission is clear. We provide buy side, sell side,
and capital raising advisory services for transactions between
$5 and $300 million, serving private and public companies
in the US and international marketplace. We will continue
to provide the highest quality strategic advisory services
customized for this market space. We will grow our firm by
continuing to leverage our Partners’ C-level operating
experience and hands-on approach, our proven transaction
methodology, our deep research capability, and our broad
In 2006, FOCUS completed numerous M&A, corporate sale,
consulting, and strategic partnering assignments, including
the following closed transactions:
- Global Document Solutions Inc. Acquired Best Strategy,
- Evnine Vaughan Associates, Inc. Recapitalization Transaction
- Western Shower Door, Inc. Recapitalization Transaction
- Strategic Defense Alliance Corporation Acquired Computer
Networks & Software
- Cambridge Systems Acquired Video & Telecommunications
- Rich-SeaPak Acquired WorldCatch Foods
- Voight & Schweitzer Acquired Clark Substations
- Islington Capital Partners Recapitalized Library Systems
- Diebold Acquired Certain Assets of ERAS Banking Technology
- CareTek, LLC Acquired Certain Ownership Interests in
- BMS Holdings, SA Acquired BMS and BOCS with a Senior
Secured Debt Facility from Dexia
- Comm-Works, a Portfolio Company of Morgenthaler, Acquired
- The Bostwick-Braun Company Acquired Steel City Products
from Sterling Construction Company, Inc.
Complete details about each of these transactions can be
found at http://www.focusbankers.com/tombstones/mergers.asp.
Since 2002, the middle market has improved steadily and
throughout 2006 once again was an active segment of the broader
M&A market. In 2006, the number of middle-market announced
deals closed by FOCUS doubled over 2005. Many key factors
that drove 2006 results are predicted to continue to drive
a strong 2007 M&A market momentum, including:
- Strong economic environment,
- Available capital from both strategic and financial buyers,
- Willing debt markets,
- Continued participation of the private equity community.
FOCUS believes that 2007 has the potential to be a very
strong year for M&A activity in the middle market. We
feel particularly positive about 2007 for two reasons: prices
are robust, and both buyers and sellers are beginning to
realize that the current market will not last indefinitely.
At the same time, astute buyers can still find reasonable
values, particularly when they can avoid the auction process
by finding proprietary deals. Private equity funds which
target companies with EBITDA under $20 million are sitting
on large amounts of cash -- which suggests that demand for
good middle market companies will continue.
We are less confident, however, that the positive outlook
will continue throughout 2008. It is possible that buyers
and investors may pull back significantly during 2008. The
Iraq conflict still provides lots of uncertainty on the fiscal
and geo-political fronts, and that coupled with the looming
2008 presidential election may cause buyers to delay decisions
and capital commitments until well after the elections.
As we begin our 25th anniversary year in business, FOCUS
is dedicated to assisting all clients in achieving their
business goals. We wish our friends, clients, and colleagues
a most profitable 2007.
FOCUS Mezzanine Provides Growth
Capital to Viztek, LLC
FOCUS Mezzanine, an affiliate of FOCUS Enterprises, has
provided growth capital to Viztek LLC., a leading software
development company and a value-added reseller of computed
radiography (CR) scanners and related hardware.
Joe Cermin, Viztek’s President, stated that “The
FOCUS partners involved knew our business, were responsive
to our requests, and closed the transaction quickly and on
reasonable terms. We see them now as a partner, and would
certainly use them again in the future as our growth continues.”
Capital will be used for both organic and external growth.
Use of proceeds internally will be for sales and marketing,
and in particular, expansion of Viztek’s established
distribution network. 20/20 HealthCare Partners is a co-investor
in Viztek and will assist the company with continued strategic
development and growth.
FOCUS Mezzanine, LLC makes subordinated debt and preferred
equity investments in successful, later-stage middle market
operating businesses. To learn more, go to http://www.focusbankers.com/focuscapital/focuscapital.asp.
Elizabeth Dunlop Richter Joins FOCUS Chicago Office as Director
of Business Development
The Chicago office of FOCUS Enterprises, Inc., an investment
banking firm providing merger, acquisition, and corporate
finance services to middle market companies, is adding a
new Director of Business Development. “Attracting such
outstanding talent to the FOCUS Chicago team adds substantial
depth as we continue our expansion, said William S. Lear,
FOCUS Managing Partner, Midwest Region. “A communications
and business development professional like Elizabeth Richter
will be a great asset.”
About Elizabeth Dunlop Richter
Prior to joining FOCUS in Chicago as Director of Business
Development, Ms. Richter was Senior Vice President of Content
and Production for InLight, Incorporated. She also held
a series of management positions at Pleasant Company, a
subsidiary of Mattel, Inc., and at WTTW and WLS-TV, ABC’s
owned television station in Chicago…more.
Dry Bulk Shipping Market Overview and Outlook: 2007 and Beyond
By Gianpiero (JP) Balestrieri, Partner and Global Head, Structured
and Project Finance, FOCUS Enterprises
Dry Bulk Carrier Industry Overview
The dry bulk market has experienced extreme
volatility in the past several years, with new building
prices, sales and purchase prices (“SnP”),
and freight and charter rates hitting record highs in 2004
and experiencing drops in 2005 accompanied by a robust
upswing in 2006. Strong dry trade expansion has been the
primary driver of record high charter rates in the past
Understanding demand and supply fundamentals
to date in the dry bulk industry’s trade cycles will
firmly support key stakeholders -- including ship owners,
operators, investment banks, lenders, investors, insurance
brokers, and capital markets participants -- in evaluating
and mitigating the risks and rewards in acquiring, financing,
and operating dry bulk vessels over the years to come.
China’s growing impact on the world economy has been
the primary driver of the recent dry bulk expansion. Chinese
dry bulk import volumes have more than doubled in the three
years from 2001-2004, accounting for 94 percent of the growth
of the dry bulk trade during that period1. This growth caught
shippers by surprise, and as a result, earnings jumped three
times higher in 2004 than previous record earnings.
For example, shipping a ton of iron ore from Brazil to Asia
had an average cost of $7/ton in the 1990s but in 2004, it
cost over $30/ton. The substantial increase in dry bulk demand
was further reinforced with the lack of Chinese logistical
sophistication. Chinese port congestion led to exceptionally
long delays at Chinese ports, creating upward pressure on
bulk charter rates.
Since 2004, bulk charter rates have moderated as seaborne
trade has slowed, and the Chinese have improved their logistical
organization. Current bulk earnings, however, are still substantially
above historical averages from the 1990s.
Average earnings for Handymax vessels in 2006, for example,
are over $18,000/day while historical average annual minimal
earnings have been at $12,000/day (over the last 10 years)
and the latest peak earnings (YTD 2006) have reached up to
$26,500/day. Whether charter rates revert back to historical
means or persist at higher rates in the next several years
will depend substantively on the steadiness of continued
Chinese and other emerging demand.
Dry Bulk Vessel Supply
Lack of capacity investment during the 2001 global recession
also contributed to the recent spike in charter rates.
The shipping industry suffered during the 2001 recession
because of: international unrest; terrorism (9/11); changing
economic trends; and shifts in production and consumption
patterns that altered cargo movements. While record bulk
earnings spurred capacity investments in 2004 and 2005,
the time lag between new building signings and deliveries
strained supply and tightened the dry bulk market.
Recently, the dry bulk market has become more balanced as
vessels began to be delivered from new building contracts
signed in 2003 and 2004 and scrapings have remained at minimal
levels. For the first half of 2006, 12.9 million deadweight
tonnage (dwt -- a measure of the capacity of a cargo ship)
of new dry bulk tonnage, or about 3.7 percent of the fleet
size at the beginning of the year, already have been delivered.
Illustrating the absence of significant scrapping, only 17
dry bulk vessels headed to the scrap yards in 2005, representing
a total of 0.7 million dwt. In 2004, only 0.5 million dwt
were removed from service during the year2.
The Trade Development Cycle
Evolution of Seaborne Trade
While new commodities and technologies have been important
drivers of the shipping industry, shifts in regional trade
remain the largest factor in shipping market change. Charter
and freight rates are ultimately determined by global trade.
Therefore, understanding the current and future impact
of China will help stakeholders predict future shipping
market conditions for the capital markets.
In the last fifty years, the world economy has been transformed
from a collection of closed economic zones dominated by the
European and Sino-Soviet empires, to a system of free trade
between more than 100 independent countries. This evolution
introduced a period of almost continuous change as the European
empires were dismantled in the 1950s, the Soviet empire in
the late 1980s, and as China joined the world market in the
The impact on shipping was profound; triggering four consecutive
waves of seaborne trade growth, spread at about fifteen year
intervals between 1955 and 20053.
- In the 1950s, Europe dismantled its colonial system and
rebuilt its economy after the war around the Bretton Woods’ free
- In the early 1960s, the Japanese economic miracle produced
a decade of growth during which Japanese imports reached
600 million tons.
- In the 1960s and 1970s, growth exhibited by South Korea
and the Asian Tigers followed the growth development of
- In the 1990s, China started its development.
The last three waves of seaborne trade
had a distinctive pattern, and studying their causes provides
a useful starting point to understand China’s impact on the shipping
industry’s current cycle. These waves -- referred to
as Trade Development Cycles (TDCs) -- are driven by the development
cycle of emerging economies. The process is as follows:
As the economy develops through stages two and three, the
demand for raw materials such as oil, iron ore, coal, nonferrous
metal ores, and forest products increases as the industrial
infrastructure is built up. If raw materials are not available
locally they must be imported, as must the more sophisticated
machinery. These imports are paid for by exports of manufactures
and any primary exports which are available.
The reconciliation of domestic and foreign
markets thus forms a basic requirement of growth at this
stage. Assembly industries, shipbuilding, and automobiles
frequently are developed as lead export earners; a pattern
set by Japan in the 1950s and subsequently followed by South
Korea and several other countries4.
Although the cycle is well understood,
it is very difficult to predict the turning point. The
previous trade development cycles confronted the shipping
industry with a complex supply management task which, with
the benefit of hindsight, it did not handle well. For example,
the rapid trade growth caused by the European and Japanese
TDCs in the 1950s and 1960s ended with an investment bubble
in the early 1970s that left the broader shipping industry
under a cloud for twenty years. As we move through the
Chinese TDC, shipping investors can benefit tremendously
by understanding China’s
progression along the steep slope of the development cycle.
China in the 1990s
Chinese trade began to have a significant impact on the global
economy in the early 1990s. By then, China’s import
trade had edged up to 100 million tons, but still was globally
insignificant, accounting for only 2 percent of seaborne
imports. However, the internal reforms following Deng Xiaoping’s
tour of China in 1992 produced a staggering trade boom.
This has translated into record dry bulk demand, mostly
because of growth in Chinese imports rather than exports.
Though Chinese exports grew rapidly,
they have only moderately increased global seaborne trade.
Chinese exports rose at the expense of other country’s share of trade and were
generally in small tonnage manufactures. Instead, it was
China’s import growth that significantly increased
global dry bulk demand, with the increased Chinese demand
for raw materials and the increased trade distances to transport
bulk to China.
By 2000, Chinese dry bulk imports had reached 300 million
tons, and in 2005 they were about 708 million tons. In tonnage
terms, exports have grown more slowly, reaching approximately
400 million tons in 2005, but the export cargoes include
many manufactures, which have a high-volume for their weight.
In 2004, China accounted for 10 percent of world imports
but accounted for 40 to 60 percent of the increase in seaborne
trade volumes over the last five years.
Future Development of China's Trade
China’s development closely follows the classic TDC.
Normally steel and energy dominate the process. During the
last three years, 70 percent of the growth of Chinese import
cargoes have come from iron ore and oil. With other steel
related trades and products included, energy and steel accounted
for about two-thirds of China’s import growth. This
is exactly what happened in Europe and Japan during the previous
TDCs and without these rapidly growing commodities, China’s
rise would hardly have been noticed.
Dry Bulk Demand Factors
China’s development has dominated the dry bulk industry
in the past couple of years. China’s development is
expected to continue being the most important demand factor
in the dry bulk market in the near and medium term.
Near Term Dry Bulk Demand
In the near term, global steel production -- especially related
to China -- will continue to drive dry bulk demand, as
global iron ore and steel products continue to remain above
historical levels. In 2005, global steel production expanded
by about 6.5 percent with a 27 percent increase in Chinese
steel production and 19.8 percent growth in Indian steel
production. Chinese and Indian steel production already
have increased by 19.6 percent and 17.6 percent, respectively,
year over year in the first five months of 2006, suggesting
that the import demand for steel products remains strong.
Coal trade also should remain strong and support dry bulk
demand. Following a year of quite strong import increases
to both Europe and the United States, this trend should continue
throughout 2007. In Europe, high energy prices should keep
coal demand firm. The United States should begin to see a
shift of its coal trade routes. Last year, the United States
imported about 2.5 million tons of coal from Indonesia while
Colombia exports to the United States stagnated. This trend
should continue and may accelerate in the near term.
Medium Term Dry Bulk Demand
In the medium term, China should continue to be the most
significant contributor to dry bulk demand growth. Based
on previous TDC, China’s recent impact on the dry
bulk market is unlikely to be a short-term phenomenon and
its development will continue to increase dry bulk demand
in the medium term.
Based on historical and current fundamentals,
development should not slow for at least another 7 to 10
years. Historically, the European TDC lasted 23 years from
1950 to 1973, while Japan’s lasted for a little more
than a decade due to its smaller size. In terms of population
and geography, China is the largest country to move through
a TDC in recent history. China’s TDC did not really
take off until the late 1990s. Given its size, this suggests
that China’s development cycle should not slow for
at least another decade, auguring for continued strength
in bulk demand.
Dry Bulk Vessel Supply and Market Balance
Near Term Dry Bulk Supply and Market Balance
Fleet growth was higher in 2006 than in 2005 and should steadily
grow for 2007. The existing order book stands at almost
64.2 million dwt, representing 18 percent of the existing
fleet. Deliveries of bulk carriers in 2006 will reached
26 million dwt, an increase of about 3 million dwt from
2005, mainly due to delays in deliveries that were scheduled
in 2005. Meanwhile, vessel scrapping should remain almost
non-existent, with only 1.9 million dwt scrapped in 20065.
In the near term, dry bulk market balance is expected to
slightly weaken. Although strong growth in demand is expected
to continue, the growth will still be slightly below the
net fleet growth and subsequently the fleet utilization will
eventually firm up towards the end of 2007.
Medium Term Dry Bulk Supply and Market Balance
Fleet growth will be limited in the medium term. The aging
of many dry bulk vessels will result in more scrapping
in 2007 and 2008, while a negative outlook by dry bulk
ship owners has limited new building orders. Bulk carrier
vessel contracts have decreased by 1 percent since 20056.
A tightening credit market will put further restraining
pressure on new building contracts. Market balance should
therefore become tighter in the medium term as demand overwhelms
the available supply of Handymax and Panamax fleets through
the end of 2009.
1Stopford, Martin, Dec. 7, 2005: “China in Transition:
Its impact on shipping in the last decade and the next.” Clarkson
Research Services Ltd.
2Kartsonas, John (2006). “Against the Seasonal Winds.” Citigroup
3Stopford, M., Dec. 7, 2005. “China in Transition:
Its impact on shipping in the last decade and the next.” Clarkson
Research Services Ltd.
4Stopford, Martin (1997). Maritime Economics. Routelege,
5“Dry Bulk Market.” Fearnley’s Research
Services. Oct. 2006.
6“Shipping Intelligence Weekly.” Clarkson Research