Archives for January 25, 2022

Frontenac Building Monterey Bay Platform

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Monterey Bay Herb Company, a portfolio company of Frontenac, has acquired AmeriHerb.

AmeriHerb is a distributor of botanicals, herbs, and spices which are sold primarily through its two e-commerce websites AmeriHerb.com and Herbalcom.com. The Ames, Iowa-headquartered company was acquired from co-owners Tom Doyle and Doug Borud.

Botanicals are natural substances derived or extracted from plants such as roots, flowers, fruits, leaves or seeds. Examples include elderberry, lavender, and ginseng.

Monterey Bay is a processor and distributor of botanicals, herbs, teas, essential oils, seasonings, and spices. The company’s products are sold online, in bulk and through co-pack agreements into the nutraceutical, food & beverage, and health & beauty markets.

Monterey Bay was acquired by Frontenac in December 2020 in partnership with food industry veteran, Bob Aiken. The company was founded in 1997 and is headquartered 50 miles south of San Jose in Watsonville, California. Monterey Bay is led by Mr. Aiken and President David DeSouza.

“We are extremely excited to welcome AmeriHerb’s customers, suppliers, and team to Monterey Bay Herb Co” said Mr. Aiken. “We look forward to building upon the legacy of customer service and broad assortment that Doug Borud and Tom Doyle have built.”

Frontenac invests in lower middle-market businesses that operate primarily in the consumer, industrial, and services industries. The firm was founded in 1971 and is headquartered in Chicago.

© 2022 Private Equity Professional | January 25, 2022

Saw Mill Closes Ninth Fund II Investment

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Saw Mill Capital has acquired Rasa Floors, a Texas-based provider of flooring services.

Rasa Floors is a provider of flooring installation services as well as repair, renovation and new construction applications, with a focus on the multi-family market in the Southeast and Southwest United States.

Rasa Floors, led by founder and CEO Michael Rasa, was founded in 1994 and is headquartered near Dallas in Carrolton, Texas.

The buy of Rasa Floors, which closed in December 2021, is the ninth investment made by Saw Mill’s most recent private equity fund, Saw Mill Capital Partners II LP, which closed in July 2017 with an above-target $340 million in capital. In March 2021, Saw Mill acquired Nemo Tile, its eighth Fund II investment. Nemo is a New York City-based designer and distributor of tile, stone, and setting materials that serves the architecture and design, contractor, and retail channels. The company’s products are used in both commercial and residential construction projects.

“We are excited to have the opportunity to partner with Saw Mill,” said Mr. Rasa. “Through extensive interactions, we have developed a deep relationship with the Saw Mill team, who has demonstrated an intrinsic knowledge of our business model and the markets in which we operate. Rasa has experienced tremendous success since our founding and with the added strategic support from Saw Mill, we believe we are capable of significant growth in the future. We look forward to continuing to execute our strategic vision and are delighted to partner with Saw Mill as we enter the next stage of Rasa’s journey.”

“The team at Rasa has created an exceptional business with an outstanding company culture focused on employee growth and delivering best-in-class service to its customers,” said Travis Foltz, a principal at Saw Mill. “This commitment to quality service has resulted in exceptional historical growth and a compelling market leadership position. Saw Mill has a successful track record of partnering with founder- and entrepreneur-led businesses, and we are incredibly excited to partner with the Rasa team and support the company through its next phase of growth.”

Saw Mill invests in North American-based manufacturing, industrial and commercial services, and specialty distribution businesses with $25 million to $200 million of revenues and $5 million to $25 million of EBITDA. The firm was founded in 1997 and is headquartered north of New York City in Briarcliff Manor, New York.

Croft & Bender was the financial advisor to Rasa Floors on this transaction.

© 2022 Private Equity Professional | January 25, 2022

Great Range Buys Beauty Products Distributor

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Great Range Capital has acquired Salon Service Group, a distributor of professional brands directly to salons and salon stylists.

Salon Service Group (SSG) maintains an extensive network of locations, sales representatives, brand partners and customers and considers itself the largest independent professional beauty supply distributor in the United States.

SSG’s products include shampoos, conditioners, colors, lighteners, pigments, brushes, foils, gloves, scissors, brushes and combs that are sold to licensed cosmetologists, cosmetology students, and salon owners.

SSG was founded by CEO Gino Barbo in 1987 and is headquartered 165 miles south of Kansas City in Springfield, Missouri. Mr. Barbo will remain as CEO of SSG in partnership with Great Range Capital.

“I’ve been at the helm of SSG for more than 30 years,” said Mr. Barbo, “and my mission is still the same: to be committed to excellent service, quality products and building partnerships. I’m always interested in growth that allows us to elevate the levels of service and quality our customers and our industry have come to expect. I’m so pleased that the team at GRC has partnered with us.”

“GRC is honored to be a part of SSG’s bright future,” said Paul Maxwell, the managing partner of Great Range Capital. “SSG is an impressive company, and we see a compelling opportunity to accelerate its growth both organically and through new partnerships.”

Great Range invests in Midwest-based companies that have revenues from $20 million to $150 million, and EBITDA of more than $3 million. Sectors of interest include niche manufacturing, business and industrial services, consumer and retail, and healthcare services. The firm was founded in 2010 by Ryan Sprott and Paul Maxwell and is headquartered near Kansas City in Mission Woods, Kansas.

© 2022 Private Equity Professional | January 25, 2022

Citizens Sees Bright Future for Middle Market M&A 

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According to a new survey by Citizens Bank, middle-market companies and private equity firms foresee an extremely strong year for the M&A market in 2022, with bullish forecasts for both deal volumes and for company valuations. The Citizens Middle Market M&A Outlook surveyed 400 senior executives at United States middle market companies and private equity firms.

The survey saw an uptick in would-be sellers and continued interest from prospective buyers. Among private equity firms, the majority (54%) say deal flow will increase from 2021’s record levels, while 33% say it will remain the same and 13% say they expect a decrease.

The survey found broad indications that high volumes and strong valuations are poised to carry on in 2022.

In terms of valuations, half of middle-market companies expect stable valuations, while 36% anticipate higher prices. Private equity firms are even more positive, with 42% saying valuations will remain stable and 40% predicting higher multiples in the year ahead. The survey also found that confidence in getting deals done increased among both sellers and buyers.

“We heard from companies about the challenges they expect will continue into 2022, but they also have a lot of optimism. That confidence is one of the fundamental reasons why the M&A outlook is strong even after the pace of deals in 2021,” said Ralph Della Ratta, the chairman of Citizens M&A Advisory.

According to Citizens, companies said COVID and other economic factors such as labor market challenges and commodity prices are headwinds to operations, yet they still see stable, positive performance for the year ahead. For some sectors, COVID and its effects make life much harder, through depressed revenue (gaming and lodging) or steep labor/commodity challenges (transportation and logistics). For others, the pandemic drives sales higher (healthcare and online retail). However, even within sectors this environment is creating winners and losers.

“It speaks volumes that companies and private equity firms see this pace continuing. It reflects the confidence level in the market. The pandemic really disrupted the operating environment, and that creates a new value proposition for both sellers and buyers,” added Jim Childs, the head of Citizens M&A Advisory.

Key Findings of the 2022 Survey
Expected selling activity is rebounding with the percentage of companies open to a sale increasing after a COVID-related decrease in the last two years’ surveys. The most common reason to sell is for strategic growth opportunities, but the second most common is lack of a succession plan along with pandemic weariness. Pandemic burnout among Baby Boomer business owners could also be the key driver behind the jump in sellers looking to sell their whole business, which rose to 39% compared to about 24% prior year.

In line with other years, 6 in 10 companies said the majority of their growth would come from acquisitions. Growth remains the top driver for both buyers and sellers coming to market.

Interest in international deals among companies continues to decline among both buyers and sellers. However, there was an uptick with more private equity firms interested in international opportunities, rising from 44% in 2021 to 55% in 2022.

Amid these dynamics, low-interest rates and strong economic growth continue to support high valuations.

Those who say they have more interest in M&A cite more compelling opportunities to pursue (35%) and an interest in expansion (24%) as main reasons. But those who have less interest in M&A worry about the challenge of finding partners (16%) and the uncertainty of the environment plus a need for more time (15%).

Among sellers, there is continued interest in using an advisor for M&A transactions. The main reason they seek out an advisor is to help find potential offers. Among buyers, they see value in the way that advisors speed up the process and help to assess an opportunity.

As in prior years, two-thirds of buyers said they prefer to work with a seller who uses an advisor. But there was a big jump in the percentage who say an advisor helps keep negotiations at a professional level (42%, up from 35% in 2021). This may reflect the high-stress environment underlying the current marketplace.

The survey found broad indications that high volumes and strong valuations are poised to carry on in 2022. The worries of the prior year (tax implications and political changes) have faded from the priority list, while the ongoing pandemic is still clearly a big factor both for operations and for bringing buyers and sellers to the marketplace.

Amid these dynamics, low-interest rates and strong economic growth continue to support high valuations. The pandemic is the new normal and companies, private equity firms, advisors have all adjusted to working under these conditions. Strong performers should be prepared for a seller’s market with a competitive offer process and high valuations.

Citizens M&A Advisory has more than 130 professionals and specializes in middle-market mergers and acquisitions with services that include sell-side and buy-side advisory, capital raising, financial opinions and restructuring and bankruptcy. Since 2015, the group has closed over 120 transactions totaling nearly $9 billion in value.

In November 2021, Citizens expanded it M&A advisory team with the buy of JMP Group, a San Francisco-based provider of investment banking services, including strategic advisory, equity research and sales and trading with a focus on the healthcare, technology, financial services and real estate sectors. Just a month later, in December 2021, Citizens acquired DH Capital, a New York City-headquartered investment bank that specializes in the Internet infrastructure, software and next-generation IT services, and communications sectors.

Citizens M&A Advisory is part of Citizens Capital Markets, a subsidiary of publicly traded Citizens Financial Group (NYSE: CFG), one of the nation’s oldest and largest financial institutions, with $188 billion in assets as of December 31, 2021.

For more information on this year’s Citizens Middle Market M&A Outlook please click HERE.

About the Survey
This year’s Citizens Middle Market M&A Outlook was conducted among United States-based middle-market businesses ($50 million to $1 billion in revenue) that are currently engaged in or open to mergers and acquisitions activity, as well as private equity firms with clients in the same revenue range. Core business sectors included healthcare, technology, industrial, consumer services, B2B services and other industries.

Business executives at 265 middle-market firms and 135 private equity firms who are directly involved in decision-making related to mergers and acquisitions (owners/partners, CEOs, presidents and other C-level executives and directors) completed a 15-minute phone or web-based survey between November and December 2021.

© 2022 Private Equity Professional | January 25, 2022