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HARVEST TIME 7 winning restaurant models that deliver what diners crave and dealmakers back

Jeff Larsen Larsen MacColl Partners TheMiddleMarket.comT m PUBLISHED IN PARTNERSHIP WITH

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CLIENT: BNY MELLON PRODUCT: Print Ad Agency Job Number: J0176 Cradle Job Number: 724476-5 JOB#: J0176 SPACE: 4C Proof #: 3, release Path: EG-PLUS-NY:Volumes:EG-PLUS-NY:EGPlus_Departments:Print:A‚ÄîF:TBWA:BNY_ Created: 8-3-2017 12:00 PM BLEED: 8.125” x 10.75” MELLON:724476-5_J0176_WGMT_ Advice_Size_A_Ad:MECHANICALS:724476-5_J0176_WGMT_Advice_Size_A_V3R.indd Saved: 8-3-2017 2:15 PM TRIM: 7.875” x 10.5” Operators: april_relucio / Daniel-Rivera Printed: 8-3-2017 2:15 PM SAFETY: 7.375” x 10” Print Scale: None GUTTER: None PUBS: Mergers & Acquisitions Ink Names: Cyan OOH Scaling Info: Fonts: AkkuratStd Bold, Light Italic ISSUE: Sept 2017 Magenta Build Scale: 100% Publico Headline Italic TRAFFIC: None Yellow Final Safety : 10” H x 7.375” W Lato Regular ART BUYER: None Black Final Viewing Area : 10.5” H x 7.875” W Geneva Regular ACCOUNT: None Final Trim : 10.5” H x 7.875” W RETOUCH: None Final Bleed : 10.75” H x 8.125” W PRODUCTION: Katherine D x1140 ART DIRECTOR: None COPYWRITER: None Ink Density: 157% Page: 1 of 1 IMAGES: bnym_wm_4C_KO.eps Contents September 2017 | Volume 52 | Number 8

Cover Story Harvest Time

7 winning restaurant models that deliver what diners crave and dealmakers back

Watercooler 30 Mid-Market 6 Best fundraising Pulse: Energy climate 7 Home Depot’s plans for Compact 35 Mid-Market Power Conditions 10 PE firms dip into snacks Index 15 Medical devices attract buyers Guest Article 32 Chasing Automotive Deals From Columns Overseas 16 Private Equity Perspective: Setting up Shop 36 People Moves 18 The Buyside: Keep On Truckin’ 20 Finance Finesse: CLOs Are Back

Cover Photograph: Matt Greenslade / photo-nyc.com

September 2017 MERGERS & ACQUISITIONS 1

001_MAJ090117_001 1 8/8/2017 10:24:58 AM Inside Word

September 2017 Volume 52, Number 08

Editor-in-Chief Mary Kathleen Flynn [email protected] Assistant Managing Editor Demitri Diakantonis [email protected] Reporter Kamaron Leach [email protected] Contributing Editor Danielle Fugazy [email protected]

Group Editorial Director, Banking and Capital Markets Richard Melville [email protected] VP, Capital Markets Harry Nikpour [email protected] Senior Sales Manager Richard Grant [email protected]

VP, Research Dana Jackson Where We Eat [email protected] VP, Content Operations and Creative Services Paul Vogel [email protected] Director of Creative Operations Michael Chu estaurants, in one form or another, have existed since the dawn of civilization. [email protected] In Ancient Greece and Rome, thermopolia served ready-to-eat food to Art Director Nikhil Mali R [email protected] customers using terracotta containers that were sunk into masonry counters. The Director of Content Operations Theresa Hambel modern notion of a restaurant and the word itself stems from 18th century Paris, [email protected]

where some historians say a soup vendor named A. Boulanger opened an eating Associate Marketing Manager Leatha Jones establishment near the Louvre to sell rich [email protected] broths that people believed were good for their health. In the U.S., eateries that provided meals, without also providing lodging, began appearing in cities in the CHIEF EXECUTIVE OFFICER Douglas J. Manoni late 18th century, in the form of coffee CHIEF FINANCIAL OFFICER Michael P. Caruso houses and oyster houses. Fraunces Tavern CHIEF REVENUE OFFICER Marianne Collins is among the earliest restaurants in the U.S. EVP & CHIEF CONTENT OFFICER David Longobardi CHIEF PRODUCT & AUDIENCE OFFICER Minna Rhee It is there that George Washington said CHIEF MARKETING OFFICER Matthew Yorke farewell to the officers of the Continental Fraunces Tavern SVP, CONFERENCES & EVENTS John DelMauro Army on December 4, 1783, nine days SVP, HUMAN RESOURCES Ying Wong after the last British soldiers left American soil. Nestled in New York’s financial district, Fraunces Tavern is still popular among dealmakers today. Reproduction or electronic forwarding of this product is a violation of federal copyright law! Site licenses are available -- please call Customer Service One reason the restaurant business has always offered opportunities for middle- (212) 803-8500 or [email protected] market dealmakers is that it is ever-changing and adapting to the tastes and budgets Mergers & Acquisitions (ISSN 0026-0010) Vol. 52 No.08, is published of consumers. That’s been more necessary in recent years. Since the recession, monthly with combined issues in July/August and November/December by SourceMedia, Inc. One State Street Plaza, 27th Floor, New York, NY 10004. consumers have been demanding more value and affordability from restaurants. Telephone: (212) 803-8200. They have also become much more keenly aware of the impact of food on their Customer Service: For subscriptions, renewals, address changes and delivery service issues contact our Customer Service department at (212) 803-8500 or health and on the environment. And they have become aware of the opportunities email: [email protected]; or send correspondence to Customer Service- Mergers & Acquisitions, SourceMedia, One State Street Plaza, 27th Floor, New to celebrate their roots in the restaurants they choose. And, like many other York NY 10004. industries, the Internet is transforming how we order and receive meals. All of Periodicals postage paid at New York, NY, and additional mailing offices. these developments add up to very fertile ground for M&A. Check out our cover Subscriptions: Yearly subscription is $1,995; $2035 for one year in all other countries. story by assistant managing editor Demitri Diakantonis on the 7 new categories of Postmaster: Send address changes to: Mergers & Acquisitions / Source restaurants dealmakers are investing in. Heads up: It’s going to make you hungry! Media, Inc., One State Street Plaza, New York, NY 10004. For subscriptions, renewals, address changes and delivery service issues contact our Customer Service department at (212) 803-8500 or email: [email protected]. Advertising: For information, contact Harry Nikpour at (212) 803-8638 or harry. [email protected]. For more information about reprints and licensing content from Mergers & Acquisitions, please visit www.SourceMediaReprints.com or contact PARS Mary Kathleen Flynn International Corp. (212) 221-9595. This publication is designed to provide accurate and authoritative information Editor-in-Chief regarding the subject matter covered. It is sold with the understanding that the Mergers & Acquisitions | TheMiddleMarket.com publisher is not engaged in rendering financial, legal, accounting, tax, or other professional service. Mergers & Acquisitions is a registered trademark used Email me at [email protected] herein under license. Follow me on Twitter @MKFlynn © 2017 Mergers & Acquisitions and SourceMedia, Inc. All rights reserved.

2 MERGERS & ACQUISITIONS September 2017

002_MAJ090117 2 8/8/2017 10:22:02 AM WHAT’S THE DEAL WITH DUANE MORRIS? THAT NAME KEEPS POPPING UP MORE AND MORE AS DEAL COUNSEL

Recent Representative M&A Deals – Strategics & Private Equity

Acquisition of this Acquisition of this U.S. Acquisition of this food/ Merger with Australia- government IT provider fragrance specialist from nutrition technology based global leader in Acquisition of this for DoD and Federal MidOcean Partners for innovator for NASDAQ- intimate apparel and Georgia-based telecom government IM Switzerland-based global listed global flavors/ swimwear for fashion/ construction/maintenance solutions leader flavors and fragrance leader ingredients leader lifestyle brand innovator services specialist for

Data Systems Analysts, Inc.

Add-on acquisition of Acquisition of 85% Acquisition of this Acquisition of this iconic U.S.-based Main Tape for Acquisition of this leading ownership interest cloud-based middleware American silversmith French-listed global leader oilfield automation in major regional developer for out of bankruptcy for in temporary surface company for POSC John Deere NYSE-listed Internet Lenox Corporation, a distributor network for protection Holdings, a platform portfolio company of company of telephony provider SeamLev Investments

Recent Representative Underwriting/Securities Deals

$52.5 MILLION $75 MILLION $300 MILLION Offering of 7.50% Common Stock Common Stock Senior Notes ATM Offering ATM Offering $41 MILLION $50 MILLION and up to 1 Million Common Stock Common Stock Shares of 7.75% Series Equity Offering ATM Offering B Preferred Stock

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003_MAJ0917 3 8/8/2017 10:50:51 AM What’s going on @ eMiddleMarket.com

Words, media and data work together in our redesigned website. The popularity and utility of our website has also been growing over the years. TheMiddleMarket.com draws 50,000 unique visitors each month. We recently revamped the site, giving it a cleaner, simpler interface that delivers our authoritative, independent content in a new user experience built specifically to meet the needs of busy dealmakers.

The home page offers quick access to the annual M&A Mid-Market Awards and The Most Influential Women in Mid-Market M&A.

The lead story showcases significant news and trends affecting the middle market.

The most important recent stories appear on the top half of the home page.

The Latest provides a steady stream of updated content, including news, features, research reports, slideshows and video interviews.

The Voices section highlights opinion pieces, including columns written by our M&A editorial team members and guest articles written by respected The Multimedia section dealmakers. offers slideshows and videos, featuring prominent thought leaders. The site has been reinvented to engage the entire The Data & Research section community of middle-market focuses on reports, including dealmakers. Stories scroll, the Mergers & Acquisitions Conditions Index (MACI) and instead of click, so there are the Mid-Market Pulse (MMP), no unwanted page breaks. both based on our proprietary Just one click in the newsletter monthly surveys of 250-plus lets you read the full report M&A professionals. on-site in a continuous reading list. The site has been Resources showcases optimized on all devices for sponsored content. ease of use and intuitive navigation, wherever you are.

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fi rm’s fourth fundraise; Private Advisors’ industry involving businesses responsible PE fi rms see best closing its fourth co-investment for the preparation of meals outside the Arsenal exits healthcare fundraising climate program; CVC Capital Partners’ $18 home. One Equity Partners acquired East tech fi rm billion fund to target U.S. and European Balt Bakeries in December 2012 and has ndustrial Opportunity Partners (IOP) investments; the Riverside Co.’s fi rst since acquired three businesses through QT has agreed to acquire a raised its third fund, Industrial minority investment fund in April 2017. add-on deals. majority stake in healthcare Opportunity Partners III LP, at Park Hill Group served as IOP’s Grupo Bimbo, headquartered in technology provider Certara I$450 million. e private equity fi rm placement agenet, which received legal Mexico City, is a manufacturer of more Efrom Arsenal Capital Partners for $850 advice from Sidley Austin. than 13,000 bakery products. e buyer million. Arsenal is keeping a minority —By Demitri Diakantonis has a portfolio of more than 100 brands, stake in the target. including: Sara Lee’s bakery division, Mrs. Certara, headquartered in Bairds, Earthgrains and Heiners. Grupo Princeton, New Jersey, provides Food manufacturers feed Bimbo is expanding its international dealmakers presence as it enters into eight new countries with East Balt Bakeries’ dough rupo Bimbo S.A.B. de C.V. is processing and baking facilities. purchasing East Balt Bakeries, One Equity is a middle-market private a food manufacturer of breads, equity fi rm that was founded in 2001 as Monroe Truck Gfrom private equity fi rm One Equity Bank One’s PE arm. In 2005, the fi rm Partners for $650 million. One Equity is became part of J.P. Morgan Chase & Co. raised the fund in about three months. on Mergers & Acquisitions’ 10 Young and (NYSE: JPM) in the same capacity and in IOP recently sold auto fi lter maker Kuss riving PE Firms Worth Watching list. 2015, One Equity became independent Filtration. through a completed spin-off . e fi rm

IOP is an Evanston, Illinois-based has offi ces in New York, Chicago and Adobe Stock middle market PE fi rm that invests up Frankfurt. to $50 million in businesses that have One Equity has remained active in between $30 million and $350 million recent months. In February, the PE fi rm software and consulting services to the in revenue. e fi rm focuses on the raised $1.65 billion in commitments biopharmaceutical industry. Certara’s construction, automotive and industrial to back industrial, healthcare and technology uses model simulations to sectors. Earlier in 2017, IOP-backed technology sectors. e fi rm also bought help improve drug development and Monroe Truck Equipment Inc. acquired SGB-SMIT, a manufacturer of electrical patient outcomes. In addition, the target Towmaster Inc. power transformers, and specialty utility advises clients on regulatory processes. Private equity is experiencing the best contractor Intren in July. rough its Certara serves 1,200 commercial fundraising climate in years - perhaps platform company W.W. Williams, companies, 250 academic institutions. ever. PE fi rms with proven track records East Balt Bakeries One Equity has also acquired two truck Arsenal acquired Certara in 2013. are faring especially well, raising funds maintenance service providers ASH and “ is new strategic partnership with in record time. In the fi rst half of the East Balt Bakeries began in 1995 as Desert Fleet. EQT will enable us to strengthen our year, 224 North America-focused funds a single bakery in Chicago delivering Morgan Stanley & Co. LLC (NYSE: core off erings as well as to capitalize closed, raising $133 billion, while buns to customers using one delivery MS) is acting as fi nancial adviser to on transformative next-phase growth globally there have been 412 private truck. Today, the target operates from One Equity, while Baker & McKenzie opportunities,” says Certara CEO equity funds closed, which raised a 21 “high-speed” bakeries across 11 LLP is serving as legal counsel. KPMG Edmundo Muniz. combined $221.4 billion, surpassing the countries producing a variety of fresh LLP is also acting as diligence adviser to Related deals across the middle record $220.8 billion raised in 2008, buns, including: bagels, biscuits, English One Equity. Cleary Gottlieb Steen & market include: WNS Holdings according to Preqin. muffi ns, soft and hard rolls, and Hawaiian Hamilton LLP is serving as legal counsel Ltd.’s (NYSE: WNS) acquisition of Other middle-market fund raises and ciabatta style breads. East Balt to Grupo Bimbo. management company HealthHelp for include: Platte River Equity’s closing the Bakeries serves the foodservice channel, an —By Kamaron Leach $95 million; Genstar Capital’s buying

6 MERGERS & ACQUISITIONS September 2017 September 2017 MERGERS & ACQUISITIONS 7

006_MAJ090117 6 8/8/2017 10:27:07 AM industry involving businesses responsible of Bracket Global LLC, a clinical trial for the preparation of meals outside the Arsenal exits healthcare technology and data collection service Fishing for deals home. One Equity Partners acquired East tech firm provider; and Thoma Bravo LLC’s Balt Bakeries in December 2012 and has purchase of MedeAnalytics Inc., a cloud- astanea Partners has made since acquired three businesses through QT has agreed to acquire a based financial performance analytics an investment in Simms add-on deals. majority stake in healthcare company for the healthcare industry. Fishing Products. The deal Grupo Bimbo, headquartered in technology provider Certara Jefferies LLC , William Blair & Co., Ccomes as investors are showing interest Mexico City, is a manufacturer of more Efrom Arsenal Capital Partners for $850 DLA Piper and Morgan Lewis & Bockius in outdoor products in time for the than 13,000 bakery products. The buyer million. Arsenal is keeping a minority LLP are advising Certara. Centerview summer season. has a portfolio of more than 100 brands, stake in the target. Partners ind Simpson Thacher & Bartlett Simms, founded in 1980 and based including: Sara Lee’s bakery division, Mrs. Certara, headquartered in LLP are advisng EQT. in Bozeman, Montana, makes boots, Bairds, Earthgrains and Heiners. Grupo Princeton, New Jersey, provides —By Demitri Diakantonis vests, jackets and fishing accessories. Bimbo is expanding its international The products are sold through specialty presence as it enters into eight new retailers. countries with East Balt Bakeries’ dough Home Depot’s plans for “When we decided to look for a processing and baking facilities. Compact Power partner to help us thoughtfully expand One Equity is a middle-market private the Simms brand to the next level, we equity firm that was founded in 2001 as he Home Depot Inc. (NYSE: valued operational expertise as highly Bank One’s PE arm. In 2005, the firm HD) is buying Compact Power as financial capability,” says Simms’ became part of J.P. Morgan Chase & Co. Equipment Inc., a U.S. provider president K.C. Walsh. Terms of the (NYSE: JPM) in the same capacity and in Tof equipment rental and maintenance investment were not disclosed. Baird 2015, One Equity became independent services, for $265 million in cash. Investment Banking advised Simms through a completed spin-off. The firm Compact Power has been a long-term on the transaction.

has offices in New York, Chicago and Adobe Stock commercial partner of The Home Depot Castanea is a middle market Frankfurt. since 2009. consumer-focused private equity One Equity has remained active in that is based in Newton, recent months. In February, the PE firm software and consulting services to the Massachusetts. The PE firm raised $1.65 billion in commitments biopharmaceutical industry. Certara’s invests up to $150 in businesses to back industrial, healthcare and technology uses model simulations to across the beauty, apparel and technology sectors. The firm also bought help improve drug development and food and beverage sectors. SGB-SMIT, a manufacturer of electrical patient outcomes. In addition, the target Outdoor-related business power transformers, and specialty utility advises clients on regulatory processes. have become attractive contractor Intren in July. Through its Certara serves 1,200 commercial targets across the middle- platform company W.W. Williams, companies, 250 academic institutions. market. Recent deals include: One Equity has also acquired two truck Arsenal acquired Certara in 2013. Malibu Boats’ acquisition maintenance service providers ASH and “This new strategic partnership with of rival company Cobalt, a Desert Fleet. EQT will enable us to strengthen our manufacturer of recreational Morgan Stanley & Co. LLC (NYSE: core offerings as well as to capitalize boats and boat gear; Falconhead MS) is acting as financial adviser to on transformative next-phase growth Bloomberg News Capital’s buying of Kwik Tek One Equity, while Baker & McKenzie opportunities,” says Certara CEO Inc., a maker of wakeboards LLP is serving as legal counsel. KPMG Edmundo Muniz. Based in Fort Mill, South Carolina, and snowsleds; and Peak Rock LLP is also acting as diligence adviser to Related deals across the middle Compact Power offers a variety of Capital’s purchase of Do Outdoors One Equity. Cleary Gottlieb Steen & market include: WNS Holdings construction equipment, including: skid Inc., the owner of fishing product Hamilton LLP is serving as legal counsel Ltd.’s (NYSE: WNS) acquisition of steers, cranes, excavators, tractor loaders, manufacturer Lew’s Fishing. to Grupo Bimbo. management company HealthHelp for trenchers and other aerial equipment. —By Demitri Diakantonis —By Kamaron Leach $95 million; Genstar Capital’s buying The target has more than a 1,000 stores

6 MERGERS & ACQUISITIONS September 2017 September 2017 MERGERS & ACQUISITIONS 7

007_MAJ090117 7 8/8/2017 10:27:10 AM For more than 16 years, 271 private equity sponsors have relied on our industry experti se, stable capital and reliable deal executi on to make strategic add-on investments to Powerful Partnerships support their platf orm growth. Financing That Grows with Your Investments

Undisclosed Undisclosed Undisclosed $109,000,000 Undisclosed Undisclosed $86,000,000 $56,000,000

Joint Lead Arranger and Joint Lead Arranger and Administrati ve Agent Joint Lead Arranger and Joint Lead Arranger Sole Lead Arranger and Documentati on Agent Joint Lead Arranger and Co-Syndicati on Agent Co-Syndicati on Agent Add-on Acquisiti on Syndicati on Agent and Syndicati on Agent Administrati ve Agent Add-on Acquisiti on Administrati ve Agent Add-on Acquisiti on Add-on Acquisiti on Add-on Acquisiti on Add-on Acquisiti on Add-on Acquisiti on Add-on Acquisiti on

July 2017 June 2017 June 2017 May 2017 May 2017 April 2017 February 2017 February 2017

$154,450,000 Undisclosed Undisclosed $245,000,000 $57,963,000 $45,900,000 $63,900,000 Undisclosed

Joint Lead Arranger and Joint Lead Arranger and Co-Documentati on Agent Sole Lead Arranger and Joint Lead Arranger and Sole Lead Arranger and Sole Lead Arranger and Sole Lead Arranger and Administrati ve Agent Syndicati on Agent Add-on Acquisiti on Administrati ve Agent Administrati ve Agent Administrati ve Agent Administrati ve Agent Administrati ve Agent Add-on Acquisiti on Add-on Acquisiti on Add-on Acquisiti on Add-on Acquisiti on Add-on Acquisiti on Add-on Acquisiti on Add-on Acquisiti on

May 2017 May 2017 May 2017 May 2017 December 2016 November 2016 September 2016 August 2016

Visit mcfllc.com or call 312-596-6900 to learn more. Madison Capital Funding LLC is a subsidiary of New York Life Insurance Company. ©2017 Madison Capital Funding LLC. All rights reserved. The loans discussed do not represent an account’s enti re portf olio and in the aggregate, may represent only a small percentage of an account’s portf olio holdings. A complete list of all holdings is available upon request; please contact media@mcﬂ lc.com. It should not be assumed that recommendati ons made in the future will be proﬁ table or will equal the performance of the loans menti oned herein. Aerospace & Defense | Consumer Products | Distribution | Healthcare | Insurance/Financial Services | Manufacturing | Services | Technology Services MCF-1744829

008_MAJ0917 8 8/8/2017 10:51:05 AM 17_Madison_01_MandA_Ad_R3.indd All Pages 8/2/17 3:08 PM For more than 16 years, 271 private equity sponsors have relied on our industry experti se, stable capital and reliable deal executi on to make strategic add-on investments to Powerful Partnerships support their platf orm growth. Financing That Grows with Your Investments

Undisclosed Undisclosed Undisclosed $109,000,000 Undisclosed Undisclosed $86,000,000 $56,000,000

July 2017 June 2017 June 2017 May 2017 May 2017 April 2017 February 2017 February 2017

$154,450,000 Undisclosed Undisclosed $245,000,000 $57,963,000 $45,900,000 $63,900,000 Undisclosed

May 2017 May 2017 May 2017 May 2017 December 2016 November 2016 September 2016 August 2016

009_MAJ0917 9 8/8/2017 10:51:10 AM 17_Madison_01_MandA_Ad_R3.indd All Pages 8/2/17 3:08 PM Watercooler

across the U.S. and Canada. Compact abrasive manufacturer WHA Holding Power also provides equipment Glencoe dips funds into Why Brink’s is expanding SAS; and European private equity group maintenance services for clients such as snacks in South America EQT buying Dorner Manufacturing Home Depot. Corp. “The acquisition allows us to further lencoe Capital Management has he Brink’s Co. (NYSE: BCO) is —By Kamaron Leach improve the customer experience – in acquired sauce producer Robert seeking to further expand in South particular for Pros – through enhanced Rothschild Farm. The PE firm America with the acquisition equipment and tool rental offerings,” Gwill be combine the target with Clearbrook Tof Maco Transportadora de Caudales Chemical M&A flows states Home Depot CEO Craig Menear. Farms, which Glencoe purchased in 2016. S.A., a money management operator, for “It also allows us to grow Compact Rothschild Farm, located in Urbana, approximately $209 million in cash. ittlejohn & Co. has agreed to buy Power’s best-in-class building services Ohio, makes sauces, dips and dessert Maco provides secure transportation chemicals producer Cornerstone capabilities.” toppings. The target’s brands include logistics, insurance, and security services Chemical Co. from HIG Capital. Home Depot is one of the largest Robert Rothschild Farm Fresh, Game for the cash management and industry. LThe deal comes as the middle-market retailers of home improvement Day Gourmet, Made in Napa Valley, and The Buenos Aires, Argentina-based target is seeing robust M&A in the chemicals equipment for the professional services Vineyard Pantry. has a fleet of more than 150 armored sector. and the everyday do-it-yourself Glencoe is a Chicago-based middle vehicles used to protect financial assets customer community. The buyer has market private equity firm that invests while in transit. Maco is also capable of approximately 2,281 retail stores in businesses that have up to $15 million managing the transfer of funds by air for across the U.S. Canada and Mexico. in Ebitda. The firm focuses on the banks and other financial institutions. Home Depot reported $94.6 billion “Accelerating profitable growth in sales revenue in fiscal year 2016. In through accretive acquisitions is a key 2015, Home Depot acquired Interline element of our three-year strategic plan,” Brands Inc. to attract more professional states Brink’s CEO Doug Pertz. “This contractors. acquisition clearly demonstrates our Construction-related M&A is commitment to executing on that plan in setting out to be an important industry South America, our fastest growing and for buyers in the middle-market most profitable segment.” throughout 2017. Other deals involving Brink’s is a global provider of secure construction-related materials and logistics, cash-in-transit and ATM services equipment makers include: Lowe’s for a variety of clients. The buyer’s services

(NYSE: LOW) purchase of Maintenance Adobe Stock are used by banks, retailers, government Supply Headquarters, a producer of agencies, jewelers, financial institutions repair and home improvement tools for and other commercial operations. Brink’s, the multifamily housing sector; KPS food, chemicals, education, plastics and headquartered in Dallas, has operations Capital Partners’ acquisition of steel packaging, and insurance sectors. that span across approximately 40 abrasive manufacturer WHA Holding Demand for packaged foods has been countries. SAS; ABC Supply Co.’s purchase of rising as consumers look to eat more Some investors are targeting Latin L&W Supply, a distributor of drywall, at home. Advent International agreed American businesses because of the ceiling tiles and steel framing materials to acquire pasta sauce producer Rao’s downturn in the commodity cycle, to building contractors, from USG Specialty Foods; Benford Capital Partners where lower GDP growth expectations Corp. (NYSE: USG); Southwire Co. purchased a majority stake in snacks in many countries have resulted in more LLC’s buying United Copper Industries manufacturer Saco Foods; and Charoen favorable valuations. Other cross-border Inc., a maker of electrical wire, from KPS Pokphand Foods Public Co. Ltd. bought deals include: Australis Partners raising a Capital Partners. packaged side dish producer Bellisio debut fund to make control investments —By Kamaron Leach Foods. Mexico, Colombia, Peru and Chile; KPS —By Demitri Diakantonis Capital Partners’ buying French metal

10 MERGERS & ACQUISITIONS September 2017 September 2017 MERGERS & ACQUISITIONS 11

010_MAJ090117 10 8/8/2017 10:27:15 AM Watercooler

abrasive manufacturer WHA Holding Headquartered in Waggaman, purchased money vault maker Tidel and SAS; and European private equity group Louisiana, Cornerstone manufactures acquired patio furniture manufacturer EQT buying Dorner Manufacturing melamine and sulfuric acids for the Brown Jordan International in January Corp. fracking, construction and transportation 2017. Littlejohn raised a $406 million —By Kamaron Leach sectors. Financial terms of the deal were collateralized loan obligation fund (CLO), not disclosed. HIG purchased the target called Wellfleet CLO 2016-2 in November in 2011. 2016. Chemical M&A flows Littlejohn is a Greenwich, Connecticut- The middlle-market has been seeing based investment advisory firm that its fair share of chemical deals including: ittlejohn & Co. has agreed to buy backs middle-market companies seeking KMG Chemicals Inc.’s (NYSE: KMG) chemicals producer Cornerstone a change in capital structure, strategy, acquisition of Flowchem; the Jordan Chemical Co. from HIG Capital. operations or growth. The firm is currently Co. LP’s purchase of DuBois Chemicals LThe deal comes as the middle-market investing from Littlejohn Fund V, the Inc.,; Maroon Group LLC’s acquisition is seeing robust M&A in the chemicals firm’s fifth fund with nearly $2 billion in of Lincoln Fine Ingredients; and Platte sector. capital commitments. The firm recently River’s investment in MFG Chemical.

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KeyBanc Capital Markets Inc. (NYSE: in the top quarter measured against its subjected to reforms. Employees attend KEY) is advising Cornerstone. Goldman peers, with one in the second quarter boot camps while old research-and- Sachs Group Inc. (NYSE: GS) is and one in the third, according to data development projects are put on hold providing financing to Littlejohn. compiled by Bloomberg. Vista declined or dropped. Vista’s standard operating —By Demitri Diakantonis to comment on its strategy and Fernandez procedures, designed to rapidly and didn’t respond to a request for comment. aggressively impose change, are spelled Private equity firms typically can’t out in a handbook. How Vista beats rivals to top strategics in contested acquisitions. In contrast, Vista has taken a hands- targets Verizon Communications Inc. (NYSE: off approach to Marketo, leaving it free to VZ), for example, triumphed with its develop new products, according to one of arketo Inc. co-founder Phil $4.5 billion Yahoo! Inc. bid last year the people familiar with the transaction. Fernandez put his Silicon even though smaller firms offered more, Operational screw tightening has been Valley company up for sale in people familiar with the matter said at the largely limited to areas such as real estate

M2016 with the expectation it would be Bloomberg News time. Verizon’s plan for merging Yahoo and accounting. folded into a technology giant. and AOL Inc. operations won the day Vista can enact its traditional Robert Smith SAP SE and Oracle Corp. (NYSE: over private equity firms saddled with the ORCL) had expressed interest in buying industry’s reputation for slashing costs to Marketo to bulk up on automated legacy systems, the Austin-based firm make returns, said the people. marketing software, according to people is increasingly betting on unprofitable Vista founder Robert F. Smith and the familiar with the matter, who asked not growth companies to chase returns. buyout firm’s backers have invested about to be identified because the process was To out-pitch corporate competitors $3 billion in equity on high-growth, private. With both willing to pay cash, pursuing the same assets, Vista is willing high-valuation companies in the past two it was highly unlikely a private equity to commit billions of dollars of equity years, according to one of the people. firm could assemble a financing package from its funds, subtracting the vagaries Vista is specifically targeting companies quickly enough -- or pay an acceptable of debt financing from the equation. showing at least 15 percent annualized premium -- without putting its required Dealmaking in the technology, media growth in strategic technology verticals, return at risk. and telecommunications (TMT) sector is the person said. Two months later, Vista Equity expected to soar over the next 12 months, The day after announcing the Partners LLC agreed to buy Marketo for according to Mergers & Acquisitions’ Marketo deal, Vista drew from the same $1.8 billion. The buyout firm leapfrogged Mid-Market Pulse (MMP). playbook to buy Ping Identity Corp. the two corporate suitors now with a “When it comes to getting a deal for $600 million, beating out CyberArk combined market value of more than done, price matters and certainty Software Ltd. to win the deal, according $316 billion by pledging its $5.7 billion matters,” Mike Wyatt, co-head of Morgan to a person with knowledge of the matter. fund as collateral, one of the people Stanley’s global technology mergers and A CyberArk representative declined to said. Vista paid a 64 percent premium acquisitions group. “Comparing price comment. above Marketo’s unaffected share price, is straightforward. Comparing certainty Buying companies requiring higher the value before the company’s sale is subjective. When someone like Vista investment levels -- for both products process was reported by Bloomberg. SAP takes the financing risk off the table, that and staffing -- bucks the private equity and Oracle representatives declined to de-risks the transaction for the seller.” blueprint of paying off debt with cash- comment. Whether Vista’s strategy will pay off generating assets. Having a larger The acquisition is one of several remains to be seen. Its latest pool, Vista equity component increases the risk and recent Vista deals targeting high- Equity Partners Fund VI LP, is less than curtails the use debt for dividend re- growth assets that aren’t conventionally two years old and largely still yet to be capitalization, a tool that Vista and other suitable for private equity. Rather than deployed. Vista can claim an enviable private equity firms tap to make returns. zeroing in on efficiencies to boost the record since its inception in 2000, In a typical Vista deal, almost all margins of software companies running though. Four of its six earlier funds rank aspects of the acquired company are

12 MERGERS & ACQUISITIONS September 2017 September 2017 MERGERS & ACQUISITIONS 13

012_MAJ090117 12 8/8/2017 10:27:18 AM Watercooler

subjected to reforms. Employees attend playbook as the companies mature and tap their fast growth to boost their boot camps while old research-and- under its ownership, said Ted Smith, co- size and income., he said. “At that point development projects are put on hold founder of Union Square Advisors LLC, they can turn on the second phase of or dropped. Vista’s standard operating who has worked with Vista on several the rocket and treat them like a more procedures, designed to rapidly and deals including a $4.3 billion takeover of traditional private equity purchase,” aggressively impose change, are spelled Tibco Software Inc. in 2014. Smith said. out in a handbook. “The traditional private equity Vista’s strategy, with the backing of In contrast, Vista has taken a hands- thinking was, ‘Let’s take these slower Smith and co-founder and President off approach to Marketo, leaving it free to growth, nicely profitable companies and Brian Sheth, has been championed by develop new products, according to one of layer debt on them right away, help them Monti Saroya, a principal who has been the people familiar with the transaction. operationally, and sell them after we’ve with the firm since 2008, one of the Operational screw tightening has been used leverage to optimize our returns,”’ people said. largely limited to areas such as real estate Smith said. The firm’s sole focus on enterprise and accounting. Vista has figured out how to buy software eliminates another advantage of Vista can enact its traditional companies with marginal or no profit strategic acquires by giving it a stable of

September 2017 MERGERS & ACQUISITIONS 13

013_MAJ090117 13 8/8/2017 12:27:10 PM Watercooler

related companies and technology to fuel manufacturer Lew’s Fishing; bought more businesses realize it delivers greater synergies, Smith said. Peak Rock chews on food Diamond Crystal Brands Inc., a food efficiencies, while also complementing Last year, Vista acquired event investments service company; and purchased dairy- other data management investments. management software company Cvent based snacks provider Berner Foods & Denodo touts Amgen, Asurion, Inc. for $1.65 billion. The firm, which eak Rock Capital is buying Gold Beverage in 2015. The firm typically Seagate and Sumitomo Mitsui Trust Bank again outbid suitors including at least one Coast Bakeries LLC, a producer of invests between $20 million to $150 (NYSE: SMFG) as part of the company’s large strategic bidder, put up most of the “high quality” organic breads and million in companies with up to $1 client list. The target also has a research deal price in equity, one of the people said. Psweet goods, for an undisclosed amount. billion in revenue. and development team based in Coruna, Vista then merged Cvent with Lanyon, This deal marks as the private equity firm’s —By Kamaron Leach Spain. Financial terms of the deal were not another of its portfolio companies, giving sixth investment in the food and beverage disclosed; however, the target was backed Cvent chief executive officer Rajeev industry. by funds from HGGC’s $1.84 billion Aggarwal control of the combined entity. Peak Rock CEO Anthony DiSimone Software tech reigns fund. The lower debt load -- a typical buyout says, “We are actively seeking attractive supreme HGGC is a middle-market private is two-thirds debt -- coupled with a pledge food and consumer platforms to invest in, equity firm based in Palo Alto, California of further investment gives Aggarwal the as well as accretive add-on acquisitions in iddle-market investment firm with more than $4.25 billion in capital financial freedom to invest in customer the bakery space.” HGGC has acquired a stake in commitments. The PE firm was founded service and building sales teams. Founded in 1989, Gold Coast makes Denodo Technologies Inc., a in 2007 as Huntsman Gay Global Capital. One feature of Vista’s playbook that a variety of fresh and frozen baked goods Mdeveloper of data virtualization software. Today the firm is led by Lawson, Greg remains the same is bringing in fresh which includes: breads, buns, rolls and The deal comes as many observers expect Benson and managing director Steve management. sweet goods. For more than 25 years, technology to be the sector that will power Young, who played quarterback for the In Marketo’s case, Fernandez stepped the target has served consumer packaged M&A activity throughout 2017 and going San Francisco 49ers. Young, who has down as CEO months after the buyout goods companies, grocery retailers and forward. now been in the investment space longer and was replaced by former SAP foodservice customers. Gold Coast Denodo provides data integration than he played for the National Football executive Steve Lucas. At Ping, Raj Dani operates out of its two production facilities services from the company’s headquarters League, is joining Idera’s board of directors was brought in as chief financial officer in in Santa Ana, California and Addison, in Palo Alto, California. That target’s data as part of the deal. The $1.125 billion November. He previously served in the Illinois. The target lists Kroger Co. (NYSE: virtualization software is used for logical recapitalization includes funding for a same role at audio-visual group AVI-SPL, KR), Costco Wholesale Corp. (Nasdaq: data warehouses and data lakes, single- pending add-on deal by Idera that is which has been backed by private equity COST), Safeway Inc. (NYSE: SWY), and view applications, cloud modernization, expected to close by year’s end. firms HIG Capital and Silver Lake. Sam’s Club as some of its long-term bakery governance and compliance initiatives. HGGC has remained one of the more While Thoma Bravo and some other partners. According to HGGC, data virtualization active private equity firms throughout buyout firms have used similar strategies Peak Rock, based 2017. The firm recently bought medical as Vista for high-growth technology in Austin, Texas, is a supplements distributor AIMC LLC, assets, most still focus on traditional lower middle market purchased event management software targets, relying on debt-financing models private equity company Etouches, swallowed up vitamin to generate returns. But expect them to firm that targets distributor Nutraceutical International become more comfortable committing companies covering Corp. for $446 million, acquired the online more equity if they continue to lose out consumer goods, marketing research company Instantly on deals, said Wyatt. food and beverage, Inc, bought database management “When it’s about financial engineering, business and tech- provider Idera, and purchased insurance getting the right debt terms is essential,” enabled services, claims provider Davies Group. Mergers Wyatt said. “In a high-growth deal, debt energy, healthcare, & Acquisitions awarded HGGC with is important but the real difference maker manufacturing and the M&A Mid-Market Award for Private Denodo Technologies Inc. Denodo Technologies is can you judge the business and manage industrials, metals, Equity Firm of the Year in 2014, when the it for long-term growth instead of short- and technology. In firm raised its second fund. term profits.” 2016, Peak Rock acquired Do Outdoors is gaining a bigger market share of the —By Kamaron Leach —By Bloomberg News Inc., the owner of fishing product $4.5 billion data integration industry as

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014_MAJ090117 14 8/8/2017 10:27:22 AM Watercooler

manufacturer Lew’s Fishing; bought more businesses realize it delivers greater moldings, mostly for implants. Narberth, Diamond Crystal Brands Inc., a food efficiencies, while also complementing Consumer habits spark Pennsylvannia-based Millennium service company; and purchased dairy- other data management investments. analytics M&A distributes and sells healthcare accessories, based snacks provider Berner Foods & Denodo touts Amgen, Asurion, such as sterilization trays, to doctors, Beverage in 2015. The firm typically Seagate and Sumitomo Mitsui Trust Bank eneral Atlantic has made an hospitals and surgical centers. Avalign invests between $20 million to $150 (NYSE: SMFG) as part of the company’s investment in data provider Mi9 produces implants and cutting tools for million in companies with up to $1 client list. The target also has a research Retail. The deal provides an exit the same markets. billion in revenue. and development team based in Coruna, Gfor Summit Partners, which backed the “Thortex and Millennium —By Kamaron Leach Spain. Financial terms of the deal were not target in 2015. nicely complement and expand the disclosed; however, the target was backed Mi9, based in Miami, and founded manufacturing technologies and services by funds from HGGC’s $1.84 billion in 2001, provides software that measures that Avalign offers and provide us with Software tech reigns fund. data, such as shopping behavior, inventory the ability to continue gaining share with supreme HGGC is a middle-market private management and sales per product and our customers,” says Avalign Technologies equity firm based in Palo Alto, California helps retailers reduce costs. Some of the CEO Forrest Whittaker. Arlington iddle-market investment firm with more than $4.25 billion in capital company’s clients include Barneys New invested in Lake Forest, Illinois-based HGGC has acquired a stake in commitments. The PE firm was founded York, Christian Dior and Talbots. Avalign in 2015. Denodo Technologies Inc., a in 2007 as Huntsman Gay Global Capital. Retailers have been under pressure to Arlington is a Washington, D.C.-based Mdeveloper of data virtualization software. Today the firm is led by Lawson, Greg keep up with changing customer behavior, middle market private equity firm that The deal comes as many observers expect Benson and managing director Steve driving up a demand for data providers. technology to be the sector that will power Young, who played quarterback for the Blackstone Group LP (NYSE: BX) and M&A activity throughout 2017 and going San Francisco 49ers. Young, who has New Mountain Capital have invested forward. now been in the investment space longer $570 million in retail data provider Denodo provides data integration than he played for the National Football JDA Software Group Inc.; The Carlyle services from the company’s headquarters League, is joining Idera’s board of directors Group LP (Nasdaq: CG) has acquired in Palo Alto, California. That target’s data as part of the deal. The $1.125 billion consumer data provider Claritas from virtualization software is used for logical recapitalization includes funding for a Nielsen (NYSE: NLSN); and HGGC Adobe Stock data warehouses and data lakes, single- pending add-on deal by Idera that is has been making add-on acquisitions to view applications, cloud modernization, expected to close by year’s end. its platform company Survey Sampling, a focuses on the healthcare, aerospace and governance and compliance initiatives. HGGC has remained one of the more brand tracker. defense, government services, technology According to HGGC, data virtualization active private equity firms throughout General Atlantic is a New York-based and business services sectors. In 2016, the 2017. The firm recently bought medical middle-market private equity firm. In PE firm launched cybersecurity tech firm supplements distributor AIMC LLC, 2017, the firm acquired a stake in fast Polaris Alpha. purchased event management software casual restaurant chain Torchy’s Tacos. Demand for more personalized company Etouches, swallowed up vitamin —By Demitri Diakantonis treatment options, an increasing aging distributor Nutraceutical International population and constantly changing Corp. for $446 million, acquired the online technology has kept medical device marketing research company Instantly Medical devices attract manufacturers busy. GTCR launch a Inc, bought database management buyers platform company to fund medical device provider Idera, and purchased insurance deals. Other related deals include: Boston claims provider Davies Group. Mergers valign Technologies, backed Scientific’s (NYSE: BSX) deal to buy heart & Acquisitions awarded HGGC with by Arlington Capital Partners, valve replacement maker Symetis; Teleflex the M&A Mid-Market Award for Private has acquired medical device Inc.’s purchase of Vascular Solutions Equity Firm of the Year in 2014, when the instrumentA distributors Thortex and Inc. for $1 billion; and Medtronic plc’s firm raised its second fund. Millennium Surgical. (NYSE: MDT) acquiring of HeartWare is gaining a bigger market share of the —By Kamaron Leach Thortex, located in Portland,International Inc. for nearly $1.1 billion. $4.5 billion data integration industry as makes coatings and metal injection —By Demitri Diakantonis

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015_MAJ090117 15 8/8/2017 10:27:24 AM Columns

Private Equity Perspective Setting up Shop

DANIELLE FUGAZY

here has never been a better time to launch a new private equity firm. Fundraising Tfor PE firms is at an all-time high. Third-party back-office service providers make it easy to get up and running. And seasoned investment professionals in their 40s and 50s are ready to open up their own shops, as we identified in our recent list of 10 young and thriving PE firms.

Enter Mike Faremouth, Jim Guddy and Eric will typically be interested in manufacturers of Bacon. Having worked together for many years engineered products with good branding or a at Cleveland-based Linsalata Capital Partners, strong reputation that have opportunities for the three launched Watervale Equity Partners growth. A growth path is very important,” says Founded in August. Unlike Linsalata Capital, which was Guddy, a co-founder of the new firm. “ a squarely middle market fund, Watervale is Sector specialization is a hallmark of many by former focused on the very lower middle market. The new PE firms. A Cambridge Associates report, partners from Cleveland-based firm is hitting the fundraising titled Declaring a Major: Sector-Focused Private trail, looking to raise $125 million to make Investment Funds, says sector specialists—those Linsalata, control investments in companies with less than who historically invest more than 70 percent Watervale is $6 million of Ebitda. Transaction value will likely of capital in one of four sectors—enjoyed a 2.2 focused on be less than $50 million. Limited partners are times multiple on invested capital (MOIC) expected to be a typical mix of pension funds, return and 23.2 percent gross internal rate of the very lower endowments and family offices. return (IRR) from 2001 to 2010. Those returns middle market. “We were seeing dealflow at this level, but it handily outweighed the 1.9 times MOIC and didn’t fit LinCap’s criteria. We started to realize 17.5 percent gross IRR returned by generalist this is where we belong,” says Faremouth, co- funds invested in the same sectors. founder of Watervale. “We are attracted to these “The proliferation of sector-focused funds companies and there is a much larger population continues, and we don’t expect that to change,” of companies. We believe it’s also very relationship says Andrea Auerbach, global head of private based at this level, which we like.” investment research at Cambridge and co- ” In addition to focusing on lower middle author of the report. “The industry is over 30 market deals, the firm will further distinguish years old now and continues to evolve towards itself by investing in manufacturing companies specialization. Our data shows firms with sector in the industrials and consumer space. “We specialization have a competitive advantage.”

16 MERGERS & ACQUISITIONS September 2017

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017_MAJ0917 17 8/8/2017 10:51:11 AM Columns

The Buyside Keep On Truckin’

DEMITRI DIAKANTONIS

he truck industry is fragmented, and one company that is looking to grow Tthrough acquisitions is Daseke Inc. (Nasdaq: DSKE). Daseke recently announced a merger with flatbed truck operator the Steelman Cos., marking its third transaction in about two months. The company also previously bought rival truckers Schilli Cos. and Big Freight Systems.

Steelman, based in Springfield, Missouri, operates know them. We buy these companies to hold them a fleet of more than 100 tractors and flatbed trucks. permanently,” said Daseke. The company also owns Group One, which provides According to the CEO, Daseke holds less logistics, transportation and warehouse services for than 1 percent marketshare of the roughly $133 We are powersport trade shows. Steelman generated about billion open-duck truck market. Open-decks are “ $46 million in revenue and $7 million in adjusted trucks that can be loaded from the top or side and creating scale Ebitda in 2016. usually transport heavy industrial and construction in a “We are creating scale in equipment. Demand a trucking category that has for trucks that move trucking never been created before,” construction materials category that Daseke CEO Don Daseke is rising. has never told Mergers & Acquisitions. Daseke operates “We’re in a very fragmented more than 3,500 been created part of the transportation tractors and 7,300 before. industry. I think there and open-deck trucks. will definitely be further The company’s main

consolidation in the space.” Daseke Inc. customers include Addison, Texas-based Daseke Boeing Co. (NYSE: has completed more than 11 BA), Caterpillar Inc. acquisitions since 2008. Earlier in 2017, Daseke (NYSE: CAT) along with General Electric Co. purchased competitors the Schilli Cos. and Big (NYSE: GE). ” Freight Systems. In other truck-related deals, in 2016, Volkswagen Daseke avoids companies that are for sale through bought a stake in Navistar International Corp. auctions. “Our negotiations are not competitive. We (NYSE: NAV) and Revelstoke-backed Transport want someone to really know us and we really want Holdings acquired Jones Motor Group.

18 MERGERS & ACQUISITIONS September 2017

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019_MAJ0917 19 8/8/2017 10:51:16 AM Columns

Finance Finesse CLO funds stage a comeback, and lenders bene t

KAMARON LEACH

roving their ability to deliver favorable returns and minimal defaults even through Pthe recession, collateralized loan obligation (CLO) funds have resurfaced as lucrative investment vehicles for the private debt world. Antares Capital, Carlyle, Madison Capital, Trinitas Capital and Wellfleet have all raised new CLO funds, which provide lenders with long-term, stable, cost-effective, well-protected financing.

A CLO fund is a security backed by a pool of Banking on the growth of private debt, Antares debt where payments from middle-market business raised $2.1 billion for its first CLO fund, the largest loans are collected and repaid to limited partners. CLO raised in the U.S. since 2006, according to The CLO structure had proven to be beneficial the firm. “Now that we’re a standalone firm, we Let for fund managers until the financial crisis, when manage our own balance sheet and source our “ it got something of a bad reputation, due to guilt own funding,” says Vivek Mathew, Antares head of the CLO by association with mortgage-backed securities. structured products. “One of our key objectives is structure Since 2012, CLOs have been making a comeback, to diversify our funding sources as much as possible. in part due to their ability to provide a handful of Given the types of assets we originate, the broad work for you. varying risk-to-reward profiles. CLOs, as opposed investor interest in the private credit space, and to unitranche investment vehicles, allow firms to the positive reception that our most recent CLO access a broader network of potential investors. received, we expect to continue to utilize CLOs as “Let the structure work for you,” says Gibran a significant way to support the ongoing growth of Mahmud, CEO of credit-focused Trinitas Capital our middle market loan business.” Management LLC. In June, Trinitas Capital raised So far in 2017, the Carlyle Group (Nasdaq: ” $717 million for the firm’s sixth CLO. Wellfleet CG) has closed two CLO funds raising nearly $1.2 Credit Partners on the other hand, the performing billion. The PE firm’s most recent fund closed with credit business of PE firm Littlejohn & Co., pooled $610 million, bringing Carlyle’s CLO business to a together $406 million for a CLO to back middle- total of $18.8 billion in assets under management. market businesses by senior secured loans. The resurgence of CLOs across the middle Madison Capital Funding LLC, the direct market indicates that this managed, multi-tranche lending arm of New York Life Insurance Co., has investment vehicle is working for both fund also raised a $325 million CLO fund. The firm has managers and investors, especially because the debt invested more than $26.2 billion in nearly 1,000 fund sector is not as crowded as other areas in the financing transactions to date. private capital world.

20 MERGERS & ACQUISITIONS September 2017

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021_MAJ0917 21 8/8/2017 10:51:17 AM Cover Story

HARVEST TIME

BY DEMITRI DIAKANTONIS

estaurants are scrambling to meet new demands from diners who Rwant cuisine they believe is healthy, responsibly-sourced, budget-friendly and often ethnic or regional. Diners also want meals delivered to them quickly, either in a setting that is vibrant, or in the relative peace and quiet of their own homes. All the new requirements are spawning a wide array of restaurant types and a lot of M&A along the way.

Jeff Larsen Larsen MacColl Partners

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Photograph by Matt Greenslade / photo-nyc.com

022_MAJ090117 22 8/8/2017 10:19:50 AM Jeff Larsen Larsen MacColl Partners

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023_MAJ090117 23 8/8/2017 10:19:52 AM Cover Story

Since the recession, consumers have at its 10 Manhattan locations, bought a 35-acre invested $10 million in spent less money on dining out. As the farm on Long Island to grow produce and raise Dos Toros Taqueria, which restaurant industry has come under livestock to supply its restaurants. Fresh&co is operates 13 restaurants in pressure, the strongest concepts have owned by ST Management, which also operates New York. The restaurants the Café Metro chain. are known for burritos, with survived, and consolidation is now In July, Advent International agreed to acquire grilled chicken or steak, rampant. Dealmaking is currently very a majority stake in breakfast café operator First and quesadillas. Most of the active, with private equity firms, strategic Watch Restaurants, which offers a mix of farm- ingredients the company uses to-table and “indulgent” menu choices, from are raised naturally, according People want buyers and venture capitalists investing in seven fast-growing categories. Freeman Spogli & Co. to the website. Dos Toros “ “It’s an interesting time in the business. You was founded by brothers Leo real food, sourced have massive external factors impacting structure,” and Oliver Kremer, who are says Nick Marsh, CEO of Chop’t Creative Salad, originally from San Francisco. locally and then 1 which owns about 50 salad shops, mostly in the Leo once played bass for rock cooked from Better-for-you eats East, and is backed by PE firm L Catterton and band Third Eye Blind. Dos scratch by real onsumers are more focused than ever on the Hain Celestial Group. “You can’t be fighting the Toros is planning to expand to Cimpact of food on their own health, as well changes that are coming at you right now,” Marsh Chicago, but the two brothers chefs. as on the health of the environment, and remain cautious. “We are they are flocking to restaurants that provide very careful in how we ingredients considered fresh and “natural.” measure growth. We remain “People want real food, sourced opportunistic in finding great locally and then cooked from scratch real estate,” says Oliver by real chefs,” says Jeff Larsen of Larsen Kremer. “We’ve seen brands ” MacColl Partners, which invested in grow too quickly, then die.” Harvest Seasonal Grill & Wine Bar in Other recent better-for- 2016. “Harvest delivers that product in you restaurant deals include a professionally-managed, comfortable JAB Holding Co.’s purchase of bakery-café chain setting at prices that are conducive to Panera Bread for about $7.5 billion. St. Louis- repeat visits.” Founded by restaurateur based Panera, which operates more than 2,000 Dave Magrogan and headquartered in locations, describes its mission as: “raising, serving West Chester, Pennsylvania, Harvest and eating food that is good, and good for you.” partners with 75 local farms to offer ever- ...... changing menus with heirloom tomatoes, cedar-roasted organic salmon and grass- fed bison burgers. 2 Harvest currently owns five Following in Chipotle’s footsteps restaurants in Pennsylvania, one in n an effort to enhance the customer’s experience, New Jersey and one in Florida, with Isome restaurants are setting up models similar ambitions to add 20 more. “Harvest to the one pioneered by Chipotle Mexican Grill directly addresses a gigantic market – Inc. (NYSE: CMG), in which diners select the suburbanites seeking new, quality dining ingredients that go on their plates.

options – so there is an equally large Bar Wine Harvest & Grill Seasonal In 2017, Cleveland Avenue LLC acquired growth opportunity,” says Larsen. PizzaRev in a deal with undisclosed terms. The farm-to-table movement is sowing deals. In says. “You have to find a way to embrace them.” Cleveland Avenue is a venture capital firm started August, New York fast casual restaurant operator Seeking deals is one way Marsh is meeting by former McDonald’s Corp. (NYSE: MCD) Fresh&co, which features seasonal organic cuisine the challenges. In 2016, he led a group that CEO Don Thompson in 2017. The Chicago

24 MERGERS & ACQUISITIONS September 2017 September 2017 MERGERS & ACQUISITIONS 25

024_MAJ090117 24 8/8/2017 10:19:53 AM Cover Story

at its 10 Manhattan locations, bought a 35-acre invested $10 million in farm on Long Island to grow produce and raise Dos Toros Taqueria, which livestock to supply its restaurants. Fresh&co is operates 13 restaurants in owned by ST Management, which also operates New York. The restaurants the Café Metro chain. are known for burritos, with In July, Advent International agreed to acquire grilled chicken or steak, a majority stake in breakfast café operator First and quesadillas. Most of the Watch Restaurants, which offers a mix of farm- ingredients the company uses to-table and “indulgent” menu choices, from are raised naturally, according Freeman Spogli & Co. to the website. Dos Toros “It’s an interesting time in the business. You was founded by brothers Leo have massive external factors impacting structure,” and Oliver Kremer, who are says Nick Marsh, CEO of Chop’t Creative Salad, originally from San Francisco. which owns about 50 salad shops, mostly in the Leo once played bass for rock East, and is backed by PE firm L Catterton and band Third Eye Blind. Dos Hain Celestial Group. “You can’t be fighting the Toros is planning to expand to changes that are coming at you right now,” Marsh Chicago, but the two brothers remain cautious. “We are very careful in how we Restaurants, measure growth. We remain “ opportunistic in finding great such as real estate,” says Oliver PizzaRev, are Kremer. “We’ve seen brands grow too quickly, then die.” setting up

Other recent better-for- PizzaRev models you restaurant deals include similar to the JAB Holding Co.’s purchase of bakery-café chain firm focuses on restaurants and food and beverage Panera Bread for about $7.5 billion. St. Louis- investments. Buffalo Wild Wings (Nasdaq: one pioneered based Panera, which operates more than 2,000 BWLD) sold its minority stake in PizzaRev by Chipotle, locations, describes its mission as: “raising, serving in the deal. PizzaRev, headquartered in Los in which diners and eating food that is good, and good for you.” Angeles, operates 46 restaurants across 11 states...... The company uses a “craft your own” approach select the to pizza, which is cooked in three minutes in a ingredients that 900-degree stone oven. 2 Strategic buyers are also going after companies go on Following in Chipotle’s footsteps with the craft-your-own approach. In 2016, their plates. n an effort to enhance the customer’s experience, Rosemead, California-based Panda Restaurant Isome restaurants are setting up models similar Group Inc., one of the largest privately held fast to the one pioneered by Chipotle Mexican Grill casual Asian restaurant operators, acquired a Inc. (NYSE: CMG), in which diners select the minority stake in Pieology Pizzeria. Pieology calls ingredients that go on their plates. itself “the Chipotle of pizza” by letting customers In 2017, Cleveland Avenue LLC acquired build their own pizzas where they choose from ” PizzaRev in a deal with undisclosed terms. eight sauces and more than 40 meats, cheeses, says. “You have to find a way to embrace them.” Cleveland Avenue is a venture capital firm started vegetables and spices, all made on a 11.5-inch thin Seeking deals is one way Marsh is meeting by former McDonald’s Corp. (NYSE: MCD) pizza crust. Rancho Santa Margarita, California- the challenges. In 2016, he led a group that CEO Don Thompson in 2017. The Chicago based Pieology has more than 100 locations.

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Pieology acquired competitor Project Pie for fish tacos (spicy tempura and battered cod with Inc. (Nasdaq: PLKI) in 2017 for about $1.8 undisclosed terms in 2016. Pieology CEO Carl chipotle slaw), and spicy chorizo tacos, served with billion. The deal gives both companies additional Chang said at that the time that “consolidation Argentinean pork sausage. The two businesses opportunities for international expansion. was the future for the fast casual pizza segment.” own about two dozen restaurants combined with Popeyes, located in Atlanta, is known for its ...... most of them located on the East Coast. Barteca is handcrafted chicken tenders and Louisiana style planning on adding at least three more restaurants popcorn shrimp that are sold to consumers to each business by the end of 2017. who are looking for a quick bite. Popeyes has 3 Investors, particularly strategic buyers, more than 2,600 restaurants worldwide that are Ethnic and regional are going after restaurants that feature food decorated with bright orange and red colors, and Americans mericans come from all over the world, and that is inspired by a specific region. In 2017, Restaurant Brand executives indicated they will “ they want food that reflects their diversity. Olive Garden owner Darden bought Irving, accelerate Popeyes global development. There come from A all over the Indian fast-casual brand Curry Up Now acquired Texas-based Cheddar’s Scratch Kitchen from L are over 600 Popeyes restaurants based abroad, rival Tava Kitchen of Palo Alto, California, Catterton and Oak Investment Partners for $780 with the majority of them being concentrated in world, and they for an undisclosed amount in 2017. “With million. Cheddar’s menu includes New Orleans Turkey and South Korea. want food that this acquisition, we are ...... confident that we will be re ects their able to combine our vision diversity. of Indian food and a 4 fantastic guest experience Bar hopping to grow the Curry Up “ ou’ve “got more high-energy bar-centric Now brand worldwide,” Yconcepts that are more appealing to the next says CEO Akash Kapoor. generation,” says Larsen. His firm backed Burger Curry Up, founded in & Beer Joint in 2016. The Boca Raton, Florida- ” San Francisco in 2009, tries company describes itself as a “full-service concept to take “traditional Indian flavors and present them in a friendly, recognizable way,” says the company. Curry Up is known for

tikka masala burritos and Curry Up Now deconstructed samosas. Curry Up operates five restaurants in California pasta, which consists of shrimp, chicken, smoked along with five food trucks under the same brand. sausage, onions, peppers and penne pasta tossed Tava previously had backing from CircleUp in spicy Cajun alfredo sauce that is served “in Growth Fund, Kensington Capital, Agilic Capital a polished yet warm atmosphere.” Cheddar’s and former Smashburger CEO David Prokupek operates more than 150 restaurants throughout through HiGrowth Advisors. Those investors the East and Midwest coasts. “This is a mature exited their stakes as the result of the sales. industry, and we believe that some consolidation And at the end of the 2015, General Atlantic makes sense and that’s what we’re trying to do,”

made a minority growth investment in fast-casual Darden CEO Gene Lee told investors. Joint & Beer Burger operator Barteca Holdings, joining existing Strategic buyers are aware of the intense investor Rosser Capital Partners. Norwalk, competition in the restaurant space and are using in an energetic, fun atmosphere” and serves Connecticut-based Barteca owns the Barcelona acquisitions to look for new growth channels more than 75 types of beer. B&B operates seven Wine Bar and Bartaco brands. Barcelona Wine while diversifying their menus. Burger King locations on the East Coast and one in Puerto Bar serves Spanish wines and tapas, like beef owner Restaurant Brands International Inc. Rico. And in 2015, the PE firm backed City Tap empanadas. Bartaco’s menu consists of baja agreed to purchase Popeyes Louisiana Kitchen House, which offers a craft beer program and bar

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fish tacos (spicy tempura and battered cod with Inc. (Nasdaq: PLKI) in 2017 for about $1.8 snacks such as 10-spice wings and blue crab mac chipotle slaw), and spicy chorizo tacos, served with billion. The deal gives both companies additional and cheese. Larsen MacColl also backs Tin Roof Argentinean pork sausage. The two businesses opportunities for international expansion. Bars, which provides live entertainment while own about two dozen restaurants combined with Popeyes, located in Atlanta, is known for its serving bar food including Dixie Biscuits, or fried most of them located on the East Coast. Barteca is handcrafted chicken tenders and Louisiana style biscuit sliders. Nashville-based Tin Roof operates planning on adding at least three more restaurants popcorn shrimp that are sold to consumers more than a dozen locations. to each business by the end of 2017. who are looking for a quick bite. Popeyes has ...... Investors, particularly strategic buyers, more than 2,600 restaurants worldwide that are are going after restaurants that feature food decorated with bright orange and red colors, and that is inspired by a specific region. In 2017, Restaurant Brand executives indicated they will 5 Olive Garden owner Darden bought Irving, accelerate Popeyes global development. There Dining out at home Texas-based Cheddar’s Scratch Kitchen from L are over 600 Popeyes restaurants based abroad, here’s a booming business in meals prepared Catterton and Oak Investment Partners for $780 with the majority of them being concentrated in Tfor people at home, a phenomenon million. Cheddar’s menu includes New Orleans Turkey and South Korea. attracting a wide range of companies, including ...... restaurants, grocery stores and e-commerce experts. Amazon.com Inc. (Nasdaq: AMZN) has been experimenting with delivery models and is 4 well poised to use technology to revolutionize Bar hopping food delivery, just like it transformed consumer “ ou’ve “got more high-energy bar-centric goods. To that end, the company announced in Yconcepts that are more appealing to the next June that it is buying Whole Foods, a grocery store Amazon is generation,” says Larsen. His firm backed Burger chain popular on the East coast that aims to sell “ well poised to & Beer Joint in 2016. The Boca Raton, Florida- the “highest quality natural and organic products company describes itself as a “full-service concept available.” The $13.7 billion Whole Foods use technology purchase is expected to to revolutionize be a game changer. It has already triggered at least food delivery, one significant deal. In and that’s the August, Grubhub Inc. goal behind the

Curry Up Now (NYSE: GRUB) agreed to acquire Yelp Inc.’s deal for pasta, which consists of shrimp, chicken, smoked (NYSE: YELP) online Whole Foods. sausage, onions, peppers and penne pasta tossed food-ordering business, in spicy Cajun alfredo sauce that is served “in known as Eat24, for a polished yet warm atmosphere.” Cheddar’s $287.5 million. operates more than 150 restaurants throughout The food delivery the East and Midwest coasts. “This is a mature business has been industry, and we believe that some consolidation receiving a lot of interest makes sense and that’s what we’re trying to do,” from dealmakers for a ”

Darden CEO Gene Lee told investors. Joint & Beer Burger while. The week after Strategic buyers are aware of the intense Amazon announced competition in the restaurant space and are using in an energetic, fun atmosphere” and serves the Whole Foods purchase, Nestlé USA said acquisitions to look for new growth channels more than 75 types of beer. B&B operates seven it was taking a minority stake in online meal while diversifying their menus. Burger King locations on the East Coast and one in Puerto provider Freshly, which provides a subscription owner Restaurant Brands International Inc. Rico. And in 2015, the PE firm backed City Tap service for cooked, ready-to-heat meals delivered agreed to purchase Popeyes Louisiana Kitchen House, which offers a craft beer program and bar to consumers. Freshly’s menu features 30 meal

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combinations including: Sicilian-style chicken Buford, through its drive-through locations. The Capital completed the $565 million purchase of parmesan with broccoli; and steak peppercorn Big Buford is made with two beef patties, two Bob Evans Restaurants from Bob Evans Farms with sauteed carrots and asparagus. And back slices of melted American cheese, crisp iceberg Inc. (Nasdaq: BOBE). The target operates 522 lettuce, a slice of tomato, red onion, dill pickles, full-service eateries in 18 states, mostly in the ketchup, mustard and mayonnaise on a toasted Midwest and Southeast. The menu contains a Kaiser bun. Farmer’s Choice Breakfast, which comes with: On the strategic buyer side, in 2016, the three hotcakes, one crepe or two pieces of brioche franchisee for the Wendy’s Co. (Nasdaq: WEN) in French toast, two eggs, hash browns, home fries Japan, backed by the Longreach Group, acquired or grits, and a choice of meat. In a closely rival fast food chain First Kitchen Limited from On the PE side, Roark “ Suntory Holdings Limited. First Kitchen is Capital stands out as one watched deal, Oak Hill known for making bacon egg burgers and “flavor of the most prolific firms potato” French fries. Wendy’s, based in Dublin, investing in restaurants. purchased Ohio, made the move as part of its international In July, Roark acquired a Checkers. growth strategy. majority stake in casual- ...... dining chain Jim ‘N Nick’s Bar-B-Q. The Birmingham, Bloomberg News Bloomberg Alabama-based target in 2016, L Catterton acquired a stake in Home 7 operates 37 eateries across Chef, which offers a meal-kit subscription service. Fast casual and casual dining Alabama, Colorado, Florida, Home Chef delivers pre-portioned ingredients n addition to all the M&A going on in nascent Georgia, North Carolina, ” and recipes that, it says, can be prepared within Irestaurant categories, classic full-service “casual South Carolina and 45 minutes. dining” continues to consolidate. In August, J. Tennessee. The chain is ...... Alexander’s Holdings, Inc. (NYSE: JAX), which known for cheese biscuits, owns three upscale restaurant chains (J. Alexander’s, but also offers traditional Redlands Grill and Stoney River Steakhouse and Southern style barbecue, 6 Grill), agreed to acquire 99 Restaurant & Pub such as Carolina-style pork Quick service, a.k.a. fast food from Fidelity National Financial Inc. for $199 (chopped pork, tossed with Eastern Carolina- eanwhile, fast food restaurants, which million. Based in Woburn, Massachusetts, 99 style vinegar-pepper sauce.) Mthe industry refers to as “quick service,” operates 106 restaurants in the Northeast and Roark also backs “fast casual” restaurants, continue to attract busy consumers. In a closely East. In May, Red Lobster owner Golden Gate which offer a hybrid of fast food and casual watched 2017 deal, Oak dining by enabling diners to order for themselves Hill Capital Partners at a counter while also providing tables for purchased Checkers those who want to stay and eat. In 2016, Roark Drive-In Restaurants Inc. invested in Jimmy John’s Sandwiches. Founded from Sentinel Capital in 1983 by entrepreneur Jimmy John Liautaud, Partners for $525 million. the Champaign, Illinois-based chain has about Checkers, based in 2,700 locations and nearly $2 billion in sales. The Tampa, Florida, operates sandwich maker is known for the J.J. Gargantuan, about 840 restaurants which features genoa salami, smoked ham, across 29 states (mostly in capicola, roast beef, turkey and provolone cheese, the East and Southeast), topped with onions, mayonnaise, lettuce, tomato under the Checkers and and homemade Italian dressing, all served on a Rallys brands. The target French bun. In 2015, Roark invested in Naf Naf is known for serving Grill, which provides Middle Eastern cuisine in

burgers, such as the Big Drive-In Checkers an Americanized format. Naf Naf serves dishes,

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Buford, through its drive-through locations. The Capital completed the $565 million purchase of such as Chicken Shawarma, which has been Big Buford is made with two beef patties, two Bob Evans Restaurants from Bob Evans Farms marinated in a dry rub overnight and roasted slices of melted American cheese, crisp iceberg Inc. (Nasdaq: BOBE). The target operates 522 throughout the day, and is served in pita bread. lettuce, a slice of tomato, red onion, dill pickles, full-service eateries in 18 states, mostly in the Some of Roark’s other restaurant investments ketchup, mustard and mayonnaise on a toasted Midwest and Southeast. The menu contains a include: Auntie Anne’s, Carvel, Cinnabon and Kaiser bun. Farmer’s Choice Breakfast, which comes with: Moe’s Southwest Grill. On the strategic buyer side, in 2016, the three hotcakes, one crepe or two pieces of brioche Strategic buyers are also looking to expand franchisee for the Wendy’s Co. (Nasdaq: WEN) in French toast, two eggs, hash browns, home fries in fast casual. “We have a diversified set of Japan, backed by the Longreach Group, acquired or grits, and a choice of meat. rival fast food chain First Kitchen Limited from On the PE side, Roark Suntory Holdings Limited. First Kitchen is Capital stands out as one known for making bacon egg burgers and “flavor of the most prolific firms potato” French fries. Wendy’s, based in Dublin, investing in restaurants. Ohio, made the move as part of its international In July, Roark acquired a growth strategy. majority stake in casual- ...... dining chain Jim ‘N Nick’s Bar-B-Q. The Birmingham, Alabama-based target 7 operates 37 eateries across Roark Fast casual and casual dining Alabama, Colorado, Florida, “ invested in n addition to all the M&A going on in nascent Georgia, North Carolina, Jimmy John’s. Irestaurant categories, classic full-service “casual South Carolina and dining” continues to consolidate. In August, J. Tennessee. The chain is Founded in Alexander’s Holdings, Inc. (NYSE: JAX), which known for cheese biscuits, 1983 by owns three upscale restaurant chains (J. Alexander’s, but also offers traditional entrepreneur

Redlands Grill and Stoney River Steakhouse and Southern style barbecue, John’s Jimmy Grill), agreed to acquire 99 Restaurant & Pub such as Carolina-style pork Jimmy John from Fidelity National Financial Inc. for $199 (chopped pork, tossed with Eastern Carolina- incremental investment opportunities,” said Liautaud, million. Based in Woburn, Massachusetts, 99 style vinegar-pepper sauce.) Matthew Clark, chief financial officer of the operates 106 restaurants in the Northeast and Roark also backs “fast casual” restaurants, Cheesecake Factory Inc. (Nasdaq: CAKE), at the sandwich East. In May, Red Lobster owner Golden Gate which offer a hybrid of fast food and casual a June conference hosted by Piper Jaffray Cos. chain has dining by enabling diners to order for themselves (NYSE: PJC). In 2016, the Cheesecake Factory at a counter while also providing tables for acquired a minority stake in Flower Child, about 2,700 those who want to stay and eat. In 2016, Roark which sells “all-natural” chicken, “sustainable” locations. invested in Jimmy John’s Sandwiches. Founded salmon and vegan dishes made from scratch in 1983 by entrepreneur Jimmy John Liautaud, daily, according to the restaurant. Flower Child, the Champaign, Illinois-based chain has about controlled by Fox Restaurant Concepts LLC, 2,700 locations and nearly $2 billion in sales. The operates seven fast-casual locations in Arizona, sandwich maker is known for the J.J. Gargantuan, Texas and California. The Cheesecake Factory, which features genoa salami, smoked ham, which owns more than 200 restaurants under its ” capicola, roast beef, turkey and provolone cheese, own name and the Grand Lux Café brand, plans topped with onions, mayonnaise, lettuce, tomato to develop its own fast-casual brand. and homemade Italian dressing, all served on a “The environment has been competitive ever French bun. In 2015, Roark invested in Naf Naf since the recession. It’s a market share game,” Grill, which provides Middle Eastern cuisine in Clark said. “The winners will be defined by who

Checkers Drive-In Checkers an Americanized format. Naf Naf serves dishes, has the most compelling food.”

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MID-MARKET PULSE: Energy deals expected to zoom M&A in the energy sector is expected to the highest delivered by any sector since we The energy industry’s 3-month score was the accelerate swiftly over the coming months, began the survey in the fall of 2013. second highest short-term outlook of the six according to Mergers & Acquisitions’ Mid- high-growth sectors measured by the MMP. Market Pulse (MMP). M&A in the energy sector is expected to benefit The financial services, insurance and real estate from Republican control of the U.S. federal (FIRE) sector delivered the highest 3-month Dealmakers surveyed in July gave the sector a government. But many major projects, including score. In the 12-month timeframe, tech, media very high score of 78.7 for the 3-month outlook interstate pipelines and other endeavors worth and telecom (TMT) came in first place, followed and an encouraging 67.8 for the 12-month billions of dollars, including utility mergers, by FIRE, healthcare, manufacturing, then energy outlook, both higher than the respective scores have been delayed while the Federal Energy in fifth place and consumer goods and retail in of 66.0 and 66.7 they gave to overall M&A on Regulatory Commission lacked the required sixth place. the same survey. However, the sector’s scores number of commissioners to make decisions. were not as exuberant as they were when we The Senate approved two commissioners in early The MMP is a forward-looking sentiment last looked at the energy sector in a survey just August, restoring a voting quorum. But volatility indicator, published in partnership with CT, after the 2016 election. At that point, survey in the price of oil is expected to continue, with a provider of business compliance and deal participants gave the energy sector a composite concerns about over-production and questions support services. ■ score of 86.0 for the 3-month outlook and a about the commitment on the part of major oil score of 90.3 for the 12-month outlook, among producers to cap output.

ABOUT THE MERGERS AND ACQUISITONS MID-MARKET PULSE (MMP) IN PARTNERSHIP WITH The MMP is a monthly barometer for the outlook of M&A activity and conditions from the collective viewpoint of approximately 250 business executives in private equity firms, investment banks, lenders and advisor firms, such as accounting, law, and consulting firms, involved in M&A activity. Various sub-indicators that make up the overall MMP composite include projected deal volumes and pricing, staffing and resource utilization levels, and the expected impacts of economic conditions, taxes, and regulatory policy on respondents’ future M&A activity.

MMP results are presented as rolling aggregate indicators for both three- and 12-month outlook periods for macro M&A issues as well as for individual industry sector issues in healthcare, consumer/retail, manufacturing, energy, and technology/media/telecommunications on a monthly rolling basis. A diffusion index is produced by calculating the sum of percentages of those indicating on survey responses that describe a change in sentiment for three and 12 months (e.g., increase/positive, decrease/negative, or no change/ neutral) to arrive at three-month and 12-month aggregate index values that are then averaged to create a total composite for the month. A reading of over 50 indicates an expansion relative to the prior month, and a reading below 50 indicates a contraction.

30 MERGERS & ACQUISITIONS September 2017

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CIBBC Tombstone Ad 3_8.5x11_550401_Final.indd 1 7/27/17 10:14 AM Guest Article

By Daron Gifford

032_MAJ090117 32 8/8/2017 10:21:27 AM Guest Article

By Daron Gifford

rotectionist rhetoric in the U.S. and elsewhere is affecting the high-wire world of mergers and acquisitions in 2017, but Pnot in the way many feared. Rather than dampening deals, the uncertainty appears to be prompting more cross-border transactions. The first quarter of 2017 delivered $777.7 billion worth of announced transactions worldwide, a 12 percent increase from the same period the previous year, according to Thomson Increased Reuters. About $337 billion, or 43 percent, came “ activity in from U.S. companies buying European assets, a M&A can be 10-year record. And there is interest in acquisitions of U.S. linked to companies from abroad as well. In the first half the desire of the year, there were 87 announced acquisitions of U.S. companies by Chinese firms, as of June, of many the highest on record, ten more than in the same companies to period in 2016. make a The increased activity in M&A can be linked, TK in large part, to the desire of many companies Daron Gifford move overseas to make a move overseas now, as a hedge against now. possible future trade restrictions, especially in the continuing to seek a stronger foothold in the U.S. U.S. China-based businesses long have been sinking This strategy seems reasonable, considering money into various automotive operations—from the recent U.S. withdrawal from the Trans- glass and tire makers to technology developers and Pacific Partnership and threats to leave the North car makers, reflecting Beijing’s long-term goal of American Free Trade Agreement (NAFTA) —plus dominating the world’s car business. ” worries in Europe over the British exit from the Besides selling parts to U.S. automakers, European Union, known as Brexit. Chinese acquirers are targeting aerospace, Indeed, in July, trade talks between the U.S. agricultural equipment and industrial machine and China broke down, and the Committee on manufacturers. As of June 30, Chinese companies Foreign Investment in the United States (CFIUS) announced they had made eight overseas deals, has already balked at nine acquisitions of U.S. totaling in $5.5 billion, in the auto sector this year, companies by foreign buyers so far in 2017. one less than the number for all of 2016. CFIUS is also expected to, for the first time, They included Ningbo Joyson Electronic start considering the effect of any transaction on Corp.’s takeover of Japanese air-bag maker Takata U.S. workers and the nation of the acquiring Corp. and the acquisition of a 5 percent stake company’s trade history. National security and in Tesla Inc. by games and messaging company critical infrastructure protection had previously Tencent Holdings Ltd. been the only determinants. A litmus test may be Meanwhile, Terrafugia, a small company in the handling of various Chinese buyers’ interests Woburn, Mass., that is attempting to make cars fly in the bankrupt Westinghouse Electric Company’s like small planes or helicopters, is closing a deal to U.S. assets. sell to Chinese car maker, Zhejiang Geely Holding In particular, China-based manufacturers that Group, which makes Volvo cars. are part of the global automotive supply chain are To be sure, even in China, not every metric is

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033_MAJ090117 33 8/9/2017 1:16:44 PM Guest Article

pointing up. While the number of deals is higher As for the effect of the U.S. dollar on trade, in 2017, the value of outbound Chinese M&A, it has not been especially impactful, with the surprisingly, perhaps, fell 70 percent, to $25.8 exception of extreme variations due to crises in billion in the first quarter, a drop attributed by other countries; it will always vary from country some to global economic uncertainties and a to country, day to day, quarter to quarter. Longer- stricter domestic regulatory environment. term trends would be a better metric. In 2017, for The auto space is hot elsewhere, as well, as instance, the greenback started very strong, but it Israeli company Mobileye, a developer of self- has been softening steadily against most currencies driving technology, was sold to U.S. tech giant since the start of the year. Elsewhere, the British While no one Intel Corp. (Nasdaq: INTC) for $15.3 billion in Pound reacted strongly to Brexit last year but has “ March. recovered somewhat, as has the Euro, even more knows for sure what will Non-U.S. cross-border transactions have strongly. So, it’s a mixed bag when you talk about been continuing apace, as well, with small deals foreign exchange. happen on dominating the space. In March, for example, Dealmakers pondering cross-border deals in trade, Indian auto parts maker Motherson Sumi Systems the current uncertain environment would do well Ltd completed its purchase of Finland’s PKC to heed this advice: acquisition Group for $620 million. And Japan’s Panasonic Evaluate all aspects of the value proposition for interest is Corp. recently became the majority owner in the deal, including the operational, technology continuing with Ficosa International SA, a Spanish auto supplier and market synergies with your current business and injection molder that makes car mirrors and and understand how well it meets your growth the auto safety systems and recently opened a plant in goals and business strategy. industry. Cookeville, Tenn. Look at more than just near-term financial In Europe, there are more mixed messages: EU returns. Trade barriers will come and go, exchange targets are hot; EU acquirers are not, probably rates will fluctuate, so don’t build your business because of Brexit and fears of the effects, especially case on short-term drivers. in southern Europe. Be aware of the strategic fit to your global Since the start of 2017, non-European business –– not only geographic presence but look ” companies have announced deals with or bid on at extensions of your product portfolio and growth 43 European targets, according to Pitch Book. in new customers. European acquisitions of U.S. firms, however, fell Prepare plans rapidly to retain local almost a quarter to $86.9 billion in Q1, as the management leadership; you are buying an targets appear to be less attractive to the EU and ongoing business that needs to keep operating. related entities. Overall, though, European M&A Express “real” willingness to partner with other activity hit $215.3 billion in the first three months parties. This could reduce the financial outlay and of the year–a 16 percent increase over 2016 and mitigate risk. the strongest start to a year since 2008. While no one knows for sure what will happen Meanwhile, another trade caveat is interest on trade, acquisition interest is continuing, rates. The Federal Reserve has hiked rates twice particularly with the auto industry and suppliers, recently and is signaling a third increase, despite a as well as other industries like mining, technology, somewhat benign inflation outlook. Higher rates consumer markets, and oil & gas. So much for have the potential to both reduce the availability, that protectionist rhetoric that many feared would and increase the cost of outside capital available dampen global M&A. for deals. If this Fed picture changes and rates rise further or faster than expected, the pace of mergers Daron Gifford is the partner in charge of strategy and and acquisitions could slow, especially among automotive consulting at the accounting firm and leveraged deals involving private equity funds. consultancy Plante Moran in Detroit.

34 MERGERS & ACQUISITIONS September 2017

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fter a robust first half of the year, dealmaking in July continued to July composite at 51.4 Aexpand, but the pace of growth slowed, and completed deals fell sharply, M&A slowed in July after a very productive first half of the year. While completed deals according to Mergers & Acquisitions’ plummeted, leads for new deals remained strong. The pause in dealmaking is likely M&A Conditions Index (MACI). The MACI seasonal, with an active autumn anticipated by most dealmakers. composite score dropped to 51.4 in July, down from 54.5 in June and 55.8 in May. M&A CONDITIONS COMPOSITE: JULY 2017 Completed deals dropped nearly 7 points 70 to 43.3, the lowest point since we began our monthly surveys in the fall of 2013. 65 The dip may be attributable to the fact 51.4 that July is the first month of the second 60 half of the year. Like January, July often produces lower levels of completed deals. 55 In 2016, for example, the completed deals 50 component of MACI fell significantly in

July, when it hit 45.8, down from 50.6 the 45 previous month. 2013 2014 2015 2016 2017 40 July’s deceleration occurred after a very active first half of the year. More middle- market deals were completed in the first six months of 2017 than in any first half Month to Month Trends of the year for 10 years. The slowdown in July may also reflect a seasonal pause, July June % Point Rate of Trend Index Direction as many dealmakers take a vacation Index Index Change Change (months) before what’s anticipated will be an active autumn. The component that measures Composite 51.4 54.5 -3.1 Slower Expansion 14 leads for new deals scored 56.6, and the component that measures signed letters of intent came in at 56.0, both predictors of Leads 56.6 62.8 -6.3 Slower Expansion 18 fruitful dealmaking ahead. ■ Signed Letters 56.0 55.2 0.8 Faster Expansion 6

ABOUT THE MID-MARKET MERGERS AND ACQUISITIONS CONDITIONS INDEX (MACI) Completed Deals 43.3 50.0 -6.7 From Even Contraction 1 The MACI is a composite index of mergers and acquisitions activity and conditions in the U.S. It is the result of the Mergers & Acquisitions’ survey of executives in private From Divestitures 41.4 51.2 -9.8 Contratction 1 equity firms, investment banks, lenders and advisor firms Expansion to track activity such as deals announced and deals completed, as well as acquisitions and divestitures. Financing Availability 51.7 54.3 -2.6 Slower Expansion 8 Each sub-indicator is based on survey responses that describe a change from the previous month (e.g., increase, decrease, or no change). Respondents are also asked to elaborate on any of the changes and provide their opinions M&A Business Activity 56.3 57.9 -1.6 Slower Expansion 14 about other internal or external conditions that affect their firm’s operations or business outlook. A diffusion index is produced for each sub-indicator by calculating the sum of M&A Business Staffing 54.2 55.6 -1.4 Slower Expansion 6 percentages of those indicating “higher” (for positive sub- indicators) and “lower” (for negative sub-indicators) and half of those indicating the “same.” A reading of over 50 indicates an expansion relative to the prior month, and a Bidders 45.5 41.4 4.1 Slower Contratction 18 reading below 50 indicates a contraction.

September 2017 MERGERS & ACQUISITIONS 35

035_MAJ090117 35 8/8/2017 10:22:28 AM People

New Hires and Promotions By Kamaron Leach

George Abd was hired by Maryland Heights, practice. Previously at K&L Gates, Davis joins Missouri-based Spartech LLC, a portfolio with cross-border M&A experience involving U.S. company of Arsenal Capital Partners, as CEO. investments in Europe. Abd joins the packaging company as the former president and chief executive of Genstar Capital- Ryan Daws has joined Baird Global backed Pretium Packaging. Investment Banking as a managing director based in Boston. Daws previously served as chief Scott Bartel was hired by Lewis Brisbois financial officer at Concert Pharmaceuticals, where Bisgaard & Smith LLP as a partner in the law he focused on the company’s finance, business firm’s Sacramento and San Francisco offices. development and investor relations efforts. George Abd Joining from Locke Lord LLP, Bartel’s experience includes advising on M&A, divestitures and Ryan Deegan was hired by middle-market corporate finance. investment bank Quarton International as a partner heading up the debt advisory Stephanie Berdik has joined Kirkland & Ellis group in North America. Most recently from LLP as a partner in Boston. Previously a partner Monroe Capital, Deegan helped originate, advise at Proskauer Rose LLP, Berdik advises private on and execute more than $24.5 billion of debt and investment fund sponsors on capital raising, fund equity transactions. regulatory and compliance matters. Campbell Dyer has been promoted from managing Meredith Beuchaw, previously a partner at director to co-head of the global technology, media Greenberg Traurig, has joined Cooley LLP as and telecommunications team at the Carlyle Group partner in the firm’s global M&A practice. Based (Nasdaq: CG). Dyer is based in Washington, D.C., in New York, Beuchaw advises technology clients. and previously worked as an investment professional at William Blair Capital Partners. Benjamin Brigeman was appointed to the strategic advisory board of San Francisco-based Todd Firestone has joined Detroit-based Angle Scott Bartel Genstar Capital. Formerly an EVP for Charles Advisors as a managing director. Firestone joins Schwab Corp. (NYSE: SCHW), Brigeman advises from Evercore Partners (NYSE: EVR) to help Genstar on financial services focused on wealth enhance the firm’s oil, gas, and energy-related management and financial technology. M&A efforts.

Rob Carlson was hired by Sidley Austin LLP Patrick Gilligan was hired by Santa Monica, as an M&A partner based in Palo Alto, California. California-based Clearlake Capital Group as a Carlson, a former partner at Paul Hastings LLP, managing director. Previously a managing director advises corporations on M&A, and public and at Park Hill Group, Gilligan handles investor joint ventures. relations and marketing in his new role.

Hamilton Crawford, a former Oppenheimer Xavier Gutierrez has also joined Clearlake as & Co. managing director, was hired by Duff & a managing director. Gutierrez joins from Meruelo Phelps in the same role. Crawford joins with Group and focuses on operations and client private equity and M&A advisory experience. service initiatives.

Jeremy Davis has joined McGuireWoods Jacqui Hatfield was hired by Orrick LLP Meredith Beuchaw London LLP as a partner in the firm’s corporate as a partner in the firm’s London-based tech

36 MERGERS & ACQUISITIONS September 2017

036_MAJ090117 36 8/8/2017 10:38:46 AM &

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037_MAJ0917 37 8/8/2017 10:51:22 AM d33575_M&A Circulation House Ad.indd 1 6/29/17 9:50 AM People

companies group. Hatfield joins from Reed & Sutcliffe LLP as a partner in the firm’s M&A and Smith LLP with more than two decades of private equity group. Lehmkuhler joins Orrick from regulatory experience in financial services and Davis Polk and is based in the firm’s Hong Kong financial technology. office.

Sean Hill has joined Kirkland & Ellis LLP Justine Mannering was hired as a managing as a partner in Boston. Joining previously from director by Boston-based Alantra in the firm’s Proskauer Rose LLP, Hill represents investment consumer goods and retail team. Mannering managers in the formation of private investment joins from BDA Partners and advises clients funds and secondary transactions. on buy-side, sell-side, debt and restructuring transactions. Rob Carlson Michael Hirsch has joined investment bank JEGI as managing director based in Boston. Patrick McCarter has been promoted from Hirsch comes from his managing director post managing director to co-head of the global of nine years at Piper Jaffray (NYSE: JFC), and technology, media and telecommunications team will now focus on M&A covering the Internet, at the Carlyle Group (Nasdaq: CG). McCarter is digital media and related software sectors in his based in Menlo Park, California, and is involved new role. with the firm’s investments in portfolio companies Veritas and CommScope. Christopher Hooper has rejoined San Francisco-based Welsh Carson Anderson Bill McLeod has joined Eaton Partners as a & Stowe as a general partner in the firm’s managing director from the firm’s parent company technology team. Hooper joins the firm with Stifel Financial Corp. (NYSE: SF). Based in San private equity experience at Golden Gate capital Francisco, McLeod has more than 25 years focusing on tech investments. of capital markets experience and focuses on expanding Eaton Partners’ direct private capital Anna Kovalkova was promoted to partner raising efforts. from associate at Pharos Capital Group LLC. Anna Kovalkova Based in Nashville, Kovalkova oversees the Christopher Moore was hired by Hogan firm’s portfolio companies and is responsible Lovells LLP as a partner based in San Francisco. for leading the evaluation, due diligence and Moore joins from Weil Gotshal & Manges LLP execution of investments. with M&A experience representing technology and life sciences companies. Rory Larson was hired by McDermott Will & Emery as a partner based in Miami. Larson joins Todd Owens has joined Broadhaven Capital from Baker McKenzie and represents healthcare Partners as a partner. Previously the CEO of companies in private equity investments, Fifth Street Finance Corp., Owens has more than corporate governance and M&A transactions. 20 years of experience advising on M&A transactions. Chuck Lowery has rejoined Alvarez and Marsal as a managing director in Houston. Scott Peterman has joined Orrick Herrington Lowery joins the firm’s private equity performance & Sutcliffe LLP as a partner based in Hong improvement practice from his role as a managing Kong. Joining the firm’s M&A and private equity director at BearingPoint. practice, Peterman previously served as partner with Sidley Austin LLP and practiced at Kirkland Justine Mannering Mark Lehmkuhler has joined Orrick Herrington & Ellis.

38 MERGERS & ACQUISITIONS September 2017

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Alex Popov has joined the Carlyle Group variety of financing matters, including securities (Nasdaq: CG) in New York as a managing director. law compliance and M&A. Seo joins from Lock Joining from HPS Investment Partners, Popov Lord LLP. will lead the credit opportunities business within Carlyle’s global credit platform. Daniel Serota has joined Sidley Austin LLP as an M&A partner in New York. Joining from Scott Rafshoon was hired by Hunton Greenberg Traurig LLP, Serota advises clients on & Williams LLP as a partner in the firm’s M&A, stock and asset purchases, joint ventures corporate finance and M&A practice. Rafshoon and bankruptcies. joins from Dentons and his practice advises on M&A, divestitures, joint ventures and corporate Eric Stiff has joined Lewis Brisbois Bisgaard Daniel Serota governance. & Smith as a partner in the law firm’s Sacramento and San Francisco offices. Joining from Locke Ashley Rainwater was hired by private Lord LLP, Stiff’s experience includes advising investment firm Comvest Partners as a director on private and public corporate matters with an of investor relations. Joining from Kohlberg & Co., expertise in helping healthcare organizations. Rainwater is responsible for capital raising and marketing campaigns, as well as investor relations. Cary Verasco has joined Chicago-based NXT Capital as director of the northeast region in Andrew Rippy has joined Baird Global the firm’s corporate finance group. Most recently Investment Banking as a managing director a senior vice president at Jefferies LLC, Verasco based in Portland, Oregon. Most recently from is now responsible for leading senior secured Pacific Crest Securities, Rippy focuses on credit facilities for PE sponsors and middle-market information technology infrastructure, software, companies. and the communication sectors. Emily Waldorf has been appointed to Campbell Stuart Rogers was hired by Alston & Bird as Soup Co.’s (NYSE: CPB) leadership team. a partner based in New York. Rogers joins from Waldorf continues to serve as vice president of Cary Verasco Credit Suisse as a managing director with 17 years corporate strategy and helps direct enterprise of M&A transaction experience. strategy development. Waldorf was named to Mergers & Acquisitions’ 2017 Most Influential Jared Rusman has joined Kirkland & Ellis Women in Mid-Market M&A list. LLP as a tax partner in New York. Joining from Weil Gotshal & Manges LLP, Rusman focuses on M&A, Philip Yau has joined Greenwich, Connecticut- joint ventures, restructurings and divestitures. based GI Partners as a managing director. Yau joins the firm with 24 years of investment banking Jeffrey Salinger has joined New York-based experience, including 12 years at the UBS Private DLA Piper as a partner. Salinger was previously Funds Group. with Shearman & Sterling LLP, and advises clients on environmental transactional matters including John Yung was hired by Lewis Brisbois M&A and capital markets. Bisgaard & Smith LLP as a partner in the law firm’s Sacramento and San Francisco offices. Deborah Seo was hired by Lewis Brisbois Joining most recently from Locke Lord LLP, Bisgaard & Smith LLP as a partner in the law Bartel’s M&A experience includes advising firm’s Sacramento and San Francisco offices. Seo Chinese companies seeking to access U.S. capital Philip Yau represents U.S. and international companies in a markets.

40 MERGERS & ACQUISITIONS September 2017

040_MAJ090117 40 8/8/2017 10:38:50 AM 003_MAJ0917 3 8/8/2017 10:50:44 AM WILMINGTON TRUST RENOWNED EXPERIENCE | MERGERS AND ACQUISITIONS

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CS15774B MA GCM FT Ad_7.875x10.5_MA FINAL.indd 1 6/23/2017 10:55:45 AM 004_MAJ0917 4 CS15774B (ADAMS, HASTY, MCPHERSON, WASSING) M&A MAG | CMYK | TRIM: 7.875 X 10.5” 8/8/2017 10:50:46 AM