Inside a business acquisition

National private equity experts price a company at MBBI event [PHOTO GALLERY]

Campion, Gilberston, Lane and Katcha participate in the "Shark Tank" panel.

A group of national business brokers revealed the ins and outs of current deal structures at a Midwest Business Brokers and Intermediaries event at the Milwaukee Athletic Club Tuesday.

Four experts evaluated a fictional company, Waukesha packaging manufacturer Superior Packaging LLC, reviewing its financial performance, market, valuation, management team and other factors and then putting together a deal as though they were making an offer to the owner of the company.

The “Shark Tank” exercise, moderated by Tom Kintis, president of CGK M&A Advisors, was part of MBBI’s half-day Private Equity Connection conference. It provided key insights into the state of the M&A market right now. Mergers and acquisitions professionals from around the country attended the event.

Thomas Campion, CFA, managing director of Chicago-based private equity firm Merit Capital Partners, priced Superior Packaging at $17 million, a multiple of five times EBITDA, in an add-on acquisition. He proposed a deal with $15.8 million in debt, $1.7 million in mezzanine financing and $500,000 in fees. In Campion’s offer, key managers would be part of an incentive equity pool.

Campion described the debt and mezzanine structure as a conservative strategy.

“It’s always difficult to go back and say, ‘We need a big equity check,’ to current management because they probably don’t have it,” he said.

Scott Gilbertson, a principal on the corporate finance team at Chicago-based private equity firm Pfingsten Partners LLC, offered $21 million for Superior in an add-on deal made up of $10.2 million in equity, $11.3 million in debt and $500,000 in fees. The offer was 6.2 times EBITDA. Gilbertson’s deal included an option pool for management of 3 percent of the combined entity.

“I really like the packaging industry. It’s a shallow cycle industry,” Gilbertson said. “The company has not been managed for growth.”

J. Matthew Lane, managing director at Nashville-based private equity firm Gen Cap America, also put together a $21 million offer, with $9 million in debt, $9 million in mezzanine/equity and a $3 million seller note. In his offer, management would get 20 percent of the equity.

“This is the type of business—packaging—that’s not going to cycle hard,” he said.

And Joe Katcha, founder and principal at Chicago private equity fund High Street Capital, offered $22.5 million, or 6.6 times EBITDA. He structured the offer as $10.7 in equity, $6 million in mezzanine and $5.8 million of debt. Ten percent of appreciation rights would go to key people.

“Our goal here is to continue the growth of his legacy business,” Katcha said.

The panelists also discussed EBITDA multiples, which are very high right now.

“The ‘A’ companies are trading at levels that I have never seen before,” Gilbertson said.

One of those “A” companies that would have sold for 6 times EBITDA just two years ago is now selling for 7 or 7.5 times, Lane said.

“There is too much capital chasing too few deals. Rising interest rates are going to take a nick off, but it’s not going to be too big an impact,” Gilbertson said.

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Molly Dill, former BizTimes Milwaukee managing editor.

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