FACILITY SERVICES MERGERS & ACQUISITIONS

How have Increased Interest Rates and Volatility Impacted Valuations for FS Service Companies

Economic Summary

Before addressing the question, “How have Increased Interest Rates and Volatility Impacted Valuations for FS Service Companies”, it is only prudent to review where the fight against inflation, via interest rate policy, has brought us.

The Fed raised the federal funds rate by 75 bps to the 3%-3.25% range during its September meeting, the third straight three-quarter point increase and pushing borrowing costs to the highest since 2008. Policymakers also anticipate that ongoing increases in the target range will be appropriate which was reinforced by Chair Powell during the press conference. “We have got to get inflation behind us. I wish there were a painless way to do that. There isn’t”. The so-called dot plot showed interest rates will likely reach 4.4% by December, above 3.4% projected in June, and rise to 4.6% next year. Meanwhile, GDP growth forecasts were revised lower to show a 0.2% expansion this year, compared to 1.7% seen in June and 1.2% in 2023, below 1.7% seen in June. Inflation as measured by PCE is seen to reach 5.4% in 2022 (5.2% projected in June) and 2.8% in 2023 (vs 2.6%). Source: Federal Reserve

Impact to Facility Services

Last quarter, in our Spring FS Update Report, we wrote: “We have witnessed substantial bifurcation within the facility services vertical.  On one extreme we have material winners, such as many janitorial/cleaning companies responding to an increase in their customers’ cleaning needs in order to keep their employees and their customers safe.”  This increase in demand has often offset the downturn resulting from the cancellation of major sporting events and closures of college campuses, office buildings and those venues operating in the hospitality and travel industry.

On the other hand, those FS sub-verticals where revenue is heavily weighted on the construction side, which is virtually absent of on-going maintenance services such as most mechanical and electrical services, flooring installation, masonry, etc, have suffered a substantial cash squeeze as delays have been rampant.

Facilities Services and the Volatile Economy:
Maintenance Services vs. Construction

Because the Fed actions are aimed at slowing down the economy, those FS Companies that are focused on Construction are much more at risk than those having longer-term maintenance contracts.

In fact, companies operating in verticals in which maintenance contracts are standard practice, such as commercial cleaning, security services, fire safety, etc., are much less sensitive to economic ups and downs. Accordingly, these companies are commanding significantly higher earnings multiple in comparison to  Construction focused companies.

 Increasing Interest Rates and Valuations
The Fed hopes that raising interest rates will slow down the economy, thereby causing most companies to face downward pressure on their forecasts. To make matter worse, as interest rates move higher, the value of future earnings are less attractive causing the current value of businesses to decrease. That’s because when interest rates increase, all other things equal, the cost of both debt and equity capital increase, resulting in a lower return on equity.

The question then becomes:

• How much will the value of my business decrease in the face of higher interest rates?

Another question we are frequently asked by business owners is;

• In an increasing interest rate environment, how much more business do I need to do in order to maintain the company’s valuation?

 The foregoing questions will be discussed in our Fall/Winter Facilities Services Report titled
Quantifying the Impact on Valuations from Changes in Interest Rates.

For Immediate Release
September 17, 2019 

LockeBridge Capital Partners is pleased to announce that the firm has expanded its Technology and Healthcare investment banking practice with the addition of Mr. Jack Jacchino.  Jack joins LockeBridge after a successful career of over twelve years as the North American M&A Leader for IBM’s Global Business Services.  Jack was recruited by the CEO of IBM to initiate, build, and lead the corporation’s global business services practice.

Having completed over 250 acquisitions and 135 divestments, ranging in size from $5M to well over $1B,  during his thirty-year career Jack has proven to offer his clients sophisticated M&A advisory, joint venture and consulting services.

Refer to Jack’s Bio for more info.

Scott Waxler, LockeBridge Managing Partner, comments: “Accelerating adoption rates and shortening product life cycles require more responsive M&A and capitalization implementation. The pace of change in the TMT and Healthcare sectors will only continue to increase. With the addition of Jack to the team, LockeBridge is  positioned better than ever to promptly and efficiently assess, advise and execute on the rapidly changing transaction and capital demands of our clients .”

For Immediate Release
October 17, 2019 

LockeBridge Capital Partners is pleased to announce that the firm has expanded its Healthcare Facilities & Services investment banking practice with the addition of three industry veterans.

Changes in healthcare costs, reimbursement rates, and federal policies are impacting the plans of most healthcare participants. As a result, we have never been more active advising on M&A transactions, strategic partnerships, and financing alternatives across a range of healthcare verticals. LockeBridge clients range from early revenue companies raising capital to fund innovative healthcare IT initiatives to multi-billion-dollar international medical device companies seeking acquisitions and divisional divestitures to post-acute care facilities seeking to acquire, merge or divest.

WELCOME FOUR NEW LOCKEBRIDGE DIRECTORS
Healthcare Facilities & Services Vertical

David Carter, LNHA
David has been working with skilled nursing homes and healthcare operations since the mid-1980s. David’s mergers and acquisition advisory expertise is complimented by his experience as an administrator in 20 facilities across seven states as well as his leadership of numerous teams as a Regional Director of Operations.

David has successfully implemented cutting edge programs that created sustained stability in this ever changing and growing healthcare environment. David eventually became known as a change agent of facilities, implementing technology solutions resulting in increased efficiency and improved quality outcomes. David served 6 years as a Medic in the Ohio National Guard and is a graduate of The Ohio State University.

Vincent Brown
Vincent has built sustainable business solutions for healthcare providers, insurers, and investment banking and advisory services. Vincent loves to build exceptional businesses with outstanding people. He has held C-Suite leadership roles in several healthcare startups and owned management service organizations. One of Vincent’s numerous successes includes the co-founding of a healthcare technology company focused on chronic disease management and medical weight loss.   He was a Principal and Senior Vice President of Strategy and Business Development during his tenure.

Rick Marciniak
Rick not only has significant successes in raising capital and growth advisory, he is an accomplished executive with a strong portfolio of successes driving strategy, revenues and innovation for both early stage and mature organizations ranging in size from $1M to $4B.

With more than thirty years senior management experience building and managing brand and marketing communications departments for international agencies and corporations, Rick significantly impacted organizational growth and profitability by expanding core capabilities with new products, services, technology and personnel.

As a senior management consultant, he has leveraged that experience to bring a video technology start-up from $0 to $11M in the first 18 months and a healthcare services company from inception to publicly traded status in just under two years. Rick is a former board member of the International Foundation for Chronic Disabilities and the Boston Chapter of the Family Firm Institute.

Chris Walls
Chris has more than 35 years’ industry experience managing large operations and delivering complex services.  He is a veteran healthcare executive leader and expert in healthcare IT and hospital and medical practice technologies and services.

Chris has worked with some of the largest healthcare systems in the county such as Ardent Healthcare, Ascension Health and Anthelio Health Solutions in capacities such as President of Service Delivery and Global CIO. He has significant experience managing end-to-end solutions including IT infrastructure services, IT applications management, EHR optimization, Patient Engagement, Analytics, and Revenue Cycle Management.

Chris is an experienced board member, having held board positions with organizations such as Pulse Systems Inc., Venyu Inc., and Summit Technologies. Chris is also the author of numerous healthcare articles.

Scott Waxler, LockeBridge Managing Partner, comments “For non-healthcare sectors deep subject matter expertise within the vertical is often not necessary.  Within the healthcare sector however, industry specific expertise on matters pertaining to compliance, regulations, processes & methods and numerous other industry specific issues is often critical know-how for investment bankers. 

At LockeBridge our Directors not only have a thorough understanding of industry specific issues impacting the merger, acquisition and selling process, they have first-hand operational knowledge only garnered by those that have years of operational experience working with providers” 

For Immediate Release
July 18, 2019 

LockeBridge Capital Partners and HydraCor, LLC, a LockeBridge banking and advisory services client, announced today that Dr. Charles Safran, an internationally renowned expert in applied healthcare informatics, has been named Chairman of the Clinical Advisory Board of HydraCor, LLC.

Dr. Safran is a Professor of Medicine at Harvard Medical School and the former chief of the Division of Clinical Informatics at Beth Israel Deaconess Medical Center. In 2014, he was awarded the Morris F. Collen Award, the highest honor given by the American College of Medical Informatics for his unique contributions to the field.

Scott Waxler, LockeBridge Managing Partner, comments; “Our strategy of offering deep subject matter expertise across multiple verticals is a major differentiator amongst middle-market investment banks.  LockeBridge offers clients unparalleled expertise within healthcare information technology, medical device and several other verticals, which can be invaluable when executing transactions and implementing growth strategies. By integrating growth advisory and transactional (e.g. M&A, capital raise) services under one roof LockeBridge has been able to materially increase the value of its clients’ businesses.”

According to Dr. Safran; “Industry leading healthcare providers increasingly recognize that it is not enough to deliver positive clinical outcomes and that they must improve the total patient experience in order to thrive in a fast-changing US healthcare system. I look forward to advising HydraCor on how to best meet this urgent need through the expansion of the AdvoCor® Platform’s clinical applications,” said Dr Safran.

Ryan Sawyer, HydraCor President, stated; “We are very pleased to add Dr. Safran as an advisor, as his deep knowledge of advanced healthcare informatics will provide invaluable guidance as the Company expands the innovative applications of the AdvoCor Platform to all phases of patient care.  LockeBridge’s  recruitment of Dr. Safran is exemplary of LockeBridge’s differentiated Growth Advisory Services and how they participate far more than typical banking and consulting services firms to advise middle market companies like HydraCor to better execute their growth strategies”, added Sawyer. LockeBridge Capital Partners is a Boston area investment banking firm advising middle-market companies, such as Hydracor, on mergers, acquisitions, divestitures, capital sourcing and growth consulting strategies.

More on Dr. Charles Safran
Dr. Charles Safran has served as the President and Chairman of the American Medical Informatics Association and Vice-President of the International Medical Informatics Association. He is an elected fellow of both the American College of Physicians and the American College of Medical Informatics. Dr. Safran was also Editor-in-Chief of the International Journal of Medical Informatics for two decades. Currently, he is a council member of the Health on the Net Foundation in Geneva Switzerland and a Director of Intelligent Medical Objects, a medical terminology software company that helps clinicians capture clinical intent. He serves on the scientific advisory boards of Datavant, a San Francisco based company organizing health data, and the Multiple Myeloma Foundation.

Dr. Safran has been teaching physicians and nurses to use information and communication technology to transform healthcare for over three decades. He is the Clinical Informatics track chair for the Harvard Medical School master’s program in biomedical informatics and the NLM informatics fellowship, as well as a professor with the Harvard Business School. Dr. Safran is a widely sought speaker on the future of healthcare technology, has testified before the U.S. Congress and has over 200 publications.

For more information contact: Bob Seltzer, LockeBridge Capital Partners, 617-510-0746, bob.seltzer@hydracor.net or bseltzer@lockebridge.com.

Although subject matter expertise in not a requirement for bankers operating in many verticals, LockeBridge believes that the metal industry represents an exception. A thorough understanding of industry specific issues such as inventory valuation, trading and hedging strategies and processing technologies is critical in evaluating and representing businesses operating in the metal markets.

ADVISORY EXPERIENCE

LockeBridge has substantial experience advising companies across various metal sub-sectors including recycling, fabrication, plating, capital equipment and brokering. We have published numerous metal industry related articles and have advised, sold and received offers from many of the most well-respected companies in the metal industry.

In addition to our experience in most manufacturing process steps (e.g. Plating, Welding, Machining, Forming, Cutting, Shearing, Rolling, Punching, Stamping) we also have significant experience in in most major metal end markets such as Building & Construction, Automotive, Electrical & Electronics and Industrial Machinery and Energy & Power.

For Immediate Release
March 19, 2019 

LockeBridge Capital Partners is pleased to announce that the firm has expanded its investment banking coverage in the metal industry vertical through the addition of Michael Locker to its advisory board.

Mr. Locker represents a valuable addition to our metal industry vertical. He brings deep expertise which will enable LockeBridge to broaden the scope of its global representation. Michael is a subject matter expert in the iron and steel production and fabrication industries. For the last thirty years he has published a monthly newsletter, Steel Industry Update and has authored and directed dozens of steel and steel-related industry market studies. He has conducted over 150 joint labor-management projects at steel plants throughout North America and served as an expert in cases involving Inland, Bethlehem, National, LTV, Wheeling-Pitt and Republic Engineered Steel. Mr. Locker is frequently quoted in the trade press, as well as the Wall Street Journal and New York Times, and has presented to the Steel Success Strategies conference.

Scott Waxler, LockeBridge Managing Partner, comments “Deep subject matter expertise is critically important for bankers operating in the metal markets. A thorough understanding of industry specific issues such as inventory valuation, trading and hedging strategies and processing technologies is critical in evaluating and representing businesses operating within the metal sector”

Mr. Locker joins a team of three other members having significant metal industry transactional expertise in addition to expertise in forex and commodity hedging and trading strategies. LockeBridge has advised companies across various metal sub-sectors including recycling, fabrication, plating, capital equipment and brokering. We have published numerous metal industry related articles and have advised, sold and received offers from many of the most well-respected metal industry participants ranging in size from $10M to $950M in revenue.

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LockeBridge has been advising middle-market companies operating within the service sector since its inception in 2004. The business services sector is comprised of both professional and support services. Over the past few years, this sector has experienced strong underlying industry fundamentals, outperforming the general market.. The U.S. business services sector consists of over 400,000 entities with combined annual sales of close to $800 billion.

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BUSINESS SERVICES ADVISORY BOARD

James Linfield –  LockeBridge Managing Director, Founder and CEO of Capital MarketTeam, LLC, a commercial real estate and capital lending advisory firm.

Uri Ben-Yashar – Former Owner of National Maintenance Systems, an exterior facilities management company now owned by Kellermyer Bergensons Services, one of the world’s largest providers of Facility Support Services.

Richard Beldner – General Counsel for Kataman Metals, one of the world’s leading merchants of primary and secondary metals.

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