The Situation
At the start of 2004,
T&T met The Matrixx Group management and shareholders as a result of a
buy-side engagement with the UK Company, British Vita. T&T represented
British Vita, a publicly-traded, billion dollar manufacturer of foam,
plastics and nonwoven products. As a global
company, Vita had 93 locations in 23 countries; however, it did not
have a presence in the US market and sought to acquire a strong platform
company in the US. T&T was engaged by the Vita management team to source
and identify candidate companies in the US which met their specific
acquisition criteria and whose shareholders would be receptive to being
acquired.
T&T identified and
contacted the ownership of approximately 30 companies which met the strict
Vita criteria. Following meetings and interviews with several of these
potential targets, Vita management selected The
Matrixx Group, an Evansville, Indiana based compounder,
to engage in serious acquisition discussions. Matrixx is a well managed
thermoplastic compounding operation with 5 plants in the US and sales in
excess of $100 million making it an attractive platform for Vita.
In mid-June of 2004,
the acquisition team led by T&T and Vita management began a series of
meetings with Matrixx management and their major shareholders to discuss a
potential transaction with Vita. Like most billion dollar companies, Vita
had many layers of management which had to approve various aspects of the
deal. Accordingly, many meetings were held in Evansville so that the Vita
managers could sanction the transaction. During this period, which lasted
over 9 months, Matrixx management obliged Vita?s request not to speak with
any other suitors about a potential deal. T&T, Vita and Matrixx management
spent hundreds of hours analyzing and negotiating all the elements of the
deal with the intention to have it closed by April of 2005.
The Set Back
In early January of
2005, the private equity firm, Texas Pacific Group made an offer to
acquire Vita and take it private. In March, the Vita board suspended
moving forward with any pending transactions, including the Matrixx
deal! Since Matrixx was the passive participant in this process they
were not in control nor did they have backup offers/suitors. Ultimately,
in June of 2005, Vita was acquired for ₤668 million by TPG and the Matrixx
shareholders were still without a deal.
Consequently, the
hundreds of hours of effort expended by the Matrixx management and
shareholders had been wasted. The founder of the company, Ray Wright was
now seriously seeking to monetize his ownership in Matrixx. The company?s
strong management team who were also shareholders was led by Keith Rodden.
They were in search of a strong financial partner with whom they could
continue to own a significant interest in the company while providing a
liquidity event for Mr. Wright.
The Solution
This time, the Matrixx
management and shareholders chose to take a proactive role in seeking the
right financial partner and accordingly engaged T&T as their exclusive
representative in late March of 2006 to advise them and to manage the
transaction process. In the role of exclusive sell side advisor, T&T?s
first mission was to properly prepare the company for the selling process
by identifying and fixing potential problem areas.
For example, the
company?s financial statements were internal, tax-based and not prepared
according to GAAP. T&T advised management to hire an accounting firm to
audit the financials. Having audited financial statements for the company
enabled PE sponsors an easy access to the debt market, a key component of
their deal structure and their purchase price capabilities.
Another potential issue
that T&T identified was the absence of environmental site assessments on
the properties. T&T advised management to hire a highly-reputable
engineering firm to prepare site assessments on each of its locations. By
doing so, any environmental issues that surfaced were handled without
delaying the deal and possibly a costly surprise to the shareholders
during the final negotiations.
Lastly, the Matrixx
Group was organized as a blend of sub-chapter S and C corporations with
the ownership unevenly split between approximately 50 shareholders. T&T
immediately recognized the potential problems that could arise between the
shareholders and suggested the hiring of an independent business valuation
firm to allocate the values among the various companies. T&T worked
closely with the valuation firm to insure that the results were completed
and published on time, thus avoiding any shareholder disagreements and
ensuring a smooth closing process.
While those tasks were
being completed, T&T in conjunction with Matrixx management prepared the
descriptive offering memorandum which was to be released to a select
number of potential financial partners. As an M&A specialist in the
plastics industry, T&T had previously identified the private equity groups
who were the most likely candidates and accordingly would be most apt to
seriously compete for the company and pay a maximum price to the
shareholders.
Once the company was
properly prepared for market, confidentiality agreements were executed by
a limited number of T&T selected private equity sponsors who were then
provided with the memorandum. On the basis of the information in the memo
and their respective knowledge of the market place, T&T required the
suitors to submit offers for shareholder consideration. This activity
resulted in numerous offers that had a wide range of values. T&T was able
to utilize their proprietary evaluation system to compare the quantitative
and qualitative elements of each of the offers. This system allowed the
shareholders to properly evaluate the tangible and intangible elements of
the offers and accordingly select the right candidate. Having multiple
offers from multiple suitors allowed the shareholders the opportunity to
choose a financial partner with whom they were most comfortable and
capable of closing the deal.
After further
negotiation, Wind Point Partners was selected to move into the final round
of confirmatory due diligence and the negotiation of the purchase
agreement. The transaction closed smoothly thereafter on March 9, 2007.
Underscoring the successful results that can be achieved when selling
shareholders hire an experienced professional and control the process was
a significantly higher purchase price that was 35% more than the deal with
British Vita. Additionally, the active Matrixx management team was able to
own a significant interest in the company going forward, an element that
was not available in the Vita deal.
The Moral of the Story
When company
shareholders and managers decide to consider the sale of all or a portion
of their interests in a company; they should not simply react to overtures
made by possible suitors. Instead, they should hire a professional firm
such as T&T who has experienced dealmakers that can quietly and discreetly
manage the process, create a competitive selling environment and maximize
the value to the selling shareholders.
In this case, T&T?s 25
years of dealmaking experience insured premium shareholder results by
addressing the following:
-
Audited high quality
financials allowing access to the debt markets;
-
Potential
environmental issues were identified and addressed so as not to delay
the transaction;
-
Valuations of each of
the corporate entities by a world class valuation firm to prevent
eleventh hour shareholder disputes;
-
Utilized T&T?s
proprietary valuation system to evaluate and select the best offer in
context with the right financial partner;
-
Limited market
exposure by targeting only those suitor candidates familiar with the
company?s market thus preserving confidentiality from the customers,
employees and vendors.
About Trudeau & Trudeau
Founded in 1982 by the Trudeau brothers,
Trudeau &
Trudeau Associates, Inc
is a full service
M&A advisory firm that provides merger and acquisition, corporate finance
and strategic consulting services to client companies and private equity
groups. Additional information available at:
www.trudeau-trudeau.com.
About The Matrixx Group
Founded in 1984, The
Matrixx Group is a leading independent compounder of thermoplastic resins
serving the power tool, lawn and garden, appliance, automotive, HVAC,
electronics and construction markets. The Matrixx Group?s product
portfolio features compounded grades of nylon, ABS, polycarbonate, PBT,
PET, polypropylene, polyethylene and engineering resin alloys. The
Matrixx Group is headquartered in Evansville, Ind. and currently has seven
manufacturing sites: five in the United States and two in Italy.
Additional information about The Matrixx Group is available at:
http://matrixxgroup.com.
About Wind Point
Partners
Wind Point Partners is
a private equity investment firm with $2 billion in capital under
management. Wind Point focuses on partnering with top caliber management
teams to acquire solid middle market businesses with a clear path to value
creation. Additional information about Wind Point is available at:
www.windpointpartners.com.
