The March Group M&A Musings Blog

Leading Shippers Boost Profit Forecasts

Providing further evidence that the worldwide economy is rebounding, the two leading shipping companies in the world, FedEx and UPS both revised their profit estimates for 2010 upward this week. Their profitability is additional proof that the worldwide economy is expanding, perhaps even faster than anticipated even six months ago.

For example, FedEx Corp. boosted its profit forecast for the quarter and full year, exceeding analysts’ estimates, on rising demand for international express shipments. Earnings for the quarter ending in August will be in a range of $1.05 to $1.25 a share, an increase from the previous outlook of 85 cents to $1.05, the Memphis, Tennessee-based company said earlier this week. Analysts projected $1 a share, the average of 17 estimates in a Bloomberg survey.

FedEx said volume for international priority packages, which are among its most profitable offerings, will jump more than 20 percent this quarter, adding to signs of a strengthening global economy. FedEx and United Parcel Service Inc. are considered economic bellwethers because they move goods ranging from electronics to apparel and financial documents.

Similarly, UPS increased its full-year forecast last week to as much as $3.45 a share, from a previous maximum of $3.30, on improving demand in Asia and Europe. It also said U.S. volumes will keep growing as industrial production outpaces economic growth in 2010’s second half. UPS is the world’s biggest package-delivery company, while FedEx has the largest air-cargo fleet.

For the year ending in May, FedEx said earnings will be $4.60 to $5.20 a share, up from a previous outlook of $4.40 to $5. Full-year earnings were estimated at $4.96, the average of 21 estimates in a Bloomberg survey.

“Our revenue and earnings growth are exceeding original expectations, primarily due to better-than-anticipated growth in FedEx Express and FedEx Ground volumes,” Chief Financial Officer Alan Graf said in the statement.

As we have posted in the past, shipping volumes, both exports and imports, are significant leading economic indicators. The fact that the two leading shipping companies in the world are both revising their profit estimates upward is a very good sign indeed.  Eventually all segments of the economy will rebound as they have following every recession in recorded history. If your industry or local economy has not begun to recover yet, rest assured it will eventually and like FedEx and UPS, you will be revising your profit estimates upwards as well!

http://www.businessweek.com/news/2010-07-26/fedex-boosts-profit-forecast-as-shipment-demand-rises.html

The March Group Sees Strategics Gaining Confidence in M&A Plans

Recent economic news has caused some analysts to raise concerns about the pace of ongoing economic growth. However, these concerns have not impacted the interest in acquisitions on the part of strategic buyers. Panelists at the annual Argyle Executive Forum had an interesting message last week. As Mergers and Acquisitions put it, “Dealmakers who went into summer optimistic say the wind being knocked out of equity markets’ sails isn’t keeping corporate development teams from looking to M&A to build scale.”

Terse handwringing over the European sovereign debt saga combined with a pullback in domestic equities served to choke the pipeline of new transactions, dealmakers attending the Argyle Executive Forum 2010 agreed last Thursday morning. However, the consensus from those speaking on the 'Corporate Development Leadership' panel is that before the year closes out, the M&A market will return.

Brian Cook, vice president of Honeywell International’s corporate development team, said he is aware of “a desire for folks to jump into the M&A market."

Scott Barnette, meanwhile, who holds the same title with Hitachi, said chief executives were only temporarily distracted from promoting growth plans to boards over retrenching. He added that the industrials space, in particular, has regained its footing on the M&A front.

Experts agreed that deals they began discussing as far back as 2007 remain tabled, for the most part, over the past few years. Today, though many of these opportunities are being re-evalutated. This is largely due to increased confidence that comes from improving earnings reports.

“What we are hearing from our clients is a much higher level of optimism,” cites Chris Ruggeri, the lone advisor on the panel, from Deloitte’s Financial Advisory Services team. “Our guys are pretty busy right now.”

This is quite typical of what we see in the M&A sector coming out of a recession. Smart money begins to be active early in the recovery, looking at strategic acquisitions that will bear fruit 2-3 years down the line. And, keep in mind that even during times of economic turbulence, smart strategics are quite active. As we posted on July 13th in a piece entitled “Who Says Strategic Players Are Not Acquiring,” Google is just one example of a strategic player who is actively acquiring. As you’ll recall from that posting, Google has made 15 acquisitions in the past nine months alone, many of them in the lower middle-market (below $30 million in value).

The reality is strategic acquirers and PEGs never completely stop buying companies. Smart money buys when the market is down, flattening, turbulent and recovering. They are active now gaining market share, consolidating supply lines, creating synergies and generally improving their longer term growth prospects.  

As with Google, many of these deals close with very little fanfare or press coverage. This is especially true right now since the mainstream media is fixated on negative economic news. We firmly believe that the ensuing 12 months will show strong recovery in M&A activity. Since it typically takes 12-18 months to close a deal, beginning the process now will position you to be in the market during the next M&A boom cycle.   

We suggest you take the first step in this process by attending a March Group workshop held in your region. Our workshops will provide you with further data on how to effectively prepare your company for sale, how to find buyers, and how to negotiate to get a premium price. We also provide further information on our services and how we have effectively helped our clients locate premium buyers for over 24 years.  

If you are interested, give us a call. You never know how many strategic buyers may be out there looking for opportunities that your company may provide.  

http://www.themiddlemarket.com/news/fighting-upstream-208787-1.html

Full-Service Electrical Contractor Business for Sale in Virginia

The March Group currently represents a business for sale in Virginia. This full-service electrical contractor specializes in new construction, design-build services, renovation projects, tenant improvements as well as maintenance and repair services. The company provides design, engineering and construction services to multifamily residential, commercial, industrial and institutional market segments across Virginia, the District of Columbia, and Maryland. In addition, the company maintains a base of approximately 30 active customers that includes well-regarded national contracting firms such as Turner Construction Company, Skanska Group, Balfour Beatty, HITT Contracting, Whiting-Turner Construction Co. and Grunley.

Since inception, high-quality services have distinguished the company from its competitors. Management’s hands-on approach and CADD-engineered layouts ensure that projects are carried out efficiently and effectively. In addition, shop prefab of many subsystems offers a competitive advantage. The company’s employees are non-union. The company is listed in the Washington Business Journal’s Top 25 Electrical Contractors in the DC metro area, ENR’s Top 600 Specialty Contractors and Mid-Atlantic Top 75.

The company exceeded $22 million in revenue and approximately $2.7 million in EBITDA during 2009. Revenues of $16.2 million are projected for 2010 before returning to 2009 levels.

Register here for more information about this Electrical Contractor Business for Sale.

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Ready-Mix Concrete Manufacture and Delivery Business in Canada

The March Group currently represents a ready-mix concrete manufacturer located in Alberta, Canada.

Our client has grown 173 percent during the past three years and is highly profitable. The company specializes in oil field construction projects, which are forecast for healthy growth for the short, mid and long terms. Newly constructed, modern batch plant, office and workshop facilities situated on a large parcel of land provide significant room for growth and will support operations well into the future.

Currently operates 12 trucks and produces upwards of 20,000 meters of concrete per year, resulting in annual revenue upwards of $7 million. The company employs a staff of 23 full-time employees at peak season. The company is an “open shop,” without union affiliation. Significant activity in the nearby Athabasca Oil Sands provides industry-related commercial construction as well as growth in the surrounding cities and towns to support the influx of new residents and businesses.

Register here for more information about this Ready-Mix Concrete Manufacture and Delivery Business in Canada.

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Restaurant Employment Shaping Up

Quite surprisingly, employment expectations from restaurant operators are up in the third quarter this year, to nearly the same level they hit before the recession led to hiring freezes and layoffs, The March Group has learned from the latest People Report Workforce Index as reported in Nations Restaurant News.

Forty-two percent of surveyed operators said they expected to add hourly workers in the third quarter while just 5 percent plan to cut staff. Nearly half of the respondents plan to hire more managers and none planned to reduce their management workforce.

“There may be a glimpse of optimism here for the industry,” said Michael Harms, senior business analyst for People Report, a Dallas-based firm that tracks human resource trends among more than 100 restaurant companies.

The quarterly index measures five employment components: actual job growth, expectation for job growth, recruiting difficulty, the increase or decrease in vacancies, and turnover. The numbers corresponding to each component are in a range of value from a low of 0 to a high of 100. Ratings lower than 50 indicate less difficulty in managing workforce issues; scores higher than 50 mean greater difficulty.

Operators reported higher employment levels, greater recruiting difficulty, more vacancies and higher expectations for job growth. Turnover remained relative the same from the second quarter.

The overall index showed a rating of 61.8 in the third quarter, the highest it’s been this year. Employment levels, or headcount, were also up to 70.5, matching the rating of the third quarter of 2007. Restaurants hired 64,000 jobs in the first half of 2010. Fifty-one percent reported hiring more hourly workers in the previous three months and just 5 percent said they laid off employees. Nearly 40 percent added more management staff while just 11 percent reduced their management ranks.

Six months ago, only a quarter of surveyed companies said they hired more hourly workers and managers. “The trend over the past seven quarters is definitely up from where it bottomed out in 2009,” Harms said.

As we have posted before, employment growth is a lagging economic indicator. This means that, on average, employment follows true economic recovery by 2-3 quarters. Given the significant depth of this past recession, it is safe to assume that hiring will probably not begin fully recovering until 4-5 quarters after recovery began. Assuming that GDP began to turn around in 4th quarter 2009, then hiring will probably not begin its recovery until 4th quarter of 2010 or 1st quarter of 2011. However, as we have seen from this discussion from Nations Restaurant News, restaurant operators are already planning on hiring more staff due to increased traffic.  

Again, this is good news for the economy. Since consumer spending has also been lagging in this recovery, if restaurant operators are beginning to see an uptick in discretionary eating, it bodes well for overall economic expansion. We can only hope that recovery continues as anticipated!

http://www.nrn.com/article/restaurant-employment-picture-shapes?utm_source=MagnetMail&utm_medium=email&utm_term=cdoerksen@marchgroup.com&utm_content=NRN-News-NRNam-07-22-10&utm_campaign=July%2022,%202010%20-%20Restaurant%20employment%20picture%20shapes%20up

Journalism vs. Propagandism

Brought to you by The March Group's Director of Research, Carl Doerksen.

Last week we clearly saw the contrast between journalism (which uses a process called “fact-checking” to determine a story’s validity) vs. propagandism which does not.  I am referring of course to the controversy surrounding the forced resignation of Shirley Sherrod over comments of hers that were taken out of context and posted on a blog.  Unfortunately, before all the facts came to light, Ms. Sherrod was forced to resign.  No matter whether you are a Republican, Democrat or Independent, you have to be concerned when a blogger can post falsehoods and comments taken out of context about you and ruin your career.

Now some of you may believe that this only occurs in the political world and that you don’t have to worry about it happening to you.   Frankly, in today’s unregulated internet dominated world, nothing could be further from the truth.  If you own a company, you are one blog posting away from having your business ruined.  All it takes is one angry client, ex-employee, or unethical competitor and your reputation, and literally your business, could be ruined beyond repair.

Many of you grew up in an era where you read the paper or watched the national news and you knew that the stories were factual because of slander laws that forced news organizations to “fact-check” before running a story.   This is not true on the internet.  Internet slander laws are 25 years behind the new electronic media.  Simply put, you can literally say anything you want on the internet with impunity.

So be careful of what you read on the internet.  Do not assume that because it is on the internet it is factual.   If you are doing due diligence on a vendor, supplier, or potential client, be aware that many of the “stories” you come across on them via the internet could be false.  The best way to determine if someone you want to do business with is legit is to contact the Better Business Bureau and pull a DNB on the organization.  Ask for 3 references and call them.  Study their website.  Does it include news stories and documented evidence that they have delivered on their promises?   Be very careful of general Google searches.  If you do come across negative stories during your research be sure to consider the source. Quite often negative pieces are from attack sites designed by competitors to take business away from legitimate organizations.  Most ethical and legitimate companies  operate under is this rule of thumb:  Never slander a competitor on your website.   Doing so only weakens your message.  

In addition to researching potential vendors and partners, you also need to monitor what ex-customers, ex-employees, and competitors are saying about you.   Trust me, as we have learned, it only takes one disgruntled ex-employee and one unethical competitor to sully your reputation.   Today anyone can create a blog.   Anyone can post information about you that is completely false.  Unfortunately, legally there is not much you an do if this happens.  The best way to handle an attack site is to be upfront with your customers and clients about it.  Be ready to explain point-by-point how the attack site is misleading and why.  The worst strategy you can use is to ignore it or avoid it hoping it will go away.  It won’t.  Be proactive and be prepared to address it upfront. 

Controlling your reputation online is critical.  Business owners need to be aware of their company's online reputation and take control of it.  The March Group includes a reputation management assessment for every client in our comprehensive business assessment.  We also partner with reputable online reputation management experts to help our clients find effective and affordable solutions to their reputation management needs.  In this emerging industry, finding a proven, experienced resource is a challenge.

So don’t fall victim to the Internet by either trusting a site to provide you with data on a potential partner that is false or by having a competitor post misleading information about your company.  Realize that the internet is dominated by propagandists not journalists.   Just like Shirley Sherrod found out.  

Note:  For more information on the importance of reputation management please see The March Group Scam Prevention Program Video or contact Perry Sheraw at psheraw@marchgroup.com

The Importance of Exit Planning

Recently Reuters interviewed John Warrilow, author of a new book entitled, “Built to Sell:  Turn Your Business Into One You Can Sell”. As you can tell from the title, the author has some really good ideas on how to position you company for eventual sale.  One of the avenues of exit planning that Warrilow says that business owners should avoid is passing the company on to the children. Warrilow believes business owners are engaging in a “twisted form of child abuse” when they pass their companies onto their children.

In a recent telephone interview with Reuters, Warrilow said business owners should have the best possible exit strategy before they consider handing over a company to their children. “If your business is not worth anything to a third party, why would you want to give it to your kids?” asked Warrilow, who has started and sold four businesses.

The problem arises when owners can’t extricate themselves, leaving them with no exit options, said Warrilow. “The patriarch or matriarch turns to their kid and says I make X amount each year, why wouldn’t my kid want my business?” he said. “What you’ve done is you have a business, but you haven’t made it a valuable business for a third party to want to buy. The only exit option is to give it to your kids."

“Well you’re basically ensuring your kids will be handcuffed to this business for the rest of their lives, unless they’re successful in changing the business model.” Warrilow doesn’t think owners are doing their kids any favors by passing on a business they may not want, that may make them feel inferior by being in their parent’s shadow. Suddenly putting one’s child in charge may also alienate the employees of the company.

Better options available to owners include selling their business to a strategic buyer, corporate refugee (someone who’s been downsized or displaced from a corporate career), or a private equity group.

Bottom-line: Warrilow argues that 99 percent of businesses can’t sell because the companies can’t be run without their current owners.    

As we have learned over the past two decades, one of the most important issues you will deal with as a middle-market business owner is exit planning. And unfortunately, most business owners put this off until a crisis forces them to face it. As Warrilow puts it, and we agree, far too many businesses are overly dependent on the current owner to be saleable. An effective exit plan should include succession planning. I.e., once you know when you want to exit (as in the date), you will need to develop a management structure that makes the company less dependent upon you.   Buyers look for established management teams that will remain with the company if the current owner exits. This is critical to any exit plan.  

If you don’t have an exit plan in place, please give The March Group a call. We have been helping middle-market business owners navigate the waters of exiting their businesses for over two decades. We hold free informational workshops around the country that focus on educating business owners on the importance of exit planning and the entire M&A process. Please contact us so we can save a spot for you in one of them in your locale. Don’t let a crisis force you to pass your business on to your children. They may be completely unprepared or even worse, uninterested in running your business. Plan in advance for your exit by taking the first step and attending one of our workshops.  It will be well worth the investment of your time.

http://blogs.reuters.com/small-business/2010/07/19/why-junior-shouldn%e2%80%99t-take-over-your-business/

The March Group on Summer Travel and ATM Fraud

Since many of you will be taking vacation trips this summer, we at The March Group thought of deviating a bit from our normal fare here in this blog and help you possibly avoid one of the largest consumer headaches out there: ATM fraud.   

As reported last week in the Sun-Sentinel, this issue has become increasingly critical as thieves have become ever more brilliant in their ability to steal information via the standard ATM machine.  Automatic teller machines have replaced travelers' checks for many vacationers, who use them to conveniently avoid carrying large amounts of cash that might make them targets for thieves.

But crooks have found new ways to steal your money on your trip this summer — and they can do it without your knowledge, right at the ATM, theft experts say. Thieves have become increasingly adept at rigging ATMs with sophisticated devices that can steal debit card or PIN numbers, said Mike Urban, senior director of fraud product management for the Fair Isaac Corporation, or FICO, the leading consumer credit scoring system.

Or they lurk around machines and watch as users enter their PINs, Urban said. Travelers discover, often when it's too late, that money — sometimes a lot of it — has been lifted from their bank or debit card accounts.

More than $1 billion was lost to ATM fraud last year.

"It's not nearly as much as what happens with credit card fraud, but you feel a lot more violated because they are hitting your bank account," said Urban, an ATM security expert.

You don't need to leave home to get ripped off at the ATM. South Florida police have busted criminals who were stealing money and personal financial information at cash-dispensing machines at local banks and supermarkets. Last year, deputies arrested a Deerfield Beach man who had ordered an entire ATM facade online, said Sgt. Jay Leiner, who heads the Broward Sheriff's Office economic crimes unit.

The would-be thief told police he planned to replace the ATM's access port with a device that would allow him to take information off users' cards, then swap out the tampered face with one at an existing ATM.

Several years ago, a thief managed to steal several thousand dollars before getting caught. The thief rigged an ATM at a Florida supermarket with a hidden overhead camera and a "skimmer," a device that reads card information after being inserted into the machine's access port, Leiner said. The camera snapped shots of users entering their PIN numbers while the skimmer got the rest of the data that allowed the thief to make duplicate cards.

Leiner's advice: Pull on an access port before using any ATM. "If it comes out, it's a skimmer," he said.

The ATM Industry Association estimates 1.8 million cash-dispensing machines are in use worldwide. But it's difficult to judge the scope of crime at ATMs, because no organization tracks such statistics. Security experts and police agree that although people fear being robbed after withdrawing money, they are much more likely to lose their cash to ATM electronic fraud.

Leiner said "shoulder surfers" who peep over users' shoulders to see their PINs are increasingly rare. "Skimmers are in now, and they could be in machines anywhere," he said.

Theft at ATMs is a particular concern over the next two months. The Air Transport Association of America expects 26 million passengers will travel internationally on U.S. airlines from June through August. That would be a 7 percent increase over last year's total.

Foreign transactions tend to be particularly risky, Urban said, because banks are less likely to notice trouble when an account holder is on vacation and actively using a card. And people are less likely to be monitoring their bank and credit accounts when they are vacationing. Crooks therefore often target ATMs in Internet cafes and other hot spots for tourists.

"Be wary of ATMs that are dirty and in disrepair," Urban said. "Some [ID-swiping] devices are clever, but some you can easily see."  

ATM theft has become such a problem for some European countries that they are installing machines that take only cards with tamper-thwarting chip and pin systems, instead of magnetic strips. For that reason, the magnetic-strip debit cards of Americans traveling abroad might not work at some machines, Urban said.

As part of the 2009 Credit CARD Act, the Federal Trade Commission was required to study whether ATMs should be equipped with emergency PINs or call buttons that would alert police when a machine user was being robbed. The report, issued in April, found that so little data was available that it was impossible to conclude whether requiring such devices would be cost-effective.

Only a few small towns in rural Ohio and Pennsylvania required emergency buttons, FTC economist Paul Zimmerman said, and no evidence was found they deterred crimes. "Our understanding is that fraud offensives are much more common than stickups at ATMs," Zimmerman said.

So bottom-line as you travel this summer: Be alert to any ATM device that appears to have been tampered with. Best practice appears to be simply tugging on the access port before inserting your card. This is especially important at gas stations where the practice of inserting skimming devices has become quite prevalent.  

Don’t let the bad guys ruin your vacation this summer. Be alert and cognizant of anything suspicious while using an ATM. That is especially true if you are going overseas this summer. But as the article indicated, you are just as likely to be a victim of ATM fraud in your local area! So keep your eyes open and prevent your hard earned money from being stolen. And if any of you have been the victim of ATM fraud, we would like to hear from you via this Blog.  We can all learn from past experiences of anyone that has gone through this. 

http://articles.sun-sentinel.com/2010-07-02/business/fl-atm-alert-20100702_1_atm-industry-association-pin-numbers-credit-card-fraud

Commercial Printer, Mailing, and Publishing Firm for Sale!

The March Group currently represents a well-established, vertically integrated business communications company with significant growth potential. The company’s services include commercial printing, which generates approximately 87 percent of revenues, followed by the mailing services (10 percent) and newsletter publishing (3 percent). The pressroom boasts the latest equipment and technology available, ranging from small two-color presses up to a 12-color, 40” perfecting Heidelberg offset press and a Xerox 700 digital color press. It is one of only two Indiana companies with a G7 Master Printer Certification and recently received full Green Certification for FSC, SFI and PEFC printing.

The direct mail unit encompasses one of the largest mail houses in the Midwest, providing fulfillment, bulk mail preparation and delivery, and database marketing services. The company’s newsletter unit is the largest supplier of school newsletters in the Midwest. A diverse commercial clientele covers multiple industries and businesses of all sizes, as well as institutional customers such as universities, school districts and nonprofit agencies.

Commercial Printer, Mailing & Publishing Firm for Sale

Shipping Container Shortage = Economic Growth

As we have posted before, port traffic is an excellent leading economic indicator (see Port Traffic Continues to Increase – June 17, 2010). Simply put, expanding port traffic, both imports and exports, are indicators of future economic growth. Now we have learned that shipments are growing so fast that we will possibly be experiencing a shortage in shipping containers!

According to Bloomberg News, Singamas Container Holdings Ltd., the world’s second-biggest maker of shipping boxes, said prices will rise as much as 9 percent by year-end as shippers struggle for containers amid rebounding global trade.

The price of a standard 20-foot box has already risen 50 percent this year and it may climb to about $3,000 as early as December, Chief Executive Officer Teo Siong Seng said in an interview in Singapore July 16. He declined to elaborate on the company’s own pricing plans.

The global dearth of containers may persist for as long as two years as box-makers have to reactivate plants idled during the global recession, Teo said. Shipping lines have refused cargos and raised rates this year because of a lack of boxes.

“The market is quite tight right now,” said Um Kyung-A, an analyst at Shinyoung Securities Co. in Seoul. “Shipping lines have to bring back empty containers from Europe and the U.S. to meet Asia’s export demand.”

Globally, there may be a container shortfall of as many as 4 million, Teo said. The worldwide box fleet shrank 4 percent last year, according to Textainer Group Holdings Ltd., the world’s largest container-lessor.

Singamas only returned its 12 Chinese plants to “desired” capacity in the past two months after hiring new workers from January, Teo said. Last year, the company’s output dropped 85 percent as it shuttered factories, cut staff and slumped to its first annual loss since 1996. “We didn’t realize that the shortage would be so acute,” Teo said. “Still, it’s about time that we were able to have healthy orders at a reasonable price.”

The International Monetary Fund earlier this month raised its forecast for global growth this year, reflecting a stronger- than-expected first half. The world economy will expand 4.6 percent in 2010, the biggest gain since 2007, compared with an April projection of 4.2 percent.

Once again, shipping levels prove that worldwide economic expansion is occurring. A shortage in shipping containers due to worldwide demand is a very good signal the economic expansion is occurring. And, if you own a company that is involved in logistics or transportation, you should see an increase in your traffic soon!   

The shortage in shipping containers is further proof that the economy is recovering. It is also an indicator that M&A activity will soon follow suit. If you have delayed selling your company over the past two years in hopes of finding a buyer when things have turned around, now is a good time to get the process started. If you are interested in learning more about M&A activity and selling your company, give The March Group a call. We hold free informational workshops around the country that are designed to help middle-market business owners learn more about the M&A process. Contact us so we can reserve a seat for you in a workshop in your area. Don’t let the next M&A cycle pass you by!