Practice:
Industrials &
Manufacturing
G2 Capital Advisors is pleased to present its Industrials & Manufacturing industry update for Q4
2020, providing commentary and analysis on M&A and market trends within the Industrials &
Manufacturing sectors.
G2 Insights
Select Q4 2020 Deals
Market Indicators
Active G2 Mandates
Trading Statistics
Source: G2 Insights, S&P Global, Deloitte, Fitch Ratings
Market Update – G2 Insights
Manufacturers Invest in Automation and Sustainability
The U.S. industrials and manufacturing sector exceeded expectations in Q4 as consumer spending remained resilient. The outlook for 2021 is improving as the economic recovery is expected to continue, although with wide dispersion within the sector. Even under sustained demand, Fitch Ratings expects the sector to not completely return to pre-coronavirus levels by Q4 2021.
The pandemic boosted demand for plastics, packaging, and building products, despite fears of a second wave crimping activity. Although fiscal stimulus for businesses and individuals dried up post Q3 2020, manufacturing rebounded strongly, experiencing fewer restrictions on economic activity. Managers are taking the opportunity to invest in technology furthering automation through robotics, IOT, and enhanced data analytics to emerge from the pandemic stronger and more resilient.
G2 is very active in the I&M sector, recently serving as the exclusive financial advisor to Williams Industrial Services Inc. on the refinancing of its existing credit facilities. Williams is a leading provider of construction, maintenance, project, and support services to the energy, power, and industrial end-markets. Given its strong financial outlook and market opportunity, Williams wanted to refinance its existing debt in order to lower interest expense, enhance liquidity, and fund growth opportunities. G2 supported the company’s finance and accounting workstreams through detailed working capital and valuation analyses while helping the Company in its strategic planning through financial forecast modeling. Leveraging this work, G2 ran a highly competitive process and identified financial partners who were able to provide Williams a flexible capital structure that expands with growth needs. Williams raised approximately $80 million of total new debt commitments to refinance its existing debt.
In this newsletter, we will demonstrate the recent impacts on key Industrials and Manufacturing sectors and how the related M&A market has performed in the 4th quarter of 2020.
AEROSPACE & MANUFACTURING
Steady spending by governments worldwide on military aircraft and spacecraft has not been enough to offset the stark decline in orders for new commercial aircraft. Deloitte has estimated a 44% decline in 2021 for commercial aircraft deliveries as new orders remain subdued and airliners continue to cancel orders. While passenger travel is forecasted to rebound 75% year over year in 2021, this will still be 40% below pre-pandemic levels.
BUILDING PRODUCTS
Building products has continued to be a strong sector throughout the pandemic supported by robust trends in home repairs and remodeling. With raw materials shortages and an unprecedented spike in demand, lumber prices have soared by over 90% this year, adding ~$16K to the price of an average single-family home since April. Unmet demand for lumber products has shifted consumption in part to composite products. M&A has increased significantly in the fourth quarter, with the number of announced transactions in building products up 67% over the third quarter.
CHEMICALS
The domestic chemicals industry played a vital role in the global fight against COVID-19, providing inputs for PPE, sanitation products, medical supplies, plastic packaging, and other products. Plastic resins performed well during 2020, despite headwinds in key end-markets, including automotive, the broader chemicals sector is poised for wide-ranging growth post-pandemic led by strong consumer spending and industrial production.
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Manufacturers Invest in Automation and Sustainability
Source: G2 Insights, BCG
Market Update – G2 Insights
CONSTRUCTION
The construction industry continues to see progress in technology integration through a turbulent 2020. Construction technology is being shaped by increased use of drones for surveying and safety, 3D printing to reduce construction costs and quickly fabricate models, and deeper integration of mobile and cloud applications allowing jobsites to remotely access pertinent information more easily. Additionally, with material prices fluctuating and an inconsistent labor market, construction firms looking to cut costs have turned to off-site prefabricated and modular construction materials that can improve productivity and shorten construction timelines. Availability of skilled labor remains a key business challenge for builders.
CONSUMER PACKAGED GOODS
The CPG market has benefited from strong tailwinds throughout 2020 with high levels of consumer demand largely offsetting supply chain and manufacturing disruptions. Early in 2020, Americans stocked pantries in preparation for stay-at-home orders and have maintained high levels of buying for key categories (hand sanitizer, shelf-stable foods, cleaning products) throughout the year.
INDUSTRIAL TECHNOLOGY
Digital technologies have led advances in manufacturing that enabled continued production in the face of a global pandemic. Implementation of Internet of Things (“IOT”) technology over the past several years became critical for companies who only recently gained the ability to remotely monitor operations and drive strategy, a key differentiator during the pandemic. Vast sensor deployment within manufacturing facilities allowed for critical tracking of goods and enabled supply chains to continue even as shoulder-to-shoulder work became untenable. Companies with strong industrial technology strategies maintained a crucial competitive edge and are poised to compound their advantage through the next generation of data analytics and machine learning.
METALS & MATERIALS
The U.S. government has become increasingly focused on developing domestic supply chains for mission-critical metals and materials products. While previous measures have been aimed at supporting the defense industry, the executive branch has begun exploring ways to reduce the country’s dependence on rare earth and other metal imports. The U.S. currently imports 80% of its rare earth elements directly from China and is dependent on the country for materials critical to LEDs, smartphones, and the next generation 5G technology. While the outlook for the next administration is not certain, it is clear domestic production and supply chains can expect further backing from the government to secure industries critical to national security and technology leadership.
PACKAGING
A long-term effort to reduce carbon footprints among consumers is driving a persistent uptick in sustainable packaging initiatives. In consumer-facing industries from dog food to toothpaste, manufacturers are looking to differentiate themselves to customers by touting the limited environmental impact of their products. According to BCG, a majority of consumers identify themselves as environmental aware, and 74% said they would pay more for sustainable packaging. While the pandemic shifted near-term concerns to safety and security, sustainability remains top of mind to the public, evidenced by the more than 100 manufacturing CEOs that, earlier this year, signed a statement calling for governments to consider climate change action a part of COVID-19 recovery efforts.
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During Q4 2020, G2 served as the exclusive financial advisor to Williams Industrial Services on the refinancing of its existing credit facilities, raising $80 million in new revolver and term loan commitments.
CLIENT: Williams Industrial Services Group Inc. (OTCQX: WLMS) (“Williams” or the “Company”), is a leading provider of construction, maintenance, project, and support services to the energy, power, and industrial end-markets. Williams has been safely helping plant owners and operators enhance asset value for more than 50 years. The Company provides a broad range of construction, maintenance and modification, and support services to customers in energy and industrial end markets. Williams’ mission is to be the preferred provider of construction, maintenance, and specialty services through commitment to superior safety performance, focus on innovation, and dedication to delivering unsurpassed value to its customers.
SITUATION:Given its strong financial outlook and market opportunity, Williams wanted to refinance its existing debt in order to lower interest expense, enhance liquidity, and fund growth opportunities.
ENGAGEMENT:G2 Capital Advisors, LLC (“G2”) served as the exclusive financial advisor to the Company, providing combined Capital Markets capabilities and industry expertise from its Industrials & Manufacturing (“I&M”) practice through a multi-stage engagement. G2’s I&M Financial Advisory team supported the Company’s finance and accounting workstreams through detailed working capital and valuation analyses while helping the Company in its strategic planning through financial forecast modeling. Leveraging this work, G2’s Capital Markets team ran a highly competitive process and identified financial partners who were able to provide Williams a flexible capital structure that expands with growth needs.
OUTCOME:Williams raised approximately $80 million of total new debt commitments to refinance its existing debt. The new facilities consist of a $30 million Revolving Credit Facility provided by PNC, a $35 million Senior Secured Term Loan Facility and a $15 million Delayed Draw Term Loan (together, the “Term Loan Facility”), provided by Energy Impact Partners (“EIP”, as Agent to the Term Loan Facility), CION Investment Corporation, and CrowdOut Capital.
Randy Lay, Chief Financial Officer, commented, “We are executing well on our strategic plan during a tumultuous year, expanding our core business while also growing and diversifying revenue through new customers and markets. We made significant progress in 2019 and 2020, evidenced by approximately $457.9 million in total backlog at September 30, 2020, with approximately $166.7 million of backlog expected to convert to revenue in the next 12 months. We hired G2 to construct a flexible capital structure solution with the necessary funding needed to deliver on our growing backlog and the diversification and growth objectives of our strategic plan. G2 was instrumental in driving competitive terms, and coordinating and facilitating the process with the lenders through the closing of the Transaction.”
“We are proud to have partnered with the Company through this important operational and financial inflection point. The Company’s new lenders are highly supportive of the business strategy and are providing the flexible capital and liquidity needed to drive future growth,” said Howard Lanser, Head of Capital Markets at G2.
Under the terms of the new facilities, the Revolver interest rate is LIBOR plus 2.25%, and the Term Loan Facility interest rate is LIBOR plus 9.00%, stepping down to LIBOR plus 8.50% when the Total Leverage ratio is lower than 2.50x. The minimum LIBOR floor on both facilities is 1.00%. In addition, the loan facilities mature in December 2025, extending the maturity by three years in comparison to existing facilities. Additional details regarding the transaction can be found in the Form 8-K filed by the Company with the SEC.
Industrials & Manufacturing
Select Transaction Highlight
ABL Revolver & Term Loan Financing
Securities offered through Hollister Associates, LLC, Member FINRA & SIPC. G2 Capital Advisors, LLC and Hollister Associates, LLC are separate and unaffiliated entities.
Key Trading Statistics
Key Trading Statistics in Millions USD (converted where necessary) Data sourced from S&P Capital IQ on December 31, 2020
1LTM Multiples and comparison to December 31, 2019; Excludes outliers above 25.0x EV / EBITDA
Industrials & Manufacturing
Sector Number of Companies Median Enterprise Value ($MM) LTM1 Median Revenue Growth Median EBITDA Growth EV / Revenue EV / EBITDA Aerospace Manufacturing 17 $8,391 -6.1% -6.9% 1.5x 12.2x Building Products 16 $4,968 2.2% 5.6% 1.8x 12.7x Chemicals 20 $18,978 -2.3% -3.7% 2.1x 15.5x Construction 11 $5,054 -0.8% 5.4% 1.0x 12.9x CPG 11 $27,901 1.7% 2.4% 3.1x 14.9x Electrical Equipment 11 $9,794 -2.2% 0.8% 3.0x 16.8x Food 13 $29,558 1.2% 5.0% 2.3x 12.8x Industrial Technology 10 $35,690 -1.9% -0.3% 3.6x 16.9x Metals 12 $7,022 -3.4% -6.7% 0.9x 8.7x Materials 16 $10,745 -0.1% 3.2% 3.6x 12.3x Packaging 13 $14,625 -0.1% 2.2% 1.6x 10.2x Plastics 12 $4,929 -2.5% 1.4% 1.3x 10.6x
Selected Q4 2020 Industry Deals
Industrials & Manufacturing
Several notable transactions have closed or were announced in the Industrials & Manufacturing space through Q4 2020. G2 has outlined select transactions below.
Data sourced from S&P Capital IQ, PR Newswire, Businesswire
▪ Madison Dearborn Partners acquires IPL Plastics – On October 15, Madison Dearborn completed the acquisition of IPL Plastics, valuing the business at $705MM. The valuation represented a 69% premium to the 20-day average share price for IPL. IPL is a sustainable packaging solutions provider focused primarily on the food, consumer, agricultural, logistics, and environmental end-markets
▪ Golden West acquires Berry Pack and Progressive Packaging – On November 2, Golden West Packaging, owned by Lindsay Goldberg, announced the acquisition of Berry Pack and Progressive Packaging Group, two independent CA-based fresh produce packaging and distribution providers. Berry Pack provides branded, custom-designed packaging systems converting 350MM sq ft. of corrugated sheets annually. Progressive Packaging provides corrugated packaging, flexible packaging, ties and bands, operating four assembly and distribution facilities in California and Arizona
▪ Builders FirstSource acquires Kansas City Building Supply – On November 5, Builders FirstSource, Inc. (Nasadaq:BLDR) announced the acquisition of the assets of Kansas City Building Supply, a supplier of doors, windows, cabinetry, and hardware to residential homebuilders. Builders FirstSource looks to deepen its presence in value-added offerings, adding $30MM of revenue in this acquisition
▪ Spectrum Plastics acquires PeelMaster Medical – On December 2, Spectrum Plastics Group announced the acquisition of PeelMaster Medical Packaging. Based in Niles, IL, PeelMaster is a full-service converter of flexible packaging serving the medical device market. PeelMaster advances Spectrum’s position in the attractive medical device sector
▪ Huntsman Corporation acquires Gabriel Performance Products – On December 7, Huntsman Corporation (NYSE:HUN) announced the acquisition of Gabriel Performance Products, a specialty chemical manufacturer of coatings, adhesives and sealants, from Audax. Huntsman will pay $250MM, representing a 2.4x revenue multiple, and a 11.0x EBITDA multiple (8.0x pro forma for synergies). The acquisition will complement Huntsman’s recent acquisition of CVC Thermoset Specialties
▪ Fortune Brands acquires LARSON Manufacturing – On December 14, Fortune Brands Home & Security completed its acquisition of LARSON Manufacturing, a leading brand of storm, screen, and security doors. Fortune completed the acquisition for a price of $660MM, representing a 1.7x revenue multiple
▪ Olympic Steel acquires Action Stainless & Alloys – On December 14, Olympic Steel Inc. (Nasdaq:ZEUS) announced the acquisition of the assets of Action Stainless & Alloys, Inc., representing the company’s fourth acquisition in three years. Olympic Steel is a national metals service center, and will incorporate Action’s distribution and processing operations of stainless steel, aluminum plate, tubing and pipe products. Action generated more than $40MM in 2019 revenue
▪ Armstrong World Industries acquires Arktura –On December 16, Armstrong World Industries announced the acquisition of Arktura, LLC, a designer and fabricator of ceilings, walls, partitions, and facades for an enterprise value of $121MM. Arktura, based in California, operates a 55K sq. ft. manufacturing and fabrication facility and projects 2020 revenue of $37MM
Market Indicators
Industrials & Manufacturing
Industrial Production Index
Last 5 Year EV / EBITDA Trend by Industry
Data sourced through Federal Reserve Economic Data on December 31, 2020 The Industrial Production Index (IPI) is published by the Federal Reserve Board of the United States and measures the real production output of manufacturing, mining, and utilities.
Data sourced through S&P Capital IQ on December 31, 2020
85 90 95 100 105 110 115 Q4 '08 Q4 '09 Q4 '10 Q4 '11 Q4 '12 Q4 '13 Q4 '14 Q4 '15 Q4 '16 Q4 '17 Q4 '18 Q4 '19 Q4 '20 Ind ustir al Pr odu ction 0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x 16.0x Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Q3 '17 Q4 '17 Q1 '18 Q2 '18 Q3 '18 Q4 '18 Q1 '19 Q2 '19 Q3 '19 Q4 '19 Q1 '20 Q2 '20 Q3 '20 Q4 '20
Aerospace Manufacturing Building Products Chemicals
Construction CPG Electrical Equipment
Food Industrial Technology Materials
Packaging Plastics Metals
Industrials & Manufacturing
Select Ongoing G2 Projects
Source: G2 Insights
Project Indigo
Sell-Side
Designer and Manufacturer of Sustainable Packaging
▪ Project Indigo –G2 is currently serving as the sell-side advisor to a designer and manufacturer of reusable packaging solutions. The Company is a northeast based manufacturer of natural and sustainable food storage products with
distribution through specialty grocery and outdoor retailers.
Project Connect
Buy-Side
Provider of Custom Mechanical Solutions
▪ Project Connect –G2 is currently serving as the buy-side advisor to a provider of custom mechanical solutions offering prototyping, engineering, tooling, metal fabrication, injection molding, and other services. The company offers clients flexibility and scalability to quickly introduce new products to the market.
Project Dawn
Sell-Side Food Manufacturer
▪ Project Dawn –G2 is current advising on on the sale of a Midwest-based food manufacturer. The Company specializes in producing conventional and organic vegetables for sale to food manufacturers and distributors.
▪ Project Peak –G2 is currently serving as the buy-side advisor to a tool solutions provider, offering services, new tools, and resale products for the secondary woodworking, composite and metal industries across the U.S. and Canada. G2 is assisting the company’s business development team with identifying and executing add-on acquisition opportunities.
Project Peak
Buy-Side
Provider of Tool Solutions
Project Air
Restructuring Leading HVAC Manufacturer
▪ Project Air –G2 is focused on developing a restructuring plan and supporting negotiations with lenders. The Company is a leading HVAC manufacturer for specialty vehicles including school buses, commercial buses, delivery vans, and other vehicles.
▪ Project Jam –G2 is currently advising on the sale of a leader in the manufacturing and distribution of baked goods. The Company has a leading brand in the Northeast with an 80+ year history of providing fresh-baked products through an extensive company-operated distribution network.
Project Jam
Sell-Side
Manufacturer and Distributor of Baked Goods
Investment Banking and Restructuring Advisory
G2 Overview
G2 Capital Advisors provides C-level led investment banking and restructuring advisory services to middle market institutional investors and companies. G2 offers a comprehensive suite of investment banking services, creating a one-stop shop with non-conflicting strategic alternatives perspectives on what is truly best fit for each client.
G2 offers clients an operational, experience-based approach within each of its practice sectors.
G2 Capital Advisors provides C-level led investment banking and restructuring advisory services to middle market institutional investors and companies. G2 offers a comprehensive suite of investment banking services, creating a one-stop shop with non-conflicting strategic alternatives perspectives on what is truly best fit for each client.
Sector-Focused; Experience-Based
▪ Freight Forwarding ▪ Trucking / Final Mile ▪ Warehousing / Distribution ▪ Third Party Logistics (3PL) ▪ e-Commerce Fulfillment
▪ Building Products / Construction ▪ Metals / Materials ▪ Container / Packaging ▪ Niche Manufacturing ▪ Distribution ▪ Tech-enabled Services ▪ BPO ▪ Managed Services ▪ Internet & Digital Media ▪ Business Services Industrials & Manufacturing Transportation & Logistics Technology & Business Services I&M Focus Sectors:
T&L Focus Sectors: TBS Focus Sectors:
G2 Overview
• 275+ mandates in 10 years
• $2.5B+ total executed transaction value • Extensive industry experience
• Robust strategic and sponsor relationships • Active touchpoints with logical sellers Overview:
A Multi-faceted Platform:
Focused on crafting bespoke operational and financial advisory solutions for our corporate and investor clients. G2 works with clients across a range of situations.
Buy-Side M&A Advisory Sell-Side M&A Advisory Capital Markets Restructuring Advisory Services
San Francisco, CA Chicago, IL
Naples, FL Boston, MA Indianapolis, IN
Reference
Contact & Glossary of Terms
The information included in this Presentation is not a complete analysis of all material facts regarding any company, industry, or security and does not constitute investment advice. Opinions expressed or implied by the materials here presented reflect only the judgement of its author as of the date of the Presentation and is subject to change without notice. The information in this Presentation has been obtained from sources which G2 generally considers reliable, but we make no representation or warranty, express or implied, as to the accuracy or completeness of any information herein. This Presentation has been prepared for informational purposes only and upon the express understanding that it will be used only for the purposes set forth in the Section captioned G2 Overview above. G2 expressly disclaims any and all liability which may be based on such information, errors therein or omissions there from. Securities
offered through Hollister Associates, LLC, Member FINRA & SIPC. G2 Capital Advisors, LLC and Hollister Associates, LLC are separate and unaffiliated entities.
For more information about G2, please visit: www.g2cap.com
Our corporate headquarters is located at: 420 Boylston Street, Suite 302, Boston, MA 02116
Boston | Chicago | Indianapolis | Naples | San Francisco
Term Definition
Revenue
Total revenue from the sale of goods and services rendered during the reporting period, in normal course of business, reduced by sales returns and allowances, and sales discounts. For banks, this item is defined as net interest income after
loan loss provisions
EBITDA Earnings before interest, taxes, depreciation, and amortization. Calculated as Revenue – Expenses, excluding interest,
taxes, depreciation and amortization
Market Cap Market value of a company using most recently reported basic weighted average shares outstanding. Calculated as
Market Price (as of period end) * Basic Weighted Average Shares Outstanding
Long-Term Debt Sum of the carrying values as of the balance sheet date of long-term debt with a maturity beyond one year or the normal
operating cycle, if longer
Net Debt Net Debt shows the company’s overall debt situation by netting the value of debts with cash and other similar liquid
assets. Calculated as Total Debt – Cash & Cash Equivalents and Short Term Investments
Enterprise Value Enterprise Value represents the combined economic value of a company as of the most recent fiscal year end. Calculated
as Diluted Market Capitalization + Total Debt + Minority Interest + Preferred Stock – Cash and Short Term investments
P/E A valuation ratio of a company stock price compared to its per share earnings. Calculated as Market Price / Earnings per
Share for the last annual period
Tangible Book Value Total Shareholder’s Equity – Goodwill and Intangible Assets
Victoria Arrigoni, Managing Director Matt Konkle, Sr. Managing Director
[email protected] [email protected]
781.604.9005 857.310.5554
Mike Williams, Director Will Luetmer, Associate
