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Drink to That: Anheuser-Busch InBev Sells Remaining Stake in Tsingtao Brewery
 This week Anheuser-Busch InBev announced that the Company has sold its remaining stake 7% in Tsingtao Brewery for $235 million. Earlier in the year, the Company sold 20%of its 27% stake in Tsingtao to Japan's Asahi Breweries for $667 million. This week's sale represents the continued effort to raise capital to pay off the $45 billion debt load the Company took on, following InBev's $52 billion Anheuser-Busch acquistion. In the previous week, Anheuser-Busch InBev sold Oriental Breweries to Kohlberg Kravis Roberts for $1.8 billion.
A Clear Signal: Birch Communications Buys Cleartel Communications' Assets
 Birch Communications, a telecom services provider, announced this week that it has signed a definitive agreement to acquire all customer and network assets of Cleartel Communications, Inc., a provider of voice and data telecommunications solutions. Included in the acquisition are approximately 100,000 business and residential access lines. The acquisition strengthens Birch's market position as one of the largest competitive communications companies in the United States, making the company the premier alternative to the legacy carriers for small and medium sized business customers. The transaction is set to close in the third quarter of 2009; and is subject to, among other conditions, receipt of approvals of the FCC and 22 applicable state regulatory authorities, as well as other customary conditions precedent. Redwood Capital Group was the exclusive financial advisor to Birch in connection with the transaction. Terms of the transaction were not disclosed.
Driving a Deal: iBidMotors Acquires MonsterMotors.com
 IBidMotors announced this week that it has completed its acquisition of Monster Motors, an automotive online auction site. The expanded iBidMotors platform now includes hundreds of car dealer clients and over 30,000 vehicles available to consumers from coast-to-coast. iBidMotors and Monster Motors both launched in 2006. iBidMotors initially focused primarily on the Eastern United States, while Monster Motors focused on dealers primarily in the Midwest and Western parts of the country. iBidMotors.com's dealers post late model vehicles, certified pre-owned cars, including luxury vehicles such as Jaguar, Lexus, Aston Martin, Porsche, Mercedes-Benz, Maserati and others. Over the past two years the iBidMotors.com online auction has sold over $100M in retail automotive sales. Terms of the deal were not disclosed.
Where Credit is Due: Windstream Buys D&E Communications
 This week, Windstream announced its definitive agreement to acquire D&E Communications in a transaction valued at $330 million. To finance the acquisition, Windstream will pay $73 million in cash and will issue approximately 9.5 million shares valued at $86 million. D&E Communications' estimated net debt of $171 million comprises the remainder of the transaction value and consists principally of term loans that may be refinanced. The transaction will be further financed by Windstream's existing cash and the current capacity on its revolving credit facility. D&E Communications' EBITDA for the 12 months ended March 31, 2009 was $64 million. Following the acquisition of D&E, Windstream anticipates $25 million in annual synergies based on operating expenses and capital expenditures savings. The transaction is anticipated to close sometime in the second half of 2009, and is subject to the customary regulatory approvals and D&E's shareholders.
Expanding Visual Range: Peerless Industries Acquires BBG
 Peerless Industries, Inc., a professional-grade audio/visual mounting solutions provider, announced earlier this week its merger with BBG Distribution Ltd., a distributor of audio/visual attachment and peripheral market throughout the United Kingdom. The merger expands Peerless' position as a manufacturer and distributor of a full range of audio/visual products and services for both the retail and commercial marketplace. Under the terms of the agreement BBG will continue trading as BBG Distribution Limited, distributing the existing line up of BBG brands. BBG will, however, become a subsidiary of Peerless Industries, Inc. Financial terms of the deal were not disclosed.
The M&A Advisor Global Survey Results (click for results)
Thanks to all who participated in our Global Cross-Border survey. The data is in and it's official. The M&A Advisor network is active around the globe. While most of the respondents who participated in the Global Cross-Border survey said they are currently active in the US it is clear that deal expansion across borders continues to play an ever more important role in the middle market.
Non-US countries where our network is currently developing deals include, but are by no means limited to, are: Hungary, Romania, Czech Republic, Slovakia, Holland, Germany, Israel, China, Brazil and Mexico.
When asked which countries our network anticipates doing deals in, again the countries range across all continents.
The factors that make cross-border middle market deals so attractive? Our respondents said: better valuation, important business relationships, opportunities for significant synergies, and not surprisingly larger fees.
(click for results)
In today's strained middle-market economy dealmakers want to ensure that whatever their buy may be--be it a healthcare company, telecom group or financial service firm--there is plenty of cash available for after sales operations. In other words, if cash is king, working capital is the new law of the land.
Since the credit crisis began, having cash on hand is like having money under the mattress. Working capital, in many cases, has become the key measure of a company‘s worth. As revenue declines and credit remains stalled the ability to manage cash has become make or break for some companies. This fact is key for any dealmaker on either side of the table, but should be the canary in the cave for buyers.
Be it a carve out or an outright buy, dealmakers should remember to consider cash flow rates and levels in the wake of new the new capital and cost structure. Dealmakers also need to remember to factor the subsequent growth rate of a business, as well as operational changes that could affect working capital levels.
To gain a better understanding of working capital, a lot of focus has been placed on free cash flow. A company's PE ratio, for example, has become less important in an economy where earnings visibility is at a minimum and valuation multiples are volatile.
Working capital analysis, in today's economy, has become much more than simply a measure of a company's solvency. In short, working capital, these days, is the ability of a company to create liquidity through its operations. Here dealmakers will want to pay close attention, as valuation factors may shift, depending on working capital flows.
Working capital in a recession is a fingerprint and gives a clear indication as to how a company has structured itself.
Positive net working capital businesses generally require significant funding in order to maintain growth, but these businesses tend to be less impacted by declining revenues, as these companies have the ability to liquidate assets on hand to meet operating obligations.
Dealmakers understand that the opposite is also true; negative net working capital businesses, can sometimes adjust without consuming large pools of cash or by outside financing. Yet these companies are less stable in downturns. In certain cases, however, these businesses may have sufficient capital to plug potential working capital needs. A dealmaker needs to be aware of such realities.
From a buyer's perspective, working capital flow will determine how much liquidity is needed for the long-term. As many dealmakers and turn-around experts know, bungling management of working capital, can prove fatal both for operations and deal closure.
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To Sell or Not to Sell
Scott Waxler is a former winner of the M&A Advisor's "Deal Maker of the Year"  award and the Managing Partner of LockeBridge, LLC, an investment banking firm that works with middle-market companies located in Lexington, MA. In our ongoing coverage of today's market conditions we asked Scott his thoughts on the continuing middle-market conundrum: "sell" or "hold."
M.A.: Should clients "Sell" or "Hold" in this market?
S.W.: I have never had so many people ask me this question. My standard answer is that I don't have a crystal ball, but I will tell you that forward risk is extremely high. High risk generally requires a longer time horizon. In today's high risk environment, "selling" or "holding" is a decision that should be made with both personal and financial considerations in mind. Because it is within the realm of possibility that our current crisis could last for the next five years, if your clients don't have upwards of a five-year time horizon and capital resources to withstand a potential serious downturn then the time to sell may be now, while they still have a choice.
For many, this news goes beyond the economic simulations and forecasting models. It's about reevaluating personal life plans, an assessment that many people have never fully explored because they are too busy operating their businesses.
Key questions they should ask themselves include: "Am I at a time in my life where risk reduction is favored over high potential earnings? What will be the impact on my life and that of my family's if the next several years do not pan out? Do I have enough endurance, drive and support to work the long hours required to withstand a serious downturn?"
M.A.: You are reported to have said strong companies are getting premium prices, even in today's market. Many people just cannot fathom this. Can you elaborate?
S.W.: In most industries these days, if the company sales are flat or growing the business is considered an "outperformer". The amount of available private equity capital is down by roughly 50% year over year. However, the number of "outperformers" are even lower, down by approximately 80%. That means substantially more buyout and recapitalization money is available per outperformer, and as a result, these companies are commanding premium prices. If the target company falls into this category and the Owner does not have the gumption to ride out the continuing downturn, it is probably a prudent decision to sell all or some of the equity in the company now. If the Owner does decide to hang in for the long haul, he/she needs to be sure to have a plan to raise capital so they don't find themselves in a cash crunch. Raising capital in the most effective manner, whether an equity or debt raise, can be a complex issue which will usually require assistance from a seasoned investment banker.
On the other hand if company sales are down, visibility low and the Owner does not have at least five years to ride the wave and the capital resources required to support the downturn, it may be wise to consider an exit or partial exit such as an ESOP (Employee Stock Ownership Program), merger or recapitalization. The idea is not to get caught in a squeeze play like Cerberus Capital Management, the owner of Chrysler. As Robert Nardelli, CEO of Chrysler, put it; "Looks like things have gotten so bad so fast that protecting principal is the cause of the day at Cerberus."
M.A.: Is cash still "king" right now for those selling a business?
S.W.: Yes, leverage is relatively low. Prior to the banking crisis, on average, sellers were able to borrow 60% - 70% for lower-middle market transactions. Now 40% - 50% is more common. This creates the need to put much more cash into the deal or secure seller financing or mezzanine debt.
If the transaction price were to stay unchanged in this low leverage environment, the return on invested capital ("ROIC") would be significantly lower. In order for the Buyer to achieve an acceptable ROIC the transaction price needs to be reduced. Obviously, Sellers don't favor lowering the price to accommodate the lower leverage. Therefore, many Sellers are supplementing the bank by holding a note at the senior secured rate. If the amount of the note makes up for the lower leverage, then the required ROIC can be achieved while maintaining the higher price.
I've never met a Seller that wanted to hold a note. So, the bottom line is that cash is more valuable when leverage is low. The ultimate benefit to the Buyer will be a lower price with better terms (compared to another buyer bringing less cash into the same deal).
M.A.: What advice do you give clients who decide to hang on to their businesses but need more operating capital?
S.W.: Tell your clients their company is a portfolio of opportunity and analyze the amount of risk/concentration across such issues as customers, markets, products and management. In these extremely challenging times, we are seeing numerous underperforming companies - many for which survival is questionable- merging with another company as a viable solution. The objective is to reduce the overall cost of operations and/or enhance sell side opportunities. If the merger is successful, then the conversion of two unstable operations into one stable business will produce a fruitful outcome for both parties.
Make sure they consistently review their balance sheet. Analyze working capital needs and available credit on a weekly basis. With the substantial lack of availability in the current economic climate, it is imperative to have financing sources lined up just in case there are more bumps in the road ahead. If an equity offering is not in the cards, consider alternative debt vehicles.
Leverage and covenants for conventional commercial loans have been significantly tightened. If your clients find they cannot access enough credit through conventional means then consider receivables financing, factoring and purchase order financing from smaller, nimble financial service companies. Or perhaps they can secure mezzanine funds - which will charge a relatively high interest rate on the unsecured portion of the loan (currently 20% is common) and may take warrants as well. Here is where advisors play a critical role, as interest rates and costs can vary substantially. The key to securing the best deal for your clients lies in your expertise to negotiate and structure the terms.
M.A.: How can advisors be most effective to their clients in today's volatile environment?
S.W.: Clients need more high-touch service than ever before. It is critical to understand their fears and proactively address their concerns.
Surround yourself with a team of "go-to" specialists you can recommend to enhance your client's experience. Try to match them with the best advisor for their personality and business situation.
Don't be afraid to "burst their bubble" if their assumptions are way off. You are an advisor, not their friend. What business owners need now more than ever is someone to talk honestly about their situation and sometimes that means delivering unwelcome news.
When your work is complete, ask them to provide feedback on your performance - a quick electronic survey or a more informal one will give you the information you need to improve your service and shows you care about your client's experience.
M.A.: Thank you.
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