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Can you Fund M&A With Cryptocurrency?

What is Cryptocurrency?

It seems like everyone is talking about it, but what exactly is cryptocurrency, or crypto? It is a digital payment method that is exchanged online to pay for goods and services. Crypto uses blockchain, which is a highly secure, ledger technology that is spread between multiple computer systems that manage and record transactions. As of now, bitcoin (BTC) is the most popular digital token network, followed by ethereum (ETH). They are both decentralized, meaning that they are not issued or regulated by a central banking authority. In 2020, Bitcoin beat the investment returns of gold and the S&P 500.

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Benchmark International Successfully Facilitated the Transaction Between Meshh Ltd and Limelight Platforms Inc

Benchmark International is pleased to announce the transaction between London-based Meshh and Toronto-based Limelight Platforms.

Meshh was established in 2017 and operates with nine employees from offices in London, New York and Sydney. It is an award-winning location intelligence specialist that measures engagement and interaction in physical spaces to help clients learn how their customers behave in real-world environments.

Limelight is a SaaS platform that helps global brands deliver memorable consumer experiences and measure the impact of their experiential marketing.

Do you have an exit or growth strategy in place?

The acquisition allows Limelight to grow its data insights division and to serve clients in Europe and beyond. Leadership from both organizations believe the partnership will accelerate organic portfolio growth with clients in the sports, retail, automotive, advertising, commercial property, and events and exhibitions industries.

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Benchmark International Successfully Facilitated the Transaction Between Design Environments and Boston Trade Interior Solutions

Benchmark International is pleased to announce the transaction between Marietta, Georgia-based Design Environments, and Boston Trade Interior Solutions, with offices in Boston, Chicago, and San Francisco.

Design Environments is a nationally renowned interior design firm specializing in the interior architecture and merchandising of model homes, clubhouses, and amenity/sales facilities throughout the United States. The company was founded in 1991 by CEO Donna DeLuca, who has grown the firm into a national leader in delivering high-quality design services.

Regarding the transaction, Ms. DeLuca stated, “The whole Design Environments team is very excited about the opportunities this combination presents. We strongly believe that Boston Trade will make a great partner in our continued growth and expansion.”

 

Ready to explore your exit and growth options?

 

Acquirer Boston Trade is a national leader in renovation, conversion, and new-build projects for the hotel and hospitality industry. The company’s focus on design-forward interior environments that exceed their clients’ economic, aesthetic, and functional requirements aligns perfectly with Design Environments’ long track record of service excellence to similar client sets.

The acquisition is backed by Blackford Capital of Grand Rapids, Michigan, a leading private equity firm in the lower middle market with over $650 million in transaction value and 35 acquisitions at the time of the Design Environments acquisition.

Boston Trade CEO Greg Kadens remarked, “We are thrilled to add such a prestigious and well-respected company to our portfolio. Design Environments is so well run that we can immediately focus on the opportunities created by combining it with our hotel interior design and procurement business. Donna’s leadership throughout the years has brought the company to this point, and we look forward to continuing to work with her as we strive to provide industry-leading services and solutions to our clients.”

This transaction reflects the power of Benchmark’s International’s proprietary “Fingerprint” process, which focuses on each client's unique value proposition when going to market. Regarding the Design Environments transaction, Benchmark International Transaction Director William Sullivan stated, “Our client’s goals and values were highly aligned with the buyer we sourced for them. From the leadership tier of the acquiring firm to the fund partners backing the deal, a shared vision was clear from the start. We are very proud of the role that Benchmark International played in the process.”

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HVAC: A Consolidating Market

When financial buyers think of HVAC contractors, they see an industry ripe for consolidation. The trend of HVAC consolidation started a few years ago and has not slowed down.

Throughout the United States, there are thousands of independent HVAC contractors. Financial buyers, such as private equity, see the opportunity to consolidate the independent firms to create a regional or national presence. The market is roughly a $20 billion industry that is fairly recession proof, especially throughout warmer states, such as Texas and Florida.

Private equity seeks opportunities to expand businesses through acquisition and organic growth. Once they have a foothold in the industry, they can add related services, such as plumbing services, to the roll-up strategy.

HVAC consolidations tend to be in high demand in markets that have a need for the services. Some focus on new construction, while others focus on servicing existing units that can be viewed as a recurring revenue model. The competition in the local market is key when an acquirer is looking at an acquisition. Is the HVAC target company a big fish in a small pond, or vice versa? What is the growth potential within the market? Cities and towns that are growing tend to be more attractive.

 

Ready to explore your exit and growth options?

 

Additionally, HVAC contractors might specialize in commercial or residential services. Depending on the roll-up strategy, the acquirers might have different goals on what they are looking for in the consolidation.

The consolidation allows for a larger firm to take advantage of perks that a smaller firm might not have access to due to size or cost prohibition. For example, the roll-up might be able to build out software and accounting systems to help increase the efficiencies of the company or recruit top executives to add a level of professionalism to the company.

Having this type of option within the market allows for the seller to have options about their company’s next phase. Having a larger, growing firm complete the acquisition allows the seller and the company’s employees opportunities that the selling firm could not achieve on its own. The seller may stay on post-closing in a different capacity or retire and allow employees to step into the management role. In any case, mergers and acquisitions can be an ideal solution for companies in the HVAC sector.

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What To Look For When Choosing An M&A Advisor

Selling your business is a paramount moment in your life. It’s something you absolutely want to get right so that you can extract the most value out of the deal—and so that you are protected from being swindled by a savvy buyer. It also takes a great deal of time and energy to sell a company, which can be rather difficult to spare when you are trying to focus on running a business. Most people simply do not have this time, energy, connections, or expertise that is required to put their company on the market. This is where the importance of an experienced M&A advisor comes in. By partnering with an M&A expert, they handle all the details of a deal, including due diligence, negotiations, marketing, vetting, and ensuring that you get the most value for your business. They also know how to navigate bumps in the process, and manage the expectations of all parties involved.

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Benchmark International Successfully Facilitated the Transaction Between WHS Homes and Jamaica Cottage Shop

Benchmark International is pleased to announce the transaction between Londonderry, VT-based Jamaica Cottage Shop (JCS) and WHS Homes of Claremont, NH.

Jamaica Cottage Shop has been in operation since 1995 and is a builder of sheds and small homes. WHS Homes, which builds an array of home types under multiple brands, adds a key piece to its diversified set of homebuilding options through the acquisition of Jamaica’s smaller-signature capabilities.

“With the current demand coming out of the pandemic, the company is in a very good place, so it was very strategic to pull the trigger in 2021,” said JCS founder Domenic Mangano.

 

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At the time of the closing, JCS was producing 2,000 buildings a year - most of which are used as cabins, cottages, and storage. In addition, the company sells kits and fully assembled homes and structures. JCS experienced buoyed results due to home purchasing dynamics fueled by Covid-19 during 2020 and 2021 and sought a strategic partnership to grow off a strong basis.

JCS staff and current leadership will continue to play key roles post-integration, helping to drive the company’s growth under a new set of opportunities moving forward.

“JCS is a key segment operator in a market that has experienced a significant boom during the last year and a half,” according to Benchmark International’s Transaction Director William Sullivan. “We knew now was the time to make this great match in a growing niche market. We believe that both the buyer and seller will benefit tremendously from this combination, and we’re very pleased to have played a key role in that process.”

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Benchmark International Successfully Facilitated the Transaction Between RGM Vent Limited and Foresight Group

Benchmark International is pleased to announce that County Antrim ventilation systems installer, RGM Vent, has secured £3.35 million investment from private equity firm, Foresight.

The funding is a co-investment between the Foresight Scottish Growth Fund and the Northern Ireland Opportunities Fund II, also managed by Foresight.

RGM Vent was established in 2010 and offers bespoke ductwork design and installation services to a broad customer base across the UK and Ireland, with the company completing work of prominent infrastructure developments including WuXi Pharmaceutical (Dundalk), University of Ulster (Belfast), Hampton by Hilton (Edinburgh) and Longwater Office Development (Reading). The company has experienced a significant period of growth over the last five years and now employs 75 staff.

Part of the company’s growth has seen it purchase Advanced Ventilation Systems, which focuses on the smoke, heat and exhaust ventilation market, and NSK Sheet Metal, which specialises in fabrication and manufacturing of ductwork.

Foresight is an award-winning listed infrastructure and private equity investment manager which has been managing investment funds on behalf of institutions and retail clients for more than 35 years. Foresight’s private equity team, comprising over 30 investment professionals, manages c£700 million in a portfolio of more than 100 companies.

Interested in private equity investment?

Leveraging Foresight’s support, RGM Vent is now well primed to implement its growth strategy across the UK and Ireland.

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Kendall Stafford Named Best Mid-Market Financial Services Business Leader 2021

Benchmark International proudly announces that our Managing Partner Kendall Stafford, from our Texas office, has been named Best Mid-Market Financial Services Business Leader 2021 by the 2021 Influential Businesswoman Awards, hosted by Acquisition International.

The winners' selection is made using careful analysis of the panel's final shortlist, as well as anything else that their internal research team learned while doing their online and public due diligence. In addition, the nominee must demonstrate a high level of excellence and work ethic within their chosen field, with their dedication to innovation, commitment, and business development taken into account.

The awards are based solely on merit and not the number of votes that a nominee receives or their financial stature, offering a level playing field for individuals to showcase their talents and achievements.

The Benchmark International team congratulates Kendall on this well-earned commendation, as this isn't the first time she has been recognized as one of the best in the business. "This award confirms everything that we already know about Kendall—that she is a true leader with a unique vision that helps to keep our firm on our trajectory of success and innovation," said Global CEO Gregory Jackson.

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The Global 100: Benchmark International's Steven Keane Named Best International Chairman of the Year

Benchmark International is pleased to announce that our chairman Steven Keane has been named Best International Chairman of the Year by the 2021 Global 100, which is comprised of the world’s leading firms and individuals with votes from global readers in more than 163 countries.

The purpose of the Global 100 is to provide its readers with a complete picture of the world’s true global leaders within their areas of specialty. The unique process follows a very strict format of self-submission and third-party nomination, with the winners then shortlisted based on a highly comprehensive set of criteria. The judging process assesses:

  • The strategic nature of work conducted
  • The complexity of work conducted
  • The scale of work conducted
  • Whether it was done in a timely manner and within budget
  • Any groundbreaking or innovative processes used

In their own words, the Global 100 provides “a benchmark of the very best of the best industry leaders, exemplary teams, and distinguished organizations.”

Our team proudly congratulates Steven Keane on earning such esteemed recognition, which is well deserved. Global CEO Gregory Jackson said, “With Steven’s outstanding leadership, Benchmark International is strongly positioned to continue to thrive and reach new milestones. This acknowledgment is further validation of how our dedication to being the very best in the business is a philosophy that permeates all levels of our team from the top down.”

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Benchmark International Successfully Facilitated the Transaction Between Compcare Compressed Air Ltd and Rubix Group

Benchmark International is pleased to announce the transaction between Shropshire-based CompCare and London-based Rubix.

Established in 2007, CompCare specialises in outsourced air, as well as oil free and large compressed air systems. The company is a market leader in variable speed drive conversions or retrofits, heat recovery packages, and multi station control systems. Its focus is on extending the life and improving the efficiency of compressed air systems so that customers generate full value from their assets.

Rubix is Europe’s largest supplier of industrial maintenance, repair and overhaul products and services. The company has over 750 locations across 22 countries and had a turnover of €2.4 billion in 2020.

Ready to explore your exit and growth options?

The acquisition enables Rubix to provide greater and enhanced access to technical services related to compressed air in the UK. It also supports the group’s ongoing drive to remain the leading multi-specialist supplier of industrial products and services.

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EBITDA Adjustments for a Related Party Rent Expense

It is quite common in privately-held businesses for one or more of the owners of the client company to also own the real estate that the company occupies. That real estate may be in the name of the owner individually, or in name of another company (LLC, partnership, or corporation). In nearly every instance where the owner of the real estate is not an individual, such owner will be a pass-through entity (i.e., a subchapter S corporation, a partnership, or a trust). The company will lease the real property from the related party and recognize rent expense on the income statement. There may or may not be a formal, documented lease.  Generally, these leases are triple net, meaning the tenant company pays all the maintenance costs, the insurance, and the taxes for the property. 

There are several advantages for owners to hold their real estate outside of their operating business.

  •  It provides an avenue for additional income to flow to the owner without the necessity of paying payroll taxes.
  •  If the owners have other real estate holdings, they can use excessive rents to generate passive income to offset passive losses from other holdings.
  •  It allows the owners to separate the operating activities of their business from the real estate holdings in the event of a sale. 

For business valuation purposes, we need to consider the effect of these related party leases that were not negotiated at arm's length. The lease rate may be more or less than the market. If the business is struggling, the lease may be below market. If the business is performing well, the rent will be above the market. For calculating an adjusted EBITDA, we should calculate an adjustment based on the difference between market rates and the related party lease rate. If the lease rate is below market, we have a deduction from book EBITDA. Conversely, if the lease is above market, we have an addition to book EBITDA. 

 

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In calculating the adjustment, it is necessary to make a determination of what the market rent would be. In doing so, we must look at comparable properties in the area around the client’s property and find what the going lease rates are. LoopNet.com provides a relatively good comparison of properties that are on the market with asking prices. It is important to understand the characteristics of the building that the client is occupying and if there are any special use considerations. For example, a prospective client operates a precision CNC machine shop in Southern California in a 22,000 square foot building in an industrial area with a zoning of light industrial. They have about 16,900 square feet of outside space for parking and storage. Since they are operating CNC and heat-treating equipment, they need at least 1,000 amps of 3 phase power coming into the building. A comparable building, then, has these characteristics.  Comparing this property to Class A office space is not a good comparison.

Note: Some special purpose buildings can have characteristics that are hard to match in the market. In that case, we must estimate the additional costs associated with what makes the building unique. 

Pictured is a Loopnet.com example of a property search in Gardena, CA for industrial properties to lease in the 15,000 to 25,000 square foot range under $15 per foot. It indicates that there are several parcels that are comparable.

To continue the example, the prospective client company leases the real estate from a separate entity owned 100% by the sole shareholder for $60,650 per month. The asking price for comparable properties in the area is approximately $12.50 per foot. As such, the market rent for a 22,000 square foot facility would be $275,000 per year. In looking further at just land, the lease rate is about $7.20 per foot or another $123,708 per year. The total annual market rent for this site would be $398,708 compared to the actual lease rate of $602,461. In this case, we have a positive adjustment to book EBITDA of $203,753 per year.

Since the company in this example is paying the actual costs of the insurance and taxes, there is no need to make an adjustment for that. However, if the company is a tenant in a multi-tenant building owned by the same owner of the company, the comparison of the rent is the same, but there is a potential for the business to be paying all the taxes, insurance, and maintenance for the property, which would require additional adjustments.

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Post-Merger Integration Tips

Growth through acquisition is an excellent way to enhance and complement the growth trajectory of your business. But bringing companies together is about more than just increasing market share and profits. There are employees involved that can feel a range of emotions from excitement to anger to anxiousness about their future. Important decisions must be made when you are integrating people and teams. After all, while the project of closing the deal has come to an end, the process of operating, integrating and onboarding the business is just beginning for the buyer. Now is the time for the buyer to deliver on the intended results of the acquisition, and there are some important tips to keep in mind.

First, it’s always a smart idea to begin integration before the deal is formally announced. While due diligence will provide you with pertinent information about contracts, finances, customers, etc., the post-merger integration involves choices that should be made before a deal is closed. Managing and clearly defining post-merger integration is one of the most important factors to the transaction in the long run, as this will determine whether the deal will be a failure or a success. The planning should start months before the closing is even announced, and a team should be put in place to handle the intricacies of integrating the companies.

Each M&A deal is different due to unique challenges, business needs, and cultural benefits. In order to handle all of these differences, it is best for companies to institute a set of success factors that will pilot the post-merger integration. There are common success factors that mark most M&A deals that include retention, maintaining customer focus, ensuring stability, integrating cultures, employee communication, mission-critical systems, and aligning strategy and processes. How these points are addressed can define the deal’s success.

 

Ready to explore your exit and growth options?

 

When putting together the Integration Team, it is essential to choose highly motivated and proficient employees from both companies. Working on this team will require an immense amount of effort from the acquired business, resulting in an extremely large workload. Keep a close eye on this team and watch for signs of fatigue in order to minimize the risk of losing key talent. Identifying future roles for these team members in advance is a good idea. It is not uncommon for integration to fail because no future plan was put in place for the employees that were selected for the team.

The integration structure should be divided into serviceable categories such as Service, Legal, Finance, Manufacturing, Human Resources, Information, and Technology. The specialists assigned to each area should be tasked with defining and performing tasks that are within their area of expertise. The integration plan must be clear and accountability must be set for each task, along with specific timelines in order to be successful. This will help to ensure that the integration runs in a clear, well-ordered manner. Certain cross-functional categories will need input from multi-disciplinary teams in order to capture positive results.

Finally, the more the integration team overlaps with the due diligence team, the higher the chances are for open lines of communication, collaboration, and faster synergy realization. Making changes to a newly acquired business will require attention to detail, focus, and exemplary organization. While an effective post-merger integration will not guarantee the business’s success, a properly developed plan absolutely enhances the probability of a successful merger of the two companies.

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Benchmark International Successfully Facilitated the Transaction Between Ratliff Hardscape and ERW Site Solutions

ERW Site Solutions (an RW Assets, Inc. company) announced the acquisition of Ratliff Hardscape, LTD.

Ratliff Hardscape is a well-established hardscape construction company with a long-standing history of providing various services for civil and hardscape projects. These projects include single-family, multi-family, commercial, municipal, state, and oil & gas projects. Their turn-key solutions include budget and time management, self-performed concrete and masonry, construction management, and quality assurance.

Booder McWhorter will continue operating Ratliff Hardscape as Chief Operating Officer and President along with the entire Ratliff team to continue to provide quality services to their customers.

RW Assets, Inc is an infrastructure construction holding company. It owns ERW Site Solutions, a retaining wall and site service company; LandTec, a landscape, and irrigation company; and DesignBuild Consulting Services, an engineering firm.

 

Ready to explore your exit and growth options?

 

Randy O’Neal, Chief Operating Office of RW Assets, commented in the company’s press release, “This acquisition will further RW Assets’ market penetration from retaining walls, landscape and irrigation, engineering services and site services, into hardscape solutions such as screen walls, monuments, concrete solutions, such as sidewalks, patios, and other flat works. With the addition of Ratliff Hardscape, this aggregation will strengthen the brands of ERW Site Solutions, LandTec, and DesignBuild Consulting Services through the synergism created across the various product lines that are offered to our customers. Ultimately, we are now able to offer an array of products with an increased scope to better deliver our customers’ projects on time and on budget. The management team RWA has built over the last 5 years includes one hundred years of experience doing subcontracting and general contracting work across Texas and Southeastern United States.”

Kendall Stafford, Managing Partner at Benchmark International commented, “We are excited for ERW Site Solutions’ acquisition of Ratliff Hardscape. It appeared that the two companies share similar views in their visions and philosophies. We look forward to what the future has in store for the entities and wish them the best of luck with integration.”

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