COVID-19: Business Implications Series — Should Your Business Apply for a CARES Act Loan, EIDL, or Both?

On Friday, March 27, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law.
The CARES Act has created several new Federal Small Business Administration (SBA) loan programs or amendments to existing programs, including Economic Injury Disaster Loans (EIDLs), to assist businesses that have been impacted by COVID-19.
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What is a Payroll Protection Program (PPP) loan within the CARES Act?
A PPP loan is an SBA loan program offering loans of up to $10 million to any business concern, including independent contractors and sole proprietors. The loans will be issued by SBA approved lenders (i.e., banks).
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Features
  • A CARES Act loan is 100% SBA backed.
  • The loan does not require collateral or personal guarantees.
  • All loan application fees are waived by the SBA.
  • The loan has a maximum 4% interest rate and maximum maturity date of 10 years.
  • Payments are deferred 6–12 months.
  • The loan has no prepayment penalty.
Uses
  • In addition to uses already allowed under SBA’s business loan program, funds can be used for payroll costs, group health, mortgage and other debt interest, rent, and utilities.
Potential Loan Forgiveness
  • Some of the loan proceeds may be forgiven when used for payroll costs, interest payments on mortgages, rent, and utility payments.
  • Adjustments are made for both the number of Full Time Equivalents (FTEs) retained during the loan period as well as for payroll deductions greater than 25%, with several qualifiers.
How has the CARES Act amended EIDLs?
The CARES Act made several changes to the EIDL program, as described in our previous COVID-19 communication.
  • The CARES Act makes applying for an EIDL loan significantly easier with a new web application portal.
  • The CARES Act removes standard EIDL program requirements, now allowing applicants to also seek financial assistance elsewhere.
  • The CARES Act amends the EIDL loan program by providing an emergency grant of up to $10,000 to businesses while their EIDL loan is being processed. The advance may be used to cover payroll, sick leave, mortgage payments, and other obligations; and does not have to be repaid even if the EIDL loan application is denied.
Should your business apply for a CARES Act loan, EIDL, or both?
The short answer: it depends. Because each business is different, every business should consider the various assistance programs available to determine which fit is best, including other programs and benefits that are available.
BlueWater Partners is committed to supporting you during this unprecedented time, for guidance on your business’ specific situation or for additional information about the CARES Act and EIDLs, please email Ron Miller or Jeff Jackson.

COVID-19: Business Implications Series — Economic Injury Disaster Loans (EIDL)

The U.S. Small Business Administration (SBA) has designated COVID-19 as a qualifying event for the provision of Economic Injury Disaster Loans (EIDL).

Small business owners in all U.S. states and territories are currently eligible to apply for a low-interest loan due to COVID-19. An EIDL might be the best option to bridge your working capital requirements over the next 60–120 days or longer. Below are answers to the most commonly-asked questions about EIDL that BlueWater Partners has received.

What is an EIDL?
An EIDL is a low-interest, fixed-rate loan that can provide up to $2 million in assistance for small businesses severely impacted as a direct result of a declared disaster, such as COVID-19.
  • Administers vital economic support to help overcome temporary loss of revenue.
  • Helps meet necessary financial obligations (fixed debts, payroll, accounts payable, and other bills) that your business could have met had COVID-19 not occurred.
  • Prevents having to go through a bank to apply for a loan.
  • Fixes the interest rate at 3.75% for small businesses without credit available elsewhere.
  • Offers loans with long-term repayments (up to 30 years) in order to keep payments affordable.
  • Currently, initial repayments are deferred for four months.
What is the first step?
Perform an assessment of your business to determine the impacts of COVID-19 with a primary focus on your cash flow.
  • Determine the potential for delayed payments from your customers.
  • Understand the impacts of idle inventory due to production slow-downs or stoppages.
  • Prioritize payroll, benefits, and taxes, and take a close look at your current vendor obligations.
Is your business eligible to apply for an EIDL?
If your small business suffers substantial economic injury as a direct result of COVID-19, you may be eligible for EIDL financial assistance. EIDLs are available to small businesses that meet certain SBA size standards, which vary by industry.
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What are EIDL’s lending criteria?
  1. Applicants must have a credit history that is acceptable to the SBA—extenuating circumstances include recent bad credit that’s shown to be caused by COVID-19.
  2. You will need to prove that you have the ability to repay the loan.
  3. When applying for loans greater than $25,000, your business will likely have to pledge collateral for the loan.
    • SBA requires borrowers to pledge what is available; they prefer real estate.
    • Loans under $25,000 can be unsecured.

Please know that BlueWater Partners is committed to supporting you during this unprecedented time. If you have questions, concerns, or would like assistance with your EIDL application, please email or call us. We’ve been through the application process and we’re here to help.

Coronavirus Disease 2019 (COVID-19): Implications for Business

While the health and safety of employees is the number one priority, companies will also grapple with other urgencies.

In BlueWater Partners’ experience, crises come with both short- and long-term implications. Companies differentiate themselves by how well – and how quickly – they react. Successfully navigating crisis will assure stakeholders that a company can be a strong partner in the future. ­

COVID-19 will test an organization’s ability to manage through and, in some cases, survive major disruption and uncertainty. Leaders need to be more proactive now than in any time in recent memory. Below, we’ve outlined a few actions to help leaders think through their own crisis management plans – they are not all-inclusive or detailed enough to substitute for a thorough, company-specific analysis.

Perform a stress test on your company.
  • Model out the impact of a material drop in revenue (10%, 20%, or more).
  • Communicate the potential impact to your customers, suppliers, bank, and other stakeholders.
  • Prepare a range of business disruption scenarios.
  • List the steps you can take to react to and mitigate the potential damage (e.g., cost reductions).
  • Prepare for high absenteeism.
Evaluate your supply chain.
  • Identify critical components, parts, and suppliers.
  • Map your supply chain and its risks – know who your suppliers’ suppliers are.
  • Consider backup or secondary sources to mitigate risk, especially if they are offshore.
  • Confirm each supplier’s production capacity and your place in their schedule.
  • Determine whether each vendor is prepared for high absenteeism.
Communicate more frequently than normal.
  • Keep all of your stakeholders informed on a regular basis.
  • Be ready to share contingency plans as the environment changes.
  • Be proactive – don’t leave your stakeholders wondering.
  • Present solutions, not problems – going to your stakeholders with a plan will earn you cooperation, time, and support from customers, lenders, and suppliers.
  • Stick to the facts, and disclose the bad news with the good.

While ensuring continuity of operations, your company should implement strategies to protect your employees from COVID-19 — click here to learn about the Centers for Disease Control’s Interim Guidance for Businesses and Employers.

Please know that BlueWater Partners is committed to supporting you during this unprecedented time. If you have questions or concerns, please email or call us.

BlueWater Partners Announces the Divestiture of GLMS Cusseta

Great Lakes Metal Stamping, Inc. (“GLMS”) has completed the divestiture of its Cusseta, Alabama business to Challenge Manufacturing Company (“Challenge”), an employee-owned metal manufacturing company. The transaction will enable GLMS to focus on its core business and Challenge to expand its footprint into the southeast United States. The divestiture includes approximately 65 employees, a 90,000 square foot facility, and 8 press lines and support equipment.

BlueWater Partners acted as the exclusive financial advisor and Dickinson Wright acted as the legal counsel to GLMS for this transaction.

About Great Lakes Metal Stamping

Founded in 1995, Great Lakes Metal Stamping, Inc. is a full-service supplier of precision metal formed products to the appliance, automotive, and consumer products markets. From concept to launch, GLMS has the ability to supply prototype, low volume, and high volume stamped products. Core processes include stamping, resistance and robotic welding, and assembly. www.glakesmetalstamping.com

About Challenge Manufacturing Company

In 1981, Challenge was founded in Walker, MI, starting with two presses, and has grown organically and significantly over the past four decades. Today, still headquartered in Walker, MI, Challenge employs approximately 3,500 team members across ten locations in North America and Asia. www.challenge-mfg.com

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BlueWater Partners Announces the Acquisition of Selected Assets of CNI Plastics LLC and Affiliates by Clarion Technologies

Clarion Technologies, Inc. (“Clarion”), a Michigan-based custom injection molder, has purchased selected assets of CNI Plastics LLC and Affiliates that are used in connection with its injection molding business. The transaction provides Clarion with new customers and products which will be produced at each of its three manufacturing plants. BlueWater Partners acted as the exclusive financial advisor and Varnum acted as the legal counsel to Clarion for this transaction.

“This acquisition will reinforce our multi-regional growth strategy and allow future expansion in the multiple markets we serve,” said John Brownlow, President of Clarion.

About Clarion Technologies

Clarion designs, develops and manufactures injection-molded components that meet or exceed customer quality expectations in the highly dynamic home appliance, consumer products, automotive, medical and HVAC industries. Headquartered in Holland, MI, the company operates three regional plants in Anderson, SC, Garland, TX and Greenville, MI. Clarion has over 350,000 Square Feet of Manufacturing and Warehouse space operating 110 injection molding machines with clamping force of 25 to 2,000 tons. clariontechnologies.com

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BlueWater Partners Announces Strategic Investment in Kruger Plastic Products by HC Private Investments

Kruger Plastic Products (“Kruger”), a family-owned, custom injection molding manufacturer of niche products and components, has been acquired by HC Private Investments (“HCPI”), a Chicago-based private investment firm. Kruger’s senior management, including Pat Brandstatter, President, and Dirk Kruger, VP of Engineering, will maintain significant stakes in the company. Terms of the transaction were not disclosed. BlueWater Partners acted as the exclusive financial advisor and Varnum acted as the legal counsel to Kruger for this transaction.

Kruger has been an integral part of its customers’ manufacturing process for more than 40 years by providing them with end-to-end, value-added injection molding solutions, from in-house production engineering and design, raw material sourcing, tool making, logistics, assembly and inventory management. Kruger currently serves customers across a variety of industries including consumer, industrial, and recreational vehicle end-markets. Kruger is based in Bridgman, MI and has approximately 100 employees.

HCPI has identified numerous opportunities to accelerate sales growth through strategic investment in manufacturing capabilities and personnel to better serve Kruger’s existing customer base, as well as expand into new end markets such as medical products.

Pat Brandstatter, said, “We are excited to be working with HCPI to build long-term value. We believe that HCPI’s experience and capabilities make them the ideal partner for Kruger to take advantage of the significant opportunities ahead while maintaining our core values of quality and service.”

John P. Kelly, Managing Partner at HCPI, said, “Kruger Plastic Products has distinguished itself through an unwavering focus on quality and service to its many great customers and we are excited to partner with Pat and Dirk to help them expand the business. We have great respect for the team and business that has been built over of the course of four decades.”

Matthew J. Moran, Managing Partner at HCPI, added, “We could not be more delighted to build on the legacy of Kruger Plastic Products, and look forward to working with the team to build a growth platform and bring Kruger’s world-class products and services to a broader array of customers.”

About Kruger Plastic Products

Established in 1975 as a custom injection molder dedicated to quality and customer service, Kruger Plastic Products today provides customers with quality parts in conjunction with value-added services relating to engineering, design/decoration, material, process, assembly and packaging. Kruger’s facility incorporates 47 injection molding machines ranging in size from 25 tons to 1,000 tons, and supports a fully staffed, full service mold making and repair department with CAD/CAM capabilities and off-line programming. For more information, please visit www.krugerplasticproducts.com.

About HC Private Investments

HC Private Investments (“HCPI”) is a private equity investment firm focused on making investments between $5 million to $30 million in lower middle-market manufacturing businesses within the consumer and industrial markets. HCPI invests capital from HC Technologies, LLC, a Chicago-based principal trading firm led by Joe Niciforo with offices New York and London. The firm will also bring select family offices and individuals to participate in its transactions providing HCPI with a flexible and patient capital base. With a focus of being the first institutional investor in a business, HCPI seeks to partner with business owners, executives and management teams to identify opportunities to remove impediments to growth enabling companies to maximize their full value potential. For more information, please visit www.hcprivateinvest.com.

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Expect Activity to Accelerate in 2018

SUMMARY & OUTLOOK

Expect Activity to Accelerate in 2018

Heading into 2018, the state of the mergers and acquisitions market looks strong. U.S. target middle market announced deal volume climbed 19.6% to 9,630 YTD 3Q17. Value grew 15.4% to $183.0 billion during the same period. And, purchase price multiples hit 7.5x EBITDA in 3Q17, raising the last twelve month average to 7.0x.

Debt and equity capital continue to be plentiful. M&A leveraged loan volume amounted to $249 billion through 3Q17, up 12% year over year. Dry powder available to private equity groups and cash held by corporations remain at or near record levels.

Overall, the economic variables that drive M&A continue to be sustaining.

  • The Conference Board Leading Economic Index® (LEI) for the U.S. increased 1.2% in October to 130.4 (2010 = 100), following a 0.1% pickup in September, and a 0.4% increase in August. The expansion of the LEI suggests that the U.S. economy will continue to grow through 4Q17 and into 2018.
  • According to the “second” estimate by the BEA, real GDP increased at an annual rate of 3.3% in 3Q17, following a 3.1% bump in 2Q17. Positive contributions from inventory investment, nonresidential fixed investment, and exports were partly offset by negative contributions from residential fixed investment and imports.
  • Total nonfarm payroll employment increased by 261,000 in October as the unemployment rate crept down to 4.1%, the U.S. Bureau of Labor Statistics reported.
  • The Consumer Price Index for All Urban Consumers increased 0.1% in October and 2.0% during the last twelve months. The Producer Price Index for final demand advanced 0.4% in October and 2.8% during the last twelve months, the sharpest increase since a rise of 2.8% during the last twelve months ended February 2012.
  • The Conference Board Consumer Confidence Index® stood at 125.9 (1985 = 100) at the end of October, its highest level in almost 17 years. Consumers’ more buoyant assessment of present-day conditions, the job market and business conditions were thought to be the primary drivers of the boost in confidence.

Taken together, our outlook for M&A activity in 2018 is positive. Retirement, concerns about the window closing, and shifts in strategy continue to bring sellers to the table. Aside from geopolitical risks, the lack of available, high quality targets is probably the greatest threat to another robust year.

For more information or to discuss how BlueWater Partners can help you evaluate your financial and strategic alternatives, please contact us.

 

M&A ACTIVITY

Deal Volume

Source: Thomson Reuters

According to Thomson Reuters, U.S. target middle market announced deal volume increased 19.6% to 9,630 from 8,049 through the first three quarters of 2017 and 2016, respectively, and pushed last twelve months (LTM) September 30, 2017 volume to 12,270. This marks a continuation of the upward trend that began at least five years ago.

 

Source: FactSet

Technology Services was the most active sector during the last three months (L3M) ending September 30, 2017, according to FactSet. The next four most active sectors include Commercial Services, Finance, Consumer Services and Health Services. The top four have essentially remained the same during the last year or so.

Deal Value

U.S. target middle market announced deal value rose 15.4% to $183.0 billion from $158.7 billion during the first three quarters of 2017 and 2016, respectively, according to Thomson Reuters. At the same time, average deal value dropped 3.6% to $19.0 million from $19.7 million.

Source: GF Data

Purchase price multiples, which had dipped slightly in the first quarter of 2017, surged in the second and third quarters. According to GF Data, the average multiple for transactions with $10-250 million Total Enterprise Value (TEV) catapulted to 7.5x LTM adjusted EBITDA during 3Q17, the highest mark in the 15-year history of the database. The “size premium,” which is the spread between the lower middle market ($10-25 million TEV) and upper middle market ($100-250 million TEV), averaged 2.4x during 3Q17, down somewhat from the average of 2.8x during 2014-2016. During 3Q17, lower and upper middle market companies traded at 6.9x and 9.3x, respectively.

Debt and Equity

Source: GF Data

Middle market transactions were funded with 4.6x total debt/EBITDA on average during 3Q17, up from 4.0x in 2016. This reflected an increase in senior debt combined with a decrease in subordinated debt. Senior debt in 3Q17 rose to 3.8x from 3.0x in 2016. Subordinated debt decreased slightly to 0.8x during 3Q17 from 1.0x in 2016.

According to Thomson Reuters, leveraged loan volume expanded to $1.07 trillion YTD October 2017, 53% higher compared to the previous year. More specifically, M&A leveraged loan volume increased by 12% to $249 billion. After tightening for most of last year into this year, middle market yields tightened again in 3Q17 to 5.94%.

 

 

Source: GF Data

Equity contributions, which averaged nearly 50% in 2013, continued their retrenchment to 42.3% through YTD 3Q17. This trend has been aided by steady valuations and surging debt. As interest rates rise, either buyer or seller expectations will need to adjust.

The amount of cash held by corporations remains at or near a 10-year high, and the amount of dry powder available to private equity groups reached another all-time high. According to FactSet, S&P 500 aggregate cash positions (ex-Financials) have remained at about $1.5 trillion during the past few years. Similarly, Preqin reports global callable capital reserves (“dry powder”) of buyout funds rose to $608 billion in September 2017.

 

SELECT ENGAGEMENTS

Knapp Energy, Inc. (“Knapp”), a leading distributor of fuel, lubricants and propane to commercial and residential customers, has been acquired by Crystal Flash, an employee-owned energy distribution company. The acquisition enabled Crystal Flash to expand its capabilities, footprint and talent. All employees of Knapp were retained.

BlueWater Partners acted as the exclusive financial advisor and Lewis Reed & Allen acted as the legal counsel to Knapp for this transaction.

 

 

BlueWater Partners Announces the Sale of Dies Plus

GRAND RAPIDS, Mich., November 27, 2017 – Dies Plus, Inc., a leading manufacturer of precision metalforming dies and tooling, has been acquired by OTTO Engineering, Inc. (“OTTO”), a manufacturer of control switches and audio accessories. The acquisition complements OTTO’s internal stamping capabilities, and OTTO plans to make additional investments in people and technology at Dies Plus in order to grow the business. All employees of Dies Plus were retained. BlueWater Partners acted as the exclusive financial advisor to Dies Plus for this transaction.

“Our key focus and success has been the dedication to create a modern machine shop. Staying one step ahead of our competition by embracing state of the art technology, reinvesting in new machinery, and exploring 3D software have been the key elements of our success,” explained Neil Dohe, Vice President of Dies Plus. “We look forward to continuing this passion of building precision stamping dies with a company sharing our vision and to support American manufacturing!”

“I see a tremendous opportunity to invest in the future of American manufacturing,” said Tom Roeser, President of OTTO. “It takes several years of experience and training to become a tool and die maker. Our plan is to hire several apprentices and experienced tool and die makers and grow these important technologies.”

About Dies Plus

Headquartered in Itasca, IL, Dies Plus provides die manufacturing, wire EDM, engineering, and maintenance & repair for customers in the automotive, connector terminals, bus bars, medical, turbines, cell phone, lighting, and other industries. The company focuses on close tolerance, Class A stamping dies, and has experience with many metals including steel, stainless steel, and non-ferrous metals. Dies Plus has the skilled personnel and precision equipment to meet tolerances down to .0001 of an inch, and the flexibility to handle specialized tooling like multi- and four-slide dies. www.diesplus.com

About OTTO Engineering

For over 55 years, OTTO has been designing and manufacturing a full line of control switches, and for over 25 years, audio accessories for unique and demanding applications. Located in Carpentersville, IL, the company is recognized worldwide for superior performance and innovative products. OTTO is a vertically integrated manufacturer with in-house injection molding, stamping, CNC machining, cable assembly and cable overmolding capabilities. The company markets its products through two divisions, OTTO Controls and OTTO Communications. www.ottoexcellence.com

About BlueWater Partners, LLC

BlueWater Partners is a middle market investment banking and consulting firm. As strategic advisors to business owners and management, BlueWater Partners works with companies to create, manage and realize business value, frequently before or through a sale or acquisition. BlueWater Partners’ services include advice on mergers and acquisitions, divestitures, capital sourcing, performance improvement, restructuring and turnaround.

Contact:

Matt Miller, Managing Director, BlueWater Partners, matt@bluewaterpartners.com, 616.988.4796
Jerry Dohe, President, Dies Plus, jerrydohe@diesplus.com, 630.212.0543
Tom Roeser, President, OTTO Engineering, tom.roeser@ottoexcellence.com, 847.654.8205

BlueWater Partners Announces the Sale of Dies Plus

Deals aplenty: Survey results point to stronger M&A market in 2018 (MiBiz)

“In terms of confidence and growth and leading economic indicators, and the amount of capital, it’s all very supportive of transaction activity.”

BlueWater Partners Announces the Acquisition of GTM Plastics by Clarion Technologies

GRAND RAPIDS, Mich., October 16, 2017 – Clarion Technologies, Inc. (“Clarion”), a Michigan-based custom injection molder, has acquired the assets, business, and operations of GTM Plastics, Inc. (“GTM”), a Texas-based custom injection molder. The transaction brings Clarion closer to some of its customers and into new market segments. BlueWater Partners acted as the exclusive financial advisor and Varnum acted as the legal counsel to Clarion for this transaction.

“We bought GTM primarily because of its location,” said John Brownlow, President of Clarion. “GTM puts Clarion in the southwest U.S. and closer to our customers in Mexico. It also takes us into some new markets like HVAC.” Clarion plans to invest about $2 million in the Garland, TX facility in the near term. Most of the expenditures will be made on new equipment, including chillers, cranes and robots.

About Clarion Technologies

Clarion designs, develops and manufactures injection-molded components that meet or exceed customer quality expectations in the highly dynamic home appliance, consumer products, automotive, medical and HVAC industries. Headquartered in Holland, MI, the company operates three plants in Anderson, SC, Garland, TX and Greenville, MI. Clarion operates injection molding machines with clamping force of 25 to 2,000 tons. www.clariontechnologies.com

About GTM Plastics

GTM was founded in 1964 as Garland Tooling & Machining Co. The company provides thermoplastic injection molding and tool making and contract manufacturing services and serves markets like HVAC, flow control valves, and sporting goods. GTM’s quality system is registered under the ISO 9001-2008 standard.

About BlueWater Partners, LLC

BlueWater Partners is a middle market investment banking, consulting, and merchant banking firm. As strategic advisors to business owners and management, BlueWater Partners works with companies to create, manage and realize business value, frequently before or through a sale or acquisition. BlueWater Partners’ services include advice on mergers and acquisitions, divestitures, capital sourcing, performance improvement, restructuring and turnaround. www.bluewaterpartners.com

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