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Tom's Two Cents: The Global Edition

With enterprise values (EVs) across all sectors at near all-time highs, it's no coincidence leverage levels have followed suit. However, as detailed in a previous article, the industrials sector is once again the hot sector as private equity investors and strategics continue to invest aggressively — looking for both new platforms, and complimentary add-on investments. This has pushed valuations and leverage in the sector to historical high points.

Thompson Reuters LPC reports that leverage in the industrials sector has crossed the five times mark. Previously, the five times sector mark was achieved only by healthcare and technology businesses where EVs routinely top double digits.

For borrowers in the industrial sector, today’s environment is as aggressive and accommodating as any we have witnessed over the past seventeen years. Even with the abundance of capital, and aggressive terms the lending market is offering, we caution borrowers trying to pull together complex international financing on their own. With international deals, the legal jurisdictions, coupled with potential tax ramifications, add a complexity to each deal that requires unique experience in structuring these types of deals. Our track record of structuring and closing international financing facilities is unmatched in the industry, and we welcome the opportunity to discuss potential financing structures with you.

Given the dynamics referenced above, strategics and private equity investors are looking for global opportunities to expand, and lenders are more and more willing to support these global industrial businesses. While middle-market business subsidiaries used to require local financing, we are now seeing lenders make accommodations to allow for companies to finance their global deals all under one facility.

Traditionally, secured lenders accommodated foreign assets and cash flows only from countries with favorable property laws similar to the U.S.'s UCC laws; jurisdictions such as Canada, the United Kingdom, and to a lesser extent, Germany. As competition ratchets up to put capital to work, lenders are stretching and making additional accommodations to include assets and cash flows from regions where secured lending is still very early in its development and hasn't been fully tested through the court systems.

This has allowed middle-market companies to be financed much more efficiently, reducing costs, and increasing leverage as the combined global entities reach a critical scale and therefore receive market-making terms and leverage.

Android Industries raised growth financing from a bank club. An ABL revolver, agented by Bank of America with Wells Fargo Bank N.A. and J.P. Morgan Chase as participants. Two term loan facilities were raised, the first agented by Santander Bank, the second by Banco Santander (Mexico).

Trienda Holdings raised acquisition financing for the acquisition of PendaForm. JP Morgan Chase Bank, N.A. and White Oak Global Advisors provided financing for the transaction.

Lapmaster Wolters raised acquisition financing from Bank of America Merill Lynch and MB Financial.

However, middle-market industrial businesses have one unique characteristic many other “traditional” sectors lack in that they tend to be much more globally diverse. It is not uncommon to see even lower middle-market industrial businesses with global footprints across two or even three continents. These industrial businesses are not only located in the local markets where their goods are consumed, but also take advantage of lower cost production and assembly in areas such as Mexico, South America and China, while coordinating with geographies where there is traditionally higher intellectual property, such as the U.S. and Germany.

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Livingstone is strategically positioned in Beijing, Chicago, Los Angeles, London, Madrid, Dusseldorf and Stockholm, and is a long-standing leader in cross-border and domestic M&A for the industrials sector, with over 275 successfully completed transactions.

Our Global Industrials Group provides strategic advice and seamless transaction execution to private business owners, financial sponsors, and major corporations across Europe, North America and Asia.