Despite volatile oil and gas pricing, project delays and other factors, North America’s petrochemical, refining and related industries remain robust. An estimated $200 billion is currently being invested in expansions, new construction and infrastructure development projects, with mergers and acquisitions (M&A) adapting to meet the demands of the marketplace.
“There’s a lot of uncertainty in the market today with the price of oil, but with challenge comes opportunity,” said IVS Investment Banking President Thomas Brinsko.
Also the president and COO of BIC Magazine and BIC Recruiting, Brinsko moderated a panel titled “Mergers and Acquisitions: Creating Opportunities and Building Alliances” at the Energy Construction Forum held recently in Galveston, Texas.
“Building alliances is exactly what we do,” affirmed panelist and The JV Driver Group President Roger Gossett. “We talk about building relationships, not just things. We take care of each other, starting with safety.”
According to Gossett, building alliances is the core value that defines the culture at The JV Driver Group, not only within the realm of M&A but throughout all aspects of the company.
“We’re approximately a billion and a half dollar company today,” Gossett continued, noting The JV Driver Group’s acquisitions including Total Industrial Services, Agility Integrated Services, MetroCan Construction Ltd., Entrec Corp., Intelliwave Technologies and Fluor Driver, among others.
“There’s been a lot of activity, all because of our core values,” he said, adding a company must be absolutely sure about what its culture is in order to be successful. “Our mantra is ‘Think different, build better.’”
A primary component The JV Driver Group considers with a potential acquisition, Gossett said, is that business’ quality of safety measures.
“That’s going to tell us a whole lot about the business,” Gossett continued. “You can tell it’s important to us. We’ve logged 14 million man-hours without a loss or an accident.”
Beyond EBITDA
Remarking business owners frequently ask how to determine the worth of their companies, Brinsko challenged panelists to explain how they put a price on a company and how deals are valued in today’s economy.
One formulation, IVS Investment Banking Managing Director John Zapalac explained, involves a multiple of the company’s earnings before interest, taxes, depreciation and amortization (EBITDA).
“But it’s not quite that easy,” Zapalac added.
Zapalac, also a panelist, works with lower middle market firms and advises their owners and management teams in the performance of leverage recapitalizations, corporate sales and management led buyouts. Since Zapalac joined IVS Investment Banking, the firm has closed approximately $250 million in transactional value.
“Almost everybody just wants to go through an easy EBITDA multiple on the most recent year of earnings,” Zapalac said. “But it is more of a longer-term project to figure it out.”
Determining a company’s worth requires a sharp budget analysis of its historical and projected sales and profitability, as well as working capital and capital expenditure needs, Zapalac said.
Zapalac further noted clients’ 2013 and 2014 budgets sometimes don’t reflect “fully baked-in” health care costs, requiring buyers make adjustments to EBITDA due to costs associated with the passage of the Affordable Care Act.
“We’re seeing a lot more of that,” he said. “A lot of these profits are being taken down because of the projection of future costs into 2016 and 2017, and thereafter.”
Referring to an old adage, Brinsko concluded, “A company’s going to be worth what somebody is willing to pay for it.”
For more information, visit www.bicalliance.com/ivs-investment-banking, www.jvdriver.com or www.energyconstructionforum.com.
by Nancy Ford
