KAL Capital Q3 2022 Newsletter
Dear Friends,
We hope that everyone enjoyed a great Thanksgiving with their families.
Apologies for the delay with our Quarterly Industry Review, but we have been quite busy with both closed transactions as well as gearing up for several new deals to launch in Q1 2023. In the second quarter we advised on two great transactions both as bolt-on’s to existing platforms of blue-chip private equity sponsors. First, we advised Stroco Manufacturing, a provider of precision machined and fabricated structures, on its sale to Novaria Group (a portfolio company of KKR). Our second transaction was with Airport Terminal Services (ATS) which completed a transaction with Alliance Ground International, a portfolio company of Greenbriar and Audax. Both of these transactions were family-owned businesses that had experienced tremendous growth and had a multitude of seller-friendly options available as a result of the a KAL process.
These transactions were done despite a market environment that has made an abrupt transition from seller-friendly to one that requires thoughtful consideration to process design and timing. Rising interest rates are the primary culprit as the subsequent and forecasted impact on the macro economy has caused lenders to be more conservative with both the availability and cost of capital available for use in M&A events. Notably, our niche of A&D continues to be amazingly insulated as well-priced transaction activity continues, albeit at a pace below 2021. The reason for this resilience is based on the strength of both the commercial aerospace as well as defense end-markets. We have seen both private equity and strategic buyers rotate towards the A&D markets as they are two industries seen as “safe havens” in what potentially could be a global recession. This notion is being reflected in our M&A processes as we have seen private equity sponsors submit offers that either rely on pre-existing debt facilities at portfolio companies or simply contemplate a completely equity financed transaction. This aggressive posture has allowed us to continue running seller-friendly processes through the second half of 2022. Looking ahead, we are hopeful that the debt financing environment improves; we would expect the recovery to be led by non-traditional lenders that rely on LP-committed capital versus traditional commercial banks which will likely have cautious outlooks well into 2023.
We expect to have a full deal plate in 2023 as we have a number of transactions that are ready to come to the market. Our Q1 deals will include transactions in the engine MRO, aerostructure, proprietary fluid control and metal finishing industries; please reach out if you have any questions!
Sincerely,
Trevor Bohn & Ryan Murphy