The BGL Industrials Insider is published by Brown Gibbons Lang & Company, a leading independent investment bank serving middle market companies throughout the U.S. and internationally. Insider Industrials Spotlight On: Page 4 Industrial Filtration The industrials M&A market continues to exhibit strong momentum, with Filtration Products and Systems seeing an uptick in deal flow as investor focus turns to engineered products and materials targeting specialized markets and applications. Consolidation is expected as participants look to build scale in a fragmented landscape. Strategic acquisitions have centered on expanding technology and engineering resources, broadening product portfolios, and diversifying into growing end markets. September 2016 Brown Gibbons Lang & Company Chicago One Magnificent Mile 980 N. Michigan Avenue Suite 1880 Chicago, IL 60611 Cleveland One Cleveland Center 1375 East 9th Street Suite 2500 Cleveland, OH 44114 Philadelphia One Liberty Place 1650 Market Street Suite 3600 Philadelphia, PA 19103 bglco.com
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The BGL Industrials Insider is published by Brown Gibbons Lang & Company, a leading independent investment bank
serving middle market companies throughout the U.S. and internationally.
Insider
Industrials
Spotlight On: Page 4
Industrial FiltrationThe industrials M&A market continues to exhibit strong momentum, with Filtration Products and Systems seeing an uptick in deal flow as investor focus turns to engineered products and materials targeting specialized markets and applications.
Consolidation is expected as participants look to build scale in a fragmented landscape. Strategic acquisitions have centered on expanding technology and engineering resources, broadening product portfolios, and diversifying into growing end markets.
September 2016Brown Gibbons Lang & Company
Chicago One Magnificent Mile 980 N. Michigan Avenue Suite 1880 Chicago, IL 60611
Cleveland One Cleveland Center 1375 East 9th Street Suite 2500 Cleveland, OH 44114
Philadelphia One Liberty Place 1650 Market Street Suite 3600 Philadelphia, PA 19103
bglco.com
Environmental Services Insider
M&A and Capital Markets Activity• Middle market1 M&A volume declined modestly during the first half of 2016
with the number of transactions down 7 percent over the comparable period last year. Deal value increased 4 percent over the same period.
• Credit market fundamentals continue to remain attractive for borrowers as weak supply dynamics foster a highly competitive market for financing opportunities. Middle market leveraged lending saw a leaner first half of 2016 with total issuance of $52.7 billion down 35 percent year-over-year, the lowest level since 1H09, according to Thomson Reuters LPC. Middle market new money issuance of $11.2 billion in 2Q16 was down 21 percent from 1Q16 and 36 percent from 2Q15. Uncertainty around the upcoming election has sidelined some issuers, said Thomson Reuters, contributing to lower volumes. Standard & Poors Leveraged Commentary & Data (S&P LCD) reported total leverage of 4.2x in August for middle market1 transactions, a contraction from 4.6x in July. Total leverage levels remained in the 4.6x to 4.8x range during the first half of 2016.
• The broader industrials deal market is active across all segments, with
notable transaction activity in Aerospace, TransDigm (ILC Holdings), J.F. Lehman & Company (API Technologies), and Liberty Hall Capital Partners (AIM Aerospace); in Building Products, Melrose Industries (Nortek); and Industrial Machinery, Komatsu (Joy Global), Kyocera (SGS Tool), Altus Capital Partners (Nichols Portland), and Wynnchurch Capital (Texas Hydraulics).
• The market for engineered consumables is seeing a rise in M&A activity, with Filtration Products and Systems among the active segments as buyers look to build scale and gain access to specialized markets and applications and new geographies. Notable strategic activity during the last six months includes AAF International (Flanders Holdings), CLARCOR (TDC Filter Manufacturing), and Hengst Holdings (Nordic Air Filtration).
1 Middle market defined as enterprise values between $25 million and $500 million.
For more information on how
BGL’s Global Industrials Practice can assist
your company, please contact:
Delivering Results to the Global Middle Market
Andrew K. Petryk Managing Director & PrincipalHead: Industrials216.920.6613
Public Equity Markets• The equity markets rallied in August with broader indices reaching record
highs. The S&P 500 and DJIA are up 10.0 percent and 10.8 percent year-over-year, respectively, and 7.5 percent and 6.7 percent through the year-to-date period. Nearly all BGL Industrial composite indices outperformed the market year-over-year.
*As of September 21, 2016.
Operating Highlights• Commodity price volatility continues to persist. After falling below
$40/bbl in August, oil prices rebounded on news from the International Energy Agency that balances indicated “essentially no oversupply during the second half of the year.”
• The manufacturing sector contracted in August, evidenced by a PMI reading of 49.4, following five consecutive months of expansion according to the Institute for Supply Management. The general economy expanded for the 87th consecutive month.
• Housing starts increased in July to a SAAR of 1,211,000, up 2.1 percent over June, and finished 4.3 percent higher than the prior-year reading. Nonresidential construction spending declined a modest 0.3 percent in July but marked the second highest month in eight years, reported Associated Builders and Contractors. Overall growth in nonresidential building is projected to moderate at 5.6 percent in 2017, down slightly from 5.8 percent in 2016, according to the American Institute of Architects (AIA) semi-annual Consensus Construction Forecast. “Healthy job growth, strong consumer confidence, and low interest rates are several positive factors in the economy, which will allow some of the pent-up demand from the last downturn to go forward,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD.
• The Architecture Billings Index (ABI) was 51.5 in July marking the sixth consecutive month of positive readings according to the AIA. “Demand for residential projects has surged this year, greatly exceeding the pace set in 2015. This suggests strong future growth for housing in the coming year,” said Baker.
Industrials Insider
Spotlight On:
4
Industrial Filtration
Industrial consumables is seeing a rise in acquisition
activity as investor focus turns to custom-engineered
products and materials targeting specialized markets
and applications. Filtration products is among
the particularly active markets, with increased
manufacturing activity and strong end user demand
expected to sustain growth.
Economic expansion is boosting demand. The overall
economy grew for the 87th consecutive month in
August. The manufacturing sector registered a slight
dip in activity in August following five consecutive
months of expansion. In June, production rose to the
highest level since February 2015, according to the
Institute for Supply Management, which is forecasting a
stable outlook for the manufacturing sector through the
balance of the year.
Industrial production is projected to grow 3.2 percent
annually through 2020, in line with growth in the overall
economy, according to IBISWorld forecasts.
Steel
Domestic steel consumption returned to pre-
recessionary levels in 2014 (119 million tons) but saw
a subsequent decline in 2015 (108 million tons) due to
softness in the energy and heavy equipment sectors.
The steel industry should benefit from stronger
downstream demand and rebounding steel prices in the
coming years. A key driver to this industry is automotive
production, which has seen steady growth.
Automotive
Forecasts show that North American light vehicle
production will return to historic averages, reaching 19
million vehicles in 2018—equating to a 4-year CAGR
of 3.0 percent. The automobile engine and parts
manufacturing industry is projected to grow at a
3.7 percent CAGR over the next five years.
Aerospace
Aircraft manufacturers are reporting strong market
demand supported by gains in new orders and growing
backlogs. Growing air traffic will require the number of jet
airplanes in service to double over the next 20 years, from
approximately 22,510 in 2015 to 45,240 airplanes.
Construction
U.S. residential and non-residential fixed investment is
projected to grow at CAGRs of 10.7 percent and
4.1 percent, respectively, between 2014 and 2018.
FILTRATION PRODUCTS
Demand for filtration products is growing, driven by a
number of factors:
• Positive global manufacturing trends and growth in
end user markets such as automotive and aerospace,
among others. Pharmaceuticals, biotechnology,
and food processing have been cited as expanding
markets.
• Environmental and regulatory compliance and
increasing efforts to reduce air and water pollution.
With increasingly stringent environmental regulations
and enforcement worldwide, many initiatives have
been implemented globally to ensure that emissions
and pollutants are reduced from industrial activities
across all industries.
• Growing public awareness of indoor air quality which
is stimulating demand for high-performance filtration
products. In addition to improving indoor air quality,
Additional notable acquisitions include the 2014 purchase
of the Filtration Business of Stanadyne (nka CLARCOR
Engine Mobile Solutions) and the Air Filtration Business
of General Electric Company’s Power and Water Division
in 2013. Stanadyne’s fuel filtration product lines increased
CLARCOR’s breadth in the engine filtration business, while
the GE acquisition added a strong gas turbine business and
scale in the industrial dust collection market.
Commenting on the Stanadyne acquisition, CLARCOR CEO
Christopher Conway said, “Not only will this transaction
increase our OE capabilities, but we believe it will provide
us with even greater access to robust aftermarket
opportunities, as more than 70% of Stanadyne filtration’s
sales are to the aftermarket, predominantly through
original equipment services channels.” “This acquisition
also reflects our continued focus on innovative technology
and R&D. The majority of Stanadyne filtration’s current and
anticipated products embody proprietary and patented
technology that we believe is well-suited to meet the
challenges of increasing demand for cleaner fuel driven
by more stringent emission requirements.” CLARCOR
more than doubled the number of dedicated engineering
and R&D personnel in its Engine/Mobile segment with the
acquisition. CLARCOR acquired the Stanadyne Filtration
business from Kohlberg & Co.
Industrials Insider
7
Spotlight On: Industrial Filtration
With the GE acquisition, CLARCOR significantly increased
its IP by more than tripling the number of patents in
its product offering. “With this transaction, CLARCOR
will become a leading designer and supplier of air inlet
filtration products for natural gas turbines, a business
we believe is poised for long-term growth as the world
continues to shift toward natural gas as its energy source
of choice. CLARCOR traditionally has had little presence in
the gas turbine business, and we believe this transaction
will immediately position CLARCOR as a major player in
the space and provide a strong platform from which to
grow, both with respect to first-fit applications as well as
the aftermarket.”
In February 2016, Hengst Holdings
GmbH purchased Nordic Air
Filtration, A/S and related assets,
consisting of Nordic Air Filtration,
located in Nakskov, Denmark and Nordic Air Filtration,
located in Fujairah, UAE, from MFRI, Inc. (NASDAQ:
MFRI). Nordic Air is a leader in the industrial pleated air
filter market, particularly in gas turbine inlet air filtration.
With the acquisition, Hengst will further its strategy to
expand activities in the non-automotive market. Hengst
is a specialist in filtration and filtration management and
employs more than 2,000 people worldwide through
locations in Germany, Brazil, China, and the United States.
CECO Environmental Corp.
(NasdaqGS: CECE) has completed
nine acquisitions since 2012,
including its latest purchase of PMFG, Inc. in September
2015. PMFG manufactures air pollution control equipment,
natural gas separation and filtration equipment, and
industrial noise control equipment for the natural gas
infrastructure (~ 50 percent of sales), upstream and
downstream oil and gas (~25 percent), and power
generation (~25 percent) markets. The company has
manufacturing facilities in Texas and China. The acquisition
is expected to enhance CECO’s global footprint,
particularly in China and the Middle East. With the addition
of PMFG, the combined company will have sales of
approximately $486 million (+48 percent).
Filtration Group is
actively growing its
product portfolio
through acquisitions,
having completed 11 buys since 2012, including the latest
purchase of the Purafil and Kaydon Custom Filtration
businesses from AB SKF in June 2015. Purafil develops and
maintains gas phase air filtration systems and solutions for
diverse end markets ranging from industrial to wastewater
to consumer. Purafil is headquartered in Atlanta, Georgia.
Kaydon Custom Filtration is a supplier of specialized
diesel fuel and oil filtration systems and filter elements
for industrial applications. Kaydon Custom Filtration is
headquartered in LaGrange, Georgia. Combined, the Purafil
and Kaydon businesses had sales of approximately
$40 million in 2014 and operated as stand-alone businesses
within the SKF Group.
Filtration Group was acquired by Madison Industries in
2010 with backing from PNC Erieview Capital and Babson
Capital Management.
Micronics, backed by
Vance Street Capital,
completed add-on
acquisitions of C.P. Environmental (CPE) in March 2015 and
Southern Filter Media (SFM) in December 2014. CPE is a
supplier of industrial air pollution equipment and service/
refurbishment services to the air filtration market, specifically
the baghouse industry. Products and services include
industrial air replacement parts and filters, maintenance,
inspection services, and new equipment products. SFM
manufactures wet and dry filtration products, including filter
cloth, industrial filters and dust bags.
Micronics CEO Rick Weiler, said, “Combining CPE with
SFM helps us accomplish our goal of building an industry-
leading service capability that enables us to meet all of
our customers’ dry filtration needs; from new equipment
to consumables, replacement parts, repair and inspection
service.”
Commenting on the transaction, Jake Blumenthal, a partner
at Vance Street Capital, said, “CPE and SFM are highly
complementary and position the company to capitalize on
the growth opportunities in the industrial filtration market
which are increasingly being driven by more demanding
environmental regulations.”
Industrials Insider
Spotlight On:
8S o u r c e s : S & P C a p i t a l I Q , P i t c h B o o k , E q u i t y R e s e a r c h , p u b l i c d a t a .
EV/ EV/
Da te Ta rge t Ta rge t Busine ss Ac quire r Re ve nue EBITDA
Jul- 16 Valve and Filter Corporation Manufactures automatic self- c leaning water filters and control valves for a variety of industrial and municipal water applications.
Neptune- Benson, Inc. n/a n/a n/a
May- 16 Affinia Group Holdings Inc. Specializes in automotive filtration solutions for the oil, fuel, hydraulic, and coolant filter aftermarket.
Mann + Hummel Holding GmbH
$1,335.1 n/a n/a
Apr- 16 Neptune- Benson, Inc. Manufactures filtration and disinfection products for recreational, industrial, and municipal water markets.
Evoqua Water Technologies LLC
n/a n/a n/a
Apr- 16 F- Suotimet Oy Manufactures ventilation filters and air filter components Camfil AB n/a n/a n/a
Feb- 16 TDC Filter Manufacturing Inc. Manufactures air filtration products with applications in gas turbines and utilities, chemical and pharmaceutical, steel/foundries, and metal finishing/powder coating markets.
Clarcor $11.2 n/a 0.66x
Feb- 16 Nordic Air Filtration A/S Manufactures air inlets/gas turbines, industrial air filtration products, baghouse filters, and HVAC filters for OEMs, resellers, and end users worldwid
Hengst Automotive SE $11.0 n/a 0.68x
Sep- 15 PMFG, Inc.Provides custom- engineered systems and products primarily for the natural gas infrastructure, power generation, and oil refining and petrochemical processing markets worldwide.
CECO Environmental Corp. $142.4 NM 0.96x
Sep- 15 Filtac ABProvides air, dust, and liquid filtration products and systems for the transportation, power, energy, food and beverage, packaging, forest, pharmaceuticals, electronics, and hospital sectors.
Nederman Holding AB n/a n/a n/a
Jun- 15 iFiL USA, LLC Manufactures pleated filter technology for the food processing, agricultural products and processing, cement, mining, petrochemical, and plastic industry.
Donaldson Company, Inc. (NYSE:DCI)
n/a n/a n/a
Aug- 15 Pall Corporation Manufactures and markets filtration, separation, and purification products; and integrated systems solutions worldwide.
Mar- 15 C.P. ENVIRONMENTAL, Inc. Manufactures pollution and dust control equipment. Micronics, Inc. n/a 5.80x n/a
Feb- 15 Air Filter Service Company, Inc. Manufactures HVAC and specialty filtration products to utilities, commercial, and industrial customers in South Carolina, North Carolina, Georgia, and Alabama.
Camfil Farr, Inc. $265.0 n/a 1.20x
Dec- 14 Filter Resources, Inc., Filtration Inc. and Fabrication Specialties, Inc.
Manufactures and markets filters to the petrochemical and refining industries. PECOFacet (US) Inc. (CLARCOR)
n/a n/a n/a
Dec- 14 Avani Environmental Intl. Inc. Manufactures dust, fume, and smoke extraction and filtration equipment. Absolent Group AB n/a n/a n/a
Dec- 14 Jiangyin Zhongli Industrial Technology Company Ltd.
Manufactures power industry flue gas dampers and ball mill systems in China. CECO Environmental Corp. $24.0 n/a 0.86x
Dec- 14 Southern Filter Media, LLC Manufactures pollution and dust control equipment. Micronics, Inc. n/a 5.00x n/a
Nov- 14 Emtrol LLC Manufactures, installs, and supplies air pollution control and process gas treatment equipment.
CECO Environmental Corp. $38.0 8.64x 1.08x
Nov- 14 Con- Air Industries, Inc. Manufactures and distributes heating, ventilation, and air conditioning (HVAC) filtration products.
Filtration Group Corporation n/a n/a n/a
Sep- 14 Northern Technical L.L.C.Northern Technical L.L.C. designs, develops, manufactures, and supplies air filtration solutions for oil, gas, petrochemicals, and power generation industries in the United Arab Emirates and
Donaldson Europe, B.V.B.A. $98.0 n/a n/a
Sep- 14 Edco Sales, Inc. Manufactures and distributes filters for HVAC/R systems Purolator Advanced Filtration Group, Inc. (CLARCOR)
n/a n/a n/a
Ente rprise Va lue ($ mm)
SELECTED MERGERS & ACQUISITIONS ACTIVITY IN FILTRATION PRODUCTS
Industrial Filtration
Industrials Insider
Spotlight On:
9
EV/ EV/
Da te Ta rge t Ta rge t Busine ss Ac quire r Re ve nue EBITDA
Aug- 14 HEE Environmental Engineering, LLC
Manufactures air pollution control scrubbers, biological scrubbers, fiberglass reinforced plastic tanks, carbon scrubbers, fans, andcustom equipment for noxious and corrosive gas and odor control.
Met- Pro Technologies LLC $9.0 n/a 0.95x
Jun- 14 Air Distribution Technologies, Inc.Manufactures air distribution and ventilation solutions for residential and non- residential buildings; and air movement and control solutions for industrial and infrastructure applications.
Johnson Controls Inc. $1,600.0 13.50x 1.67x
May- 14Stanadyne Corporation, Filtration business (nka:Clarcor Engine Mobile Solutions, LLC)
Manufactures filtration systems and fuel additive products to OEMs for use in truck, automotive, heavy equipment, marine, industrial, and agricultural applications.
CLARCOR Inc. $325.0 8.20x 3.00x
May- 14 Filter Specialists, Inc. Manufactures liquid filtration products and solutions. Pall Corporation $124.0 n/a n/a
March- 14 Combustion Components Associates, Inc.
Provides in- furnace and post- combustion control technologies. PMFG Inc. $7.0 11.49x 0.55x
Feb- 14 Bonded Filter Co. LLC Manufacturer and servicer of air filtration systemsGemini Investors Inc.; Hermitage Equity Partners; Gemini Investors V, L.P.
n/a n/a n/a
Feb- 14 Vokes- Air Holding AB Manufactures and air filters designed for commercial and industrial applications. MANN+HUMMEL GMBH n/a 7.50x n/a
Jan- 14 Air- Nu of Baton Rouge, LLC Manufactures and distributes filtration products and services. Louisiana Capital Group, LLC n/a n/a n/a
Dec- 16 Air Filtration Business (General Electric Company)
Manufactures gas turbine filtration equipment and , industrial air filtration equipment. CLARCOR Inc. $265.0 8.00x 1.20x
Dec- 13Bekaert SA, Advanced Filtration Business (nka:Purolator Advanced Filtration)
Metal filters and systems for the polymer fiber and plastics industries. Purolator Advanced Filtration Group, Inc. (CLARCOR)
$8.0 n/a n/a
Nov- 13 Porex Corporation Manufactures molded sintered porous plastic products primarily for life science, healthcare, consumer, and industrial markets worldwide.
Filtration Group Corporation n/a n/a n/a
Sep- 13 TURBOFILTER GmbH Manufactures and installs air purification technology. ENTECCOgroup gmbh & Co. KG
n/a n/a n/a
Aug- 13 Met- Pro Corporation (nka:Met- Pro Technologies LLC)
Manufactures fluid handling equipment, product recovery and pollution control equipment, and filtration products.
CECO Environmental Corp. $210.0 11.72x 1.59x
May- 13 Clear Edge Filtration, Inc.Manufactures industrial process filtration products and filter media to companies engaged in filtering liquids from solids, dewatering, collecting and filtering dust, air filtration, filtering and purifying hot gases.
Filtration Group Corporation n/a n/a n/a
Apr- 13 Micronics, Inc. Manufactures custom filtration products and equipment. Vance Street Capital LLC n/a 6.50x n/a
Provides products and services for air pollution control, filtration, and separation in the U.S. and internationally.
Nederman Holding AB (publ)
May- 12 Flanders Corporation Manufactres air filters and related products. Insight Equity
Feb- 12 Universal Air Filter Company Produces air filters for electronics, telecom, medical, HVAC, computer, industrial, power generation, military, and broadband/CATV applications.
“ BGL’s knowledge of our industry and the end markets we serve, as well as global capabilities,
added significant value throughout the transaction process.”
Bradley Mautner, CEO MFRI, Inc.
CASE STUDY
MetalsFood & Beverage MineralsChemicals
INDUSTRIES SERVED
PetroleumPharmaceuticalsWoodPower Generation
BGL’s Industrials team served as the exclusive financial advisor to MFRI, Inc. (NasdaqGM: MFRI) in the sale of its United States, European, and Middle East filtration businesses. The businesses manufacture pleated air filter bags and dust collection cartridges for a broad range of industrial manufacturing and process end markets to meet and achieve environmental and workplace safety requirements. The businesses also manufacture gas turbine air inlet filters that protect gas turbine blades and equipment.
CLARCOR (NYSE: CLC), through a subsidiary of its Industrial Air division, acquired the operational and intangible assets of TDC Filter Manufacturing, Inc. Located in Bolingbrook, Illinois, TDC is a leading U.S. manufacturer and supplier of pleated air filter bags and dust collection cartridges, and gas turbine air filters. TDC’s products are widely recognized in the industrial air filtration space and complement CLARCOR’s existing BHA aftermarket filter business.
Hengst Holdings GmbH purchased Nordic Air Filtration, A/S and related assets, consisting of Nordic Air Filtration, located in Nakskov, Denmark and Nordic Air Filtration, Middle East located in Fujairah, UAE. Nordic Air is a leader in the industrial pleated air filter market, particularly in gas turbine inlet air filtration. With the acquisition, Hengst will further its strategy to expand activities in the non-automotive market. Hengst is a specialist in filtration and filtration management and employs more than 2,000 people worldwide through locations in Germany, Brazil, China, and the United States.
The transactions are representative of BGL’s global industrial transaction capabilities and reach.
SOURCE: Standard & Poors LCD.*NA: Data not reported due to limited number of observations for period. *NA: Data not reported due to limited number of observations for period.SOURCE: Standard & Poors LCD.
SOURCE: Standard & Poors LCD.
Transactions with Strategic Buyers Transactions with Financial Buyers
Transaction Count by Deal Size
Middle market enterprise values between $25 million and $500 million. Middle market enterprise values between $25 million and $500 million.
EBIT
DA
Mul
tiple
Tota
l Deb
t to
EBIT
DA
EBIT
DA
Mul
tiple
Equi
ty C
ontr
ibut
ion
(%)
Middle Market M&A Activity
SOURCE: PitchBook.SOURCE: S&P Capital IQ.Based on announced deals, where the primary location of the target is in the United States.Middle market enterprise values between $25 million and $500 million. *Buyout activity only
NOTE: Figures in bold and italic type were excluded from median and mean calculation.(1) As of 9/21/2016.(2) Market Capitalization is the aggregate value of a �rm's outstanding common stock.(3) Enterprise Value is the total value of a �rm (including all debt and equity).Source: S&P Capital IQ.
27
Industrials Insider
Industry Valuations
Relative Valuation Trends
NOTE: Figures in bold and italic type were excluded from median and mean calculation.(1) As of 9/21/2016.(2) Market Capitalization is the aggregate value of a �rm's outstanding common stock.(3) Enterprise Value is the total value of a �rm (including all debt and equity).Source: S&P Capital IQ.
Diversified Industrials Aerospace and Defense Electrical Componentsand Equipment
Industrial Machinery Construction and FarmEquipment
Building Products Distribution
Retu
rns
YTD 1 Year 3 Year 5Y
7.5%10.0% 10.8%
27.1%
18.8%
85.4%
64.4%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
S&P 500 DJIA
YTD 1 Year 3 Year 5Y
29
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