Hagan: Lessons From 13 Fastener Acquisitions

John L. Wolz

What is a fastener distributorship worth today? After analyzing 13 fastener company acquisitions for a Valuation Book, Richard Hagan of Pinnacle Capital Corporation pegged the value in today�s market at 4.5 to 6.5 times EBITDA.
�The primary financial measure by which the value of a fastener distribution company should be determined in the �private market� is operating cash flow, or EBITDA � earnings before interest, taxes, depreciation and amortization expenses,� Hagan explained. �Those numbers have declined since the peak in 1999.�
The 13 fastener companies� acquisitions from 1998 to 2002 ranged from 4.7 times EBITDA to 11.7 multiples and averaged 6.9 times.
Hagan, who specializes in arranging fastener company acquisitions, noted that buyers need to look at �cash flow over a business cycle and what the buyer thinks he can do going forward.�
Because of the slow market of the past few years Hagan observed that �there are a lot of bottom fishers� looking to buy based on 2001 and 2002 results rather than an entire business cycle.
�The multiple of operating cash flow � EBITDA � which most acquirers are prepared to pay for a target company depends primarily upon that company�s projected post-acquisition operating cash flow.
Companies that outperform the industry over the course of a business cycle can command a higher price.
Hagan�s Valuation Book analyzes the acquisitions for which financial information on the target company was filed with the SEC. Because New York-based Pinnacle served advisory or investment banking roles on some of the transactions, to protect client privileged sources only information obtained from public sources such as SEC filings and news releases was used in the analysis.
� The average multiple of trailing EBITDA paid for by aerospace fastener distribution companies was 7.3. �Aerospace yields more than the typical industrial distributor,� Hagan noted.
� The average multiple for inventory management-focused fastener distributor companies was 6.3, and the average for catalog sales-focused fastener distribution companies was 6.9.
� Prices in the 13 deals ranged from $10 million for the former Questron Technology Inc. acquisition of Olympic Fasteners & Electronic Hardware to $295.8 million for Allied Signal�s purchase of TriStar Aerospace Company.
� Some transactions yielded high multiples, such as the 8.8 paid for R.C. Dudek & Company Inc. by Penn Engineering & Mfg. Corp. and the 8.4 for TriStar Aerospace Company by Allied signal Inc.
Low multiples include the 4.7 Anixter International Inc. paid for Pentacon Inc. and 5.4 for Questron. Both Pentacon and Questron had gone into bankruptcy.
Both the number of fastener acquisitions and purchase price multiples have steadily declined since the peak in 1999, Hagan pointed out. �For example, it can be argued that M&M Aerospace Hardware Inc. is at least as attractive as either Standard Parts & Equipment Corp. or TriStar Aerospace Company,� Hagan explained. �However, M&M Aerospace sold for 6.5 times trailing EBITDA in late 2001, while Standard Parts and TriStar sold for 7.8 and 8.4 times during 1999.
Deals analyzed include Questron Technology�s acquisitions of Capital Fasteners, Action Threaded Products and Olympic Fasteners, and Questron�s subsequent acquisition by General Electric; Pentacon�s acquisition by Anixter; M&M Aerospace by BE Aerospace; ABSCOA by UMECO; Lilleshall by Wyko Group; Curtis Industries by Barnes Group; Kar Products by Glencoe Capital; Standard Parts & Equipment by TriStar Aerospace; TriStar Aerospace by Allied Signal; and R.C. Dudek & Company by Penn Engineering.

Editor�s Note: Copies of the report are available to Pinnacle clients or potential clients. Hagan can be contacted at 212 267-8200 Fax 212 267-7811 E-mail: rphagan@pinnaclecapitalcorp.com �2003 FastenerNews.com