Josh Bammel is the founder of Dallas investment banking boutique Kratos Capital, which advises sellers of middle market companies, and lately he’s been a busy guy.
Last year, Bammel advised appliance distributor Capital Distributing on its sale to wholesale plumbing and heating and cooling equipment distributor Ferguson Enterprises. He also assisted foodservice outlet supplier Albie’s Foods on its sale to Union Capital. Both deals were for undisclosed terms.
And in January, Bammel closed the sale of electronic manufacturing contractor Protech Global Solutions to Compass Electronics Group, a unit of Compass Group Equity Partners, for an undisclosed sum. He was enlisted by the company after its engagement period with two other advisory/investment banks rolled off.
Protech’s biggest customer represented 80% of its revenue, which made the company challenging to sell. But Bammel said he found a buyer that could absorb such a concentrated group – and at a 7.5-times multiple.
PNC Business Credit provided the funding and ScottHulse partner Jose Luis Carbonell (in the firm’s San Antonio and El Paso offices) provided outside legal advice to Protech.
“Josh understands how to apply the business issues to the legal issues while always respecting the lawyer’s role in the transaction,” Carbonell told The Texas Lawbook. “Such respect allowed me to better advise the client and take the client, in conjunction with Josh, to the finish line.”
Bammel just closed his 121st deal. He figures that he’s sold $2.7 billion worth of companies since he left Generational Equity in 2007 to start Kratos. “We thought we could serve the market better,” he said.
Kratos is a generalist firm and shoots for doing around seven deals per year at an average deal size of around $20 million to $75 million. It has 11 employees, including eight investment bankers, but Bammel typically plays a part in every deal the firm makes.
Bammel said he’s not afraid to turn away clients. “We’ll pass on 20 times EBITDA – it sucks our resources dry,” he said. “We don’t want to deal with a client who has too high expectations. It’s not a good way to start a relationship.”
Bammel said he has typically worked with regional law firms on deals, including Bell Nunnally & Martin (partner Trey DeLoach in Dallas on the Capital Distributing deal); Ferguson Braswell Fraser Kubasta; Meadows, Collier, Reed, Cousins, Crouch & Ungerman; and Carrington Coleman.
But the investment banker has interacted with national firms as well, including Kirkland & Ellis, Winston & Strawn and Foley, which counseled Albie’s Foods on the sale to Union (Detroit partner Mark Aiello, who was friends with the seller).
His competitors include Capital Alliance, Stephens, Harris Williams and Houlihan Lokey on the “outer edges,” he said.
Bammel says the middle market deal market is still hot, primarily because of the amount of private equity money around looking for a deal.
“My sense of things is, if I’m a seller and the company has a good history and a good story, plus EBITDA, I can get a nice multiple,” Bammel said. “The private equity folks need to spin down their liquidity.”
That’s what happened with Albie’s Foods, which makes peanut-free PB&J sandwiches, among other things. Bammel said when the deal was bid out, there were 11 letters of intent on the table with an average multiple of about 8.5 times EBITDA, and Union Capital won out.
“That was a very competitive deal,” he said.
Bammel said the marketplace has changed given the amount of money washing around. In the past, it was difficult for private equity firms to compete with big balance sheets at strategics. So, when the strategics fell out, private equity jumped in.
“We’re now seeing a lot of open bid competition, with private equity willing to compete with strategics,” he said. “They might run a dual process.”
Will 10-times EBITDA multiples last? Bammel doesn’t think so unless there’s political change. “If you get uncertainty, that will change pretty quickly,” he said. “An interest rate change in 2020 could put a damper on things.”
Bammel said he’s amazed at the “antsy-ness” and “angst” of business owners right now given predictions of an impending economic slowdown.
“They say, ‘I’m not going through another recession, I want out,’” he said. “They want to max that value.”
Bammel said he’s impressed by the amount of cash in the marketplace for deals. “I’ve been doing this since 2003 and the private market is exploding,” he said. “And they’re still selling to strategics.”