Northeast Ohio Deal Activity: Navigating M&A deal structures in a tightened debt market


As interest rates and borrowing costs move in parallel, buyers are faced with the challenge of navigating increasing costs of debt to finance acquisitions, especially in deals where the seller has experienced significant growth in recent years or in acquisitions requiring sufficient working capital. In such scenarios, buyers may turn to an earnout, a seller’s note, or a combination of both alternative financing options to offer a higher enterprise value and prevail in a competitive bidding process.

Earnouts have become particularly appealing as they allow buyers to structure a portion of the purchase price based on the target company’s future performance. Instead of carrying a higher upfront cost of debt burdened by elevated interest rates, the buyer can commit to additional payments at a later day that will be contingent upon achieving specific post-acquisition financial targets. This financial structure also incentivizes sellers to actively support the post-acquisition integration and performance of the company, as their future payout is linked to the business’s success.

Similarly, seller notes have gained popularity in the face of increasing interest rates. Sellers may be more willing to accept deferred payments in the form of a seller’s note to gain additional purchase price, prevent purchase price reductions, or generate passive income through a favorable interest rate. For the buyer, the seller’s note can delay payment obligations to a later date, easing the immediate financial burden and improving operational cash flow for immediate growth projects. This approach aligns the interests of the buyer and seller, enabling the seller to secure a higher overall deal value while reducing the buyer’s immediate cash outlay.

These financing mechanisms help buyers and sellers navigate the challenges posed by higher borrowing costs and valuation gaps, fostering collaboration and risk-sharing to achieve successful M&A outcomes.

M&A Market Activity

U.S. deal volume continued to underperform previous periods with activity decreasing by 12.8 percent from June 2023 to July 2023, and TTM volume decreasing by 27.6 percent as compared to the same period through July 2022.

The Northeast Ohio M&A market experienced similar activity, with YTD July 2023 deal volume decreasing 26.8 percent as compared to YTD July 2022. July 2023, however, saw several noteworthy transactions in the Northeast Ohio region, with Edgewater Capital, Trexon and Cattron Holdings Inc. all completing acquisitions within the month

Deal of the Month

On July 5, White Cap Supply Holdings LLC, a distributor of specialty concrete accessories and chemicals, acquired Form Tech Concrete Forms, a portfolio company of Kirtland Capital Partners. Located in Walled Lake, Michigan, Form Tech is a distributor of concrete framework and accessories intended for concrete subcontractors and general contractors.

Headquartered in Norcross, Georgia, White Cap serves as a one-stop distributor of construction and industrial supplies to serve nonresidential, residential and infrastructure end markets. It distributes specialty hardware, tools materials and safety supplies including concrete accessories, electrical conduits, metal and fittings, heavy-duty pipe and conduit supports, and pipefitters tools and equipment to professional contractors.

When asked about the transaction, John Stegman, CEO of White Cap stated, “We are excited to expand our forming and shoring capabilities across multiple markets thanks to the strong talents of the Form Tech team. By combining our knowledgeable teams, we are able to strengthen our ability to deliver an unparalleled depth and breadth of products and services to our customers.”

The Form Tech deal marks White Cap’s second acquisition this year. On June 5, White Cap acquired substantially all of the assets of Pennsylvania-based concrete accessories and construction supply company Tri-Boro Construction Supplies. ●

Andrew Chalhoub is an analyst with MelCap Partners LLC, a middle-market investment banking advisory firm. For more information on
MelCap Partners, please visit or email [email protected].