SEP 2018


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SEPTEMBER 2018 16 CompositesWorld TRENDS CW: The composites industry is relatively young and grow- ing quickly, but it's also highly technical. As someone who bridges the gap between those inside and outside the industry, what are your observations of the industry? MDP: The composites industry has been around for 50 years — and I am sure there are people who would argue it's been longer or shorter than that — but it's really been more in the last 5 to 15 years that a lot of the materials and a lot of the technologies and a lot of the landscape has really devel- oped and evolved. So it's been a little bit of a shorter period of time. ... and a lot of the problems [companies] are trying to solve for are fairly bespoke, or there's a lot of "secret sauce" that goes into competitively differentiating one busi- ness from the next. That secrecy or that protection of what's going on behind the curtain has been very beneficial to a lot of players ... but I think a lot of the "bespokeness" of the industry has translated into a little bit of an insular attitude in some regards. And that's made it tough for some of the more institutional coverage efforts [to get involved]. ... I don't mean that to sound derogatory. Like I said, the industry's greatest benefit is perhaps one of its areas for development and further growth. Ultimately what you have is a lot of very smart technical people in this industry, running businesses and owning businesses, but kind of figuring out the business of business on their own as they go, and they don't have some of the same tools and resources that might be avail- able to other peers in other industries. CW: How does this play out in the composites industry? MDP: To give an example ... if you have, call him Joe Composite, and he's built a great technology and he's built it up to a fairly sizable scale and it's now starting to attract some interest from potential partners, would-be investors, potential acquirers, and he's typically got that insular mental- ity because where he's gotten with his business and his life- cycle has focused on protecting that intellectual property or whatever that secret sauce is. ... He may be thinking that the time is right to consider some sort of alternative, whether that's selling the business, taking on capital or a growth partner that will help him get to that next level ... there's less of a tendency to engage outside help to go make that happen. So then what happens is you've got the guy down the street or maybe it's one of the big guys that they've been able to shoot breeze with at events over the years, and there's a level of familiarity there to work together and a deal ends up happening. ... But if you compare the aver- age deal, in any industry, without some sort of advisor or some sort of third-party input, versus one that gets done with that advisory assistance, there's a pretty notable differ- ence in terms of valuation, terms of the deal, outputs and capability of the individuals moving forward. CW: How do you compare the M&A strategies of composites material suppliers vs. fabricators and parts manufacturers? MDP: If you look at, call it the fabricators, the people making stuff. When a business like that gets acquired, it's usually being done for reasons of scalability or it adds a capability or is accretive in some sort of financial way. So you usually find businesses on the fabrication side that are acquired tend to be a little more established, mature — have been around for some period of time. And then you look at the material supplier and the materials technology side of the equation and the people acquiring those busi- nesses are typically more interested in gaining technologi- cal differentiation through acquisition. That allows them to look at a slightly different universe of potential targets. Ultimately their goal is to be in a position to offer more of the value chain to their end customer. So they can take an earlier stage or smaller business that's got a great technol- ogy, or some established differentiation through IP. Q&A: Michael Del Pero, managing director, FocalPoint Partners CW Talks with composites industry mergers-and-acquisitions specialist Michael Del Pero, looks at flax-fiber/TPC moldings that mimic fine hardwood, and peeks behind the scenes at the marine Skiff Challenge. Editor's note: The highly dynamic nature of the composites industry makes it a strong target for mergers and acquisitions (M&A) activity on the part of a variety of companies and investors eager to be a part of this industry's growth. Further, the past few years have seen several very significant acquisitions by larger industry players looking to shore up material and technical capacity (e.g., Tokyo, Japan-based Toray Industries' acquisition of TenCate Advanced Composites, Nijverdal, The Netherlands). Michael Del Pero, managing partner at investment banking advisory firm FocalPoint Partners (Los Angeles, CA, US), has worked for several years in the composites industry M&A space and recently shared with CW Talks: The Composites Podcast his assessment of the composites investment market. CW's conversation with Del Pero is excerpted here. Visit iTunes, Google Play or for the full CW Talks interview.

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