STRENGTH IN NUMBERS

formulations will need to be modified to adjust for the different natural gel temp, as well as the higher stringiness of pea starch pastes to generate consistent viscosities. Also, the higher particle size of pea starch could impact dry flow in conveyance systems.”

Rick Bird, operations manager at HarperLove, says, “I can see how pea starch could become a niche product in corrugated-board production, because it gives you the ability to run your corrugator at lower gel points. However, pea starch could build viscosity a little too fast due to the natural variations in pea starch uniformity.”

Running at a lower gel point gives the customer an option to increase efficiency in two different ways: (1) ability to run the corrugator faster, or (2) lowering the pressure on the steam system to conserve energy. Either way, when considering a switch over to pea starch, it is important to partner with a supplier who can understand technical formula adjustments for your specific production needs.

Ingredion also disclosed that with controlled treatment of their pea starch, they have been able to generate wet strength in corrugating adhesives without needing ketone/aldehyde-based resins, and this treatment also improves the viscosity consistency and dry flow properties that have hampered native pea starch. With this new pea-based starch, corrugators will be able to reduce or eliminate chemical additives and still achieve moisture- and water-resistant adhesive performance—another game changer. Look for this product’s availability in the second quarter of 2020.

Michael Harris is president of KPI Incorporated. He can be reached at 317-797-9898 or mharris@kpiincorporated. com.

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M&A: Securing the Best Possible Deal

BY MITCH KLINGHER

Over the past 30 or so years, I’ve been involved in a tremendous number of discussions about M&A deals, and I’m sad to report that many of the deals never actually close. The reasons for this generally come down to unreasonable expectations by either the potential buyer or seller or to issues raised by the buyer during due diligence that cause concern. In order for a deal to work, it must be a big win for both buyer and seller, and in order to make this happen, both sides need to understand what is motivating the other.

If you look at the economics of an acquisition from the buyer’s perspective, even a deal that is based upon a fairly pedestrian multiple of five times the expected cash flow that it will yield is difficult to finance because the largest portion of the purchase price is usually allocated to an intangible asset (“goodwill”). In the absence of some combination of synergies, economies of scale, or most importantly, integration benefits, there will not be any return on the investment for many years. A buyer needs something to enhance the cash flows that are being acquired above and beyond the cash flow that the target company is generating on its own in order to pay a high price. Sometimes the deal can be enhanced by geography or expertise that the target possesses, but the notion that a target company can be valued at 10 or 12 times cash

flow or EBITDA based solely upon its existing business is not rooted in reality. A buyer’s main concerns are its ability to keep the customer base together with continued growth and the ability to effectively manage the acquired business post-acquisition. Other concerns are the future investments required in terms of equipment systems and people, whether the culture of the target will fit in with their operating methodology, and the future commitments the buyer must make to get the deal done, such as longterm leases, employment contracts, and other legal or contractual obligations.

In order to maximize value, a seller must accomplish the following: • Prepare the company operationally, organizationally, and financially as far in advance as possible. • Have a good understanding of the value proposition that they will provide to a potential buyer, and don’t listen to all the noise surrounding this industry about other deals that have closed recently, of which they do not have direct knowledge. • Carefully consider and target the potential buyers who have the strongest strategic need to purchase them.