Introduction
MJ was founded in 1905 in Webster SD. It operated as a closely held family type business for many years. In 2012 the company was struggling financially and was engrossed in some Board/Upper Management disputes. North Central Equity (NCE) is a private equity fund based in Minneapolis. Elam Baer is the founder and principal shareholder in NCE. Elam and I have worked together on numerous deals since June of 1994. Also, I have been a shareholder in, and lender to, NCE since its founding in 2004. NCE was able to settle the board and manage turmoil and acquire MJ. I provided the debt capital ($500,000) that facilitated the MJ acquisition by NCE. The current management of MJ has been in place since the NCE acquisition in 2012 and is responsible for its considerably improved financial performance. MJ is currently in a position to experience significant revenue and EBITDA/Net Income growth. NCE (Elam) is selling the company as he is winding down NCE and doesn't want to invest the additional capital to facilitate the growth potential of MJ.
Opportunity
Acquisition of Mereen-Johnson, LLC
Revenue/Range
$23.5M, 10/31/2022.
EBITA (Range)
$3.9M, 10/31/2022.
Company General Business Specialty/Industry (Description: What does the company do)
Specialty
MJ is the leader in the high end portion of the industrial woodworking industry. MJ has little true competition at the high end of the market. Their long history and reputation for engineering excellence is a recognized and valuable asset.
General Business Model and Market
Continue to be a leader in and provide high end industrial wood working machinery and engineering excellence in the industry. Market is home building and all related industries that require woodworking equipment.
Revenue Range Stratification (Product Lines/Service)
New Machine Sales 62% of revenue, 36% gross margins
Parts and service 38% of revenue, 50% gross margins
The machines have an estimated useful life of 38 years. However, they require significant parts and service to maintain efficiency. The razor and razor blade analogy accurately applies.
Geographic Location(s) and Big Business Line Categories
Corporate Headquarters: Leased office space in Minneapolis MN. Housing upper management, engineering and administrative staff.
Manufacturing facilities:
Webster SD 56,0000 square foot building. Leased on favorable terms with extension options available.
Wabash IN 124,000 square foot building. Owned by MJ, rests on 5 acres of land. Building needs modest capital improvements to increase manufacturing efficiency.
Additional Summary Success/Growth/History “Details” Bullets i.e. Growth, track record, Growth Potential
The primary engine to achieve the growth trajectory for Mereen-Johnson is additional capital.
Transition Plan
-Acquire 100% of the assets of MJ from NCE
-Maintain current management team
-Make available additional capital for organic growth an acquitions
Sell the company in 5-7 years, when Revenue & EBITDA growth offer the optimum multiple. Idealy 8X EBIDA:
Example Year 5 EBITDA = $6.0 * 8 = $48M.
Reason for Selling or Seeking Capital
Current majority owner of NCE is winding down the fund and de-risking his personal exposure.
Final Standard Comments
MJ represents a significant opportunity as an solid company poised for significant growth. Objective is to monetize the asset in 5-7 years depending on achievement of growth projections and of course current market conditions. The current owner and management would would look very favorably on an acquisition and "go forward" strategy if I remain involved.
I hope this was helpful! I am happy to provide any assistance required to further facilitate the transaction moving forward.
Best, Kevin P. Smith