Mueller offers economic snapshot for 2015 and outlook for 2016

Mueller, a CPA and management consulting firm, possesses a strong vantage point in assessing the performance and outlook of its midmarket and large clients' industries. The firm provides accounting, tax services, business valuation and advisory services to public and privately held companies engaged in a wide range of industries across the Chicago area.

As 2015 comes to a close and companies set their financial sights on 2016, Mueller's managing partner and the firm's top practice area leaders at Chicago's 19th largest accounting firm have compiled an economic snapshot of how key local industries and businesses performed this year and Mueller's outlook for these industries in 2016.

The firm believes its expertise and focus in the areas of manufacturing, construction and mergers and acquisitions provide some strong insights into the current and future financial health of those industries.

David J. Nissen, managing partner of Mueller and a 35-year accounting industry veteran, said his firm saw an 11-percent increase in overall business activity among the firm's diverse client base, particularly in international markets.

"Clearly, our clients capitalized on improving economic conditions with their foreign customers and global vendors in 2015 despite the dollar's strength versus foreign currencies," he noted. "And their U.S. and local performance points to continued business improvement in 2016 based on their business run rates we've been tracking and their need for more of our portfolio of services."

Nissen pointed to the manufacturing sector and the firm's Chicago-based clients which have weathered tough times but are now prospering through tighter cost controls and other strategic initiatives in growing their businesses. "In the manufacturing sector we've seen our clients continue to use temporary employees, enhancing their ability to control labor costs and gain a competitive edge among their competitors that have full-time employees," Nissen said. "Those labor decisions help companies reduce their health care and benefits costs and contribute directly to the bottom line."

In addition, Nissen said the firm's strengths in advising manufacturing clients are continuing to help those companies become more innovative and efficient. "We believe our tax, consulting and advisory services have helped our manufacturing clients' afford and structure more capital improvements, implement more sophisticated processes and increase efficiencies through new technologies and automation. Again, those actions have a direct impact on their profitability and ability to sustain those business initiatives over time," he explained.

As for the availability of business financing, Nissen believes Chicago banks continue to look for good customers with a healthy balance sheet. "The banking environment is very competitive right now and if the company is financially stable they can obtain very good financing packages from their banks," he noted. "And for those companies relying on company credit cards to pay their bills, we've been active in advising clients on how to reduce their credit card fees and finding creative ways to reduce their reliance on them."

Nissen said the name of the game in today's manufacturing sector is finding ways to add value to their product lines. "Adding value to commodity or specialty products makes their lines more valuable and helps boost their margins, and we're seeing that trend across many of our clients' businesses looking ahead to 2016," he remarked.

2015 Chicago Area Construction Sector Performance and 2016 Outlook

Randy Rupp, a Mueller partner and leader of the firm's construction industry practice, said strong 2015 construction gains of 11.8 percent nationally - totaling $1.1 trillion and approaching 2006's "high water mark" - have been buoyed by strong residential (16 percent) and nonresidential (9 percent) activity in 2015. He expects that national construction activity will remain strong in 2016 with anticipated growth of between 7 percent to 9 percent across the sector's segments.

But Rupp says those national gains have not translated to Midwest construction activity due to a number of factors. "The Midwest and the Chicago area in particular have been trailing behind the 'hot pockets' in the mid-south, southwest and northeast regions, despite the local boost from infrastructure and road building projects and strong performance of companies engaged in servicing the construction companies' projects."

However, Rupp sees some signs of improvement for the Chicago area construction sector for 2016. "While competition remains fierce for big ticket projects in Chicago, we and our clients have seen a noticeable trend locally for projects under $5 million and that 'construction is for sale'," he noted. "And, the Architectural Billing Index for the Midwest this summer was 56.1, the highest level we've seen of the four national regions, so that bid level increase is a good sign of activity moving into 2016."

Rupp believes that his clients and other local construction companies will see a good but not dramatic level in construction activity in 2016 as easing margins and construction inputs (absent of labor costs) and low steel prices hold steady with little or no inflation. "As a firm we see an improving local market in 2016 but a greater shift to providing value-added, consultative services to our industry clients," he said.

2015 Merger & Acquisition Activity and 2016 Outlook

Partner Brian Sullivan, who leads Mueller's audit and assurance and risk & controls practices, has also been actively engaged as lead adviser to Chicago-based mid-cap clients seeking to merge with or acquire related companies. His views on the national M&A landscape are consistent with what he has seen locally in 2015 and expects to see more of in 2016.

"Overall, M&A activity will continue to increase in 2016, driven primarily by increased global competition, vertical integration and horizontal diversification, significant availability of capital, low interest rates and strong balance sheets," explained Sullivan. "These factors have increased purchase price EBITDA multiples significantly and have led to greater deal flow.

"In the Chicago market we saw significant M&A activity in small- to mid-size deals during 2015. We represented and advised a number of privately held middle-market companies in their bid to sell in this favorable environment that resulted in multiples well north of the historical thumbnail multiple of 5 times EBITDA."

Sullivan said most of these transactions were driven by the desire to sell by aging owners of family businesses who have been considering and preparing to sell for several years, as well as increased attention from potential buyers based on the above factors.

"An example of one of these transactions was advising a food distribution and brokerage company client that had its sights set on a family-owned food distribution company whose owner was ready to retire and aware of the favorable market conditions that existed," Sullivan said. "The buyer was driven by its desire to expand quickly via acquisition rather than the time required to grow the company organically, and the parties agreed to a purchase price of more than $10 million. This was an EBITDA multiple of 6 times, which is unusual for deals of this size."

Sullivan also noted a pending deal involving a manufacturing concern in the far western suburbs which is being pursued by strategic buyers. The transaction is expected to result in a deal valued in excess of $50 million, which is approximately an 8 times EBITDA multiple.

In addition, Sullivan expects 2016 M&A deal activity in Chicago to be positively influenced by improved market conditions, banks' willingness to finance acquisitions, sellers who see good opportunities after years on the sidelines, and educated buyers who do not see significant changes in the capital gain tax rates in the short-term term.

About Mueller

Mueller is a certified public accounting and business consulting firm headquartered in Chicago with offices in Elgin and downtown. Since 1968, Mueller has provided accounting, tax, assurance, business valuation and advisory services to privately held and publicly traded companies, local governments, and nonprofit organizations across a wide variety of industries. For more information visit www.muellercpa.com.