Deals dip in Florida amid squabbles over price

Click here to view the original article.

Money: Deals dip in Florida amid squabbles over price

By Brian Bandell

May 30, 2014

The number of private equity firm investments in Florida-based companies declined in 2013 as haggling over pricing made finalizing deals difficult.

James Cassel

James Cassel

Miami-based investment banking firm Cassel, Salpeter & Co. analyzed private equity activity in Florida using data from Pitchbook. There were 135 private equity investments in local companies in 2013, down from 146 in 2012. That’s still better than the 113 deals during the 2009 financial crisis.

During the Great Recession, many of the private equity investments in Florida were in struggling firms at discounted prices, but now companies are doing better, said James Cassel, chairman of Cassel, Salpeter & Co.

“There’s somewhat of a disconnect on value between sellers and buyers,” he said. “There is so much competition for deals and, in some cases, they aren’t willing to pay the prices others are willing to pay.”

charts

In order to justify purchasing a company for well above its book value, a private equity firm must know it could get a strong return down the road, Cassel said. With interest rates likely to rise, that means adjustable-rate loans tied to company acquisitions should be paid off as soon as possible – otherwise they’ll become more expensive, Cassel said.

Companies in the IT and health care industries have been acquired for strong multiples of their book value, he added.

Lately, Cassel’s firm has been busy working for Florida companies looking to sell. Meanwhile, he found the number of Florida-based private equity firms has grown from 26 in 2010 to 33 in 2013.

 

Dynavox, May 2014

Dynavox, May 2014

Before buying a business, do your due diligence

Click here to view the original article.

By James Cassel, Special to the Miami Herald
May 25, 2014

JAMES CASSEL

JAMES CASSEL

Like it or not, due diligence is necessary before buying any business. In my experience, I’ve seen business owners neglect to invest the time, money and resources required for this, only to regret it later when they have closed on the transactions and discover issues and problems they hadn’t expected and could have avoided.

Unfortunately, there are no crystal balls, purple pills, or shortcuts when conducting due diligence. While most people agree it’s important, they often feel disinclined to do all that is necessary for myriad reasons, including thinking they should save the money, don’t need due diligence because they’re buying from people they trust, can do it themselves, and/or are getting what has been represented. Some only conduct partial or minimal due diligence, which isn’t the due diligence that is needed, particularly not if they miss major items that bring great exposure.

Although every deal is unique, I’ve found some key fundamentals to be important for potential buyers to keep in mind relative to due diligence. These include:

•  A strong team to conduct due diligence: Buyers who don’t dig deep enough into potential acquisitions often fail to bring together a complete team of experienced professionals. This team includes the right lawyers, accountants, and investment bankers as well as other consultants and specialists that may be needed, such as professionals to conduct environmental studies or evaluate technological infrastructure.

•  Employment and human resources: Confirm whether the company has its HR department in order and keeps accurate and updated files on employees, benefits packages, etc. Also find out whether there are any union contracts or employment or discrimination litigation. Inheriting a legacy of HR liabilities can be a nightmare. Find the right consultants to assist you.

•  Finances: You and your accountants must dig much deeper than looking at receivables and payables. Financial due diligence means reviewing all the books and records, bank reconciliations, balance sheets, and the data behind any audited or unaudited financials that will enable you to see the big picture as well as the details.

•  Information technology and IP: The need may vary depending on the type of company you’re looking to acquire, but for a technologically based or supported company, you should determine what IP the company has, whether it’s using proprietary or home-grown technology, has solid patents, and if all the software is properly licensed and documented.

•  Real estate: You may need to conduct an environmental audit as well as have title checked. Have a real estate lawyer examine all leases.

•  Suppliers: You need to know what the existing relationships with the suppliers are like, whether there are multiple suppliers, if the pricing is strong or weak compared to the industry average, if there are any product shortages, and how to get the most advantageous pricing if the company isn’t already doing so. All supply agreements must be reviewed.

•  Customers: What is the customer concentration, how steady are customer relationships, do sales depend on contracts or purchase orders, and do customers pay on time? These are only a few questions you should ask about the customers of the business you’re looking to acquire. Money invested in niche customer due diligence firms is money well spent.

•  Management: This is a particularly important one. Are you going to keep the current management? You have to determine what the full extent of the current management team’s relationship is to the company and whether or not the company is capable of flourishing with or without the team. Also, it is also good to determine whether there are non-compete agreements and non-solicitation agreements in place.

•  Legal: It’s crucial that you conduct state and federal litigation and judgment searches on the company and all of its principals. Although litigation is not necessarily a red flag since many companies have been involved in some form of litigation in their history, all litigation should be investigated thoroughly nonetheless.

•  Competitive market: You need to know about the company’s market share, the size of its market, and who its competitors are.

•  Agreements: All company agreements should be closely reviewed, particularly the terms and conditions, as well as whether change of control provisions exist.

•  Common sense: Big problems are often sitting right before our eyes, so keep your eyes open and use common sense. For example, I always recommend that people begin with Google searches — it’s amazing what can be found on Google! Also, if you’re considering buying a business, you should take a walk around the property and look for anything that might seem out of the ordinary. When helping a client conduct due diligence before buying a factory, I noticed dead grass in a particular spot. An environmental search revealed that the seller had been dumping chemicals there. The cleanup cost was substantial, and because it was discovered before any acquisition action, the seller paid for it. This matter could have been costly had it not been discovered in the due diligence process.

Keep in mind, these considerations don’t represent an exhaustive due diligence checklist. This is a high level summary overview that should be supplemented by a meticulously detailed checklist, tailored to the transaction and a thorough investigation by an experienced team of acquisition professionals.

There are few things that business owners regret more than getting burned and losing millions of dollars because they tried to save some money upfront on the due diligence. Don’t be one of those: Take the right steps now to protect your best interest in the long run.

James Cassel is co-founder and chairman of Cassel Salpeter & Co., LLC, an investment-banking firm with headquarters in Miami that works with middle-market companies. He can be reached at jcassel@casselsalpeter.com and www.casselsalpeter.com

Quartet, April 2014

Family Businesses are More Willing to Entertain Offers Now

M&A Interview with James Cassel as featured on TheMiddleMarket.com

Business owners are more receptive to thinking “Is it time to sell?” says James Cassel of Cassel Salpeter & Co. at ACG InterGrowth 2014. Family-owned businesses are growing more comfortable with private equity firms, which bodes well for M&A.

DynaVox Sold assets to Tobii Technology

  • Background: DynaVox, headquartered in Pittsburgh, PA, has become the industry standard in augmentative and assistive communication technology. DynaVox develops and markets software, devices, and content to assist people in overcoming their speech, language, or learning challenges.
  • Cassel Salpeter:
    • Served as financial advisor to the Company
    • Ran a competitive sales process, identifying and contacting over 90 strategic and financial parties
    • Provided assistance throughout all phases of the sales process, due diligence, and auction
  • Challenges:
    • Expedited sales timeline with only three weeks to identify and bring parties to auction
    • Less-than-cooperative secured lender
  • Outcome: In May 2014, DynaVox, Inc. was sold to Tobii Technology AB, a Swedish-based technology company with offices worldwide.

A View of Florida: Private Equity Deal Report

Click to expand

10 questions to consider when you receive an unsolicited offer to buy your business

Click here to view the original article.

By James Cassel, Special to the Miami Herald
April 20, 2014

JAMES CASSEL

JAMES CASSEL

When middle-market business owners receive unsolicited offers from potential buyers, they often fail to take the offers as seriously and evaluate them as strategically as they should. As a result, they often end up hastily accepting or rejecting the offers and regretting their decisions in hindsight days or years later.

The common mistakes made by business owners in these cases are varied and numerous. They close doors on offers that would have been in their best interest in the long term, sell prematurely, take the first deal that comes their way without looking for better ones, or fail to use the opportunities to strategically analyze their businesses and determine what the offers potentially represent.

Here are some of the key considerations that my investment banking firm generally takes into account when counseling clients who come to us after having received unsolicited offers:

1. Are you interested in selling your business at this time? An unsolicited offer should, at a minimum, prompt reflection and evaluation.

2. If it turns out that you have an interest in exploring the possibility of a sale, should you negotiate with the party who approached you on an exclusive basis or explore other possible buyers by running a limited or broad sales process, which may help you maximize value?

3. Is the offer coming from a sincere, legitimate potential buyer or from a buyer with ulterior motives, such as acquiring intelligence about your business and its customers? It’s critical to conduct proper due diligence upfront to understand the suitors’ motivations and whether to engage.

4. Do you have enough capital to continue to grow your business and stay competitive, or is now a good time to sell? Would seeking external capital or recapitalizing by selling a minority or majority part of your business be better options?

5. Is now the right time for you to sell? There are internal and external considerations. Many owners wait to begin considering selling their businesses until their businesses are headed downhill or they have been hit with unexpected major events, such as divorces or deaths in their families. They take reactive, emotional approaches rather than proactive, strategic ones. This is the opposite of what should be done, as they’re more likely to extract higher values for their businesses if they sell when their businesses are highly profitable and positioned for continued growth. Also, with today’s low interest rates, limited supply of available quality businesses for sale, and high number of buyers with available capital, prices are high.

6. What do the near- and long-term prospects look like for your business? Does the marketplace in the coming years look promising or does it look increasingly challenging as a result of emerging business trends or new technologies that may hurt your business? Although perhaps you were not thinking about selling your company, selling might be in your best interest if, for example, the offers are significant enough or if the competitive landscape is likely to intensify and you would be well served to make a timely exit.

7. Is your business too dependent on its current owners or on a handful of specific customers, and how likely is your business to survive without them? Buyers are not likely to pay top dollar for businesses they believe may be threatened by factors like these. Thus, it’s always helpful to make necessary adjustments to ensure businesses are in the best possible position when they are marketed and sold. This process takes time, and it is simply not possible to get all this done in a few days or weeks.

8. Do the potential buyers have the financial wherewithal to acquire your business? How likely are they to close on the deal?

9. Are the potential buyers likely to be good stewards of your legacies and keep up aspects of your business that you might consider important, such as providing a certain quality of services or products, financial opportunities for your employees, or certain support to your community?

10. What are the potential buyers relying upon to value your business? Owners of family businesses should seek professional assistance to prepare normalized financial information with appropriate add backs to reflect their true business earnings. This is critical for business owners looking to maximize value. Price is generally based on a multiple of something. Therefore, higher adjusted earnings equate to higher purchase prices.

There always will be advantages and disadvantages to selling or keeping any business, so it’s critical to know how to evaluate and respond to potential unsolicited offers. For important decisions like these, it’s wise to consult qualified advisors such as attorneys, accountants and investment bankers who can bring significant value by helping you understand all of the options, avoid making emotional decisions, and protect your best interest.

James Cassel is co-founder and chairman of Cassel Salpeter & Co., LLC, an investment-banking firm with headquarters in Miami that works with middle-market companies. He can be reached at jcassel@casselsalpeter.com and www.casselsalpeter.com

 

Bloomberg Logo

Yahoo’s Alibaba Cash Enables Tumblr-Sized Deals: Real M&A

Click here to view the original article.

By Tara Lachapelle
March 18, 2014

Alibaba Group Holding Ltd. may give Marissa Mayer a $10 billion chance to accelerate her dealmaking.

Since Mayer became chief executive officer of Yahoo! Inc. (YHOO) in July 2012, she’s focused on acquisitions of small companies, with the exception of Tumblr Inc. for $1.1 billion last year. While the Sunnyvale, California-based Web portal gained engineering talent with the three dozen deals Mayer struck, that won’t be enough to keep revenue from falling again this year, according to analysts’ projections compiled by Bloomberg.

Yahoo’s stock has been buoyed by its about 24 percent stake in Alibaba, China’s biggest e-commerce company, which is preparing to go public. The chunk of Alibaba shares Yahoo plans to sell could at least double its $5 billion cash stockpile for buybacks and acquisitions, JMP Group Inc. said, giving the company firepower to restore growth faster. Yahoo also could go after mobile-applications and websites such as Pinterest, Snapchat or OpenTable Inc. (OPEN), SunTrust Banks Inc. said.

i61mMUvC0St8

Yahoo! Inc. CEO Marissa Mayer
Chris Ratcliffe/Bloomberg
Since Marissa Mayer became chief executive officer of Yahoo! Inc. in July 2012, she’s focused on acquisitions of small companies, with the exception of Tumblr Inc. for $1.1 billion last year.

“They’ve been doing these tuck-in acquisitions, but on the table is something larger,” Robert Peck, a New York-based analyst at SunTrust, said in a phone interview. “Mayer wants to focus on mobile, video and even social, so anything that plays to those means would be interesting.”

Sarah Meron, a spokeswoman for Yahoo, declined to comment on the company’s plans for its cash or acquisitions it may make. Tiffany Fox, a spokeswoman for OpenTable, and Mithya Srinivasan, a spokeswoman for Pinterest, said the companies don’t comment on takeover speculation. Representatives for Snapchat didn’t respond to a request for comment.

Growth Potential

“We want to acquire companies that would have inherent growth themselves so that they are, what I call, growth accretive,” Ken Goldman, Yahoo’s chief financial officer, said at a Morgan Stanley conference March 4.

Yahoo’s revenue declined in four of the past five years, data compiled by Bloomberg show. The exception was 2012 when it increased by less than half a percent. Analysts estimate the company will generate $4.5 billion in sales in 2014, a 3.8 percent drop from last year, the data show.

Even so, the stock has surged almost 80 percent in the past 12 months as investors await the IPO of Alibaba, which has yet to price. Alibaba said in a statement this week that it has decided to start the process for a U.S. listing, which may be the biggest since Facebook Inc. in 2012.

ikOXqT1qnLRA

Photographer: Brent Lewin/Bloomberg
Yahoo’s stock has been buoyed by its about 24 percent stake in Alibaba, China’s biggest e-commerce company, which is preparing to go public.

“There’s a fair amount of excitement over the windfall that’s going to land on Yahoo’s balance sheet,” Colin Gillis, a New York-based analyst at BGC Partners Inc., said in a phone interview. Exactly how much “comes down to what Alibaba prices at. But either way, it’s going to be a nice chunk of change.”

Alibaba Value

Last month, the average valuation forecast for Alibaba was $153 billion, based on 10 analysts’ estimates compiled by Bloomberg News. That implies almost $37 billion for Yahoo’s stake in the Hangzhou, China-based company. Yahoo’s own market value is about $40 billion.

Even if Alibaba commanded just $100 billion, Yahoo could sell a 10 percent position and still receive more than $6 billion in cash after taxes, according to Ronald Josey, a New York-based analyst at JMP Securities, a unit of JMP Group. That would leave Yahoo with at least $11 billion of cash.

“Alibaba is the spark,” Josey said in a phone interview. “The big debate right now is, post-Alibaba, what do they do with this cash and can the core business actually start growing again?”

While much of the Alibaba proceeds will probably be used to repurchase shares, there will still be plenty left over to continue making acquisitions, Peck of Suntrust said.

Expensive Targets

Yahoo could pursue a larger deal for a content provider such as Pinterest, which lets users bookmark images or recipes to share with their social network, or Snapchat, a photo-sharing app, he said. Another possibility is a website focused on local data such as OpenTable, the $2 billion online restaurant reservation service, according to Peck.

Valuations for Internet companies are high right now and many of them don’t yet generate sales, Gillis of BGC said. Yahoo is also competing against the likes of Facebook Inc. and others for those targets, he said.

Facebook announced last month that it’s buying WhatsApp Inc. for $19 billion, without disclosing whether the text-message service had any sales.

“My concern, if I were in Marissa Mayer’s shoes, is that with a significant acquisition you’re going to pay a big premium and you’re putting an awful lot of eggs into one basket,” James Cassel, chairman and co-founder of investment-banking firm Cassel Salpeter & Co. in Miami, said in a phone interview.

Pricey Purchase

Under Mayer’s watch, Yahoo bought Tumblr in May for $1.1 billion, which represented the richest valuation for a dot-com company since 2000, according to data compiled by Bloomberg on deals for which revenue figures were available.

Yahoo could instead look for targets that would bolster its revenue from advertising technology, Josey of JMP said. Yahoo’s share of the U.S. digital-ad market is projected to shrink to 5 percent in 2015 from 5.8 percent last year, while rivals Google Inc. and Facebook may expand their shares to 42 percent and 9 percent respectively, according to an EMarketer Inc. report published Dec. 19.

“Companies that have revenue are going to be less flashy,” Gillis at BCG said.

Mayer unveiled updated advertising services in January, including a service to help marketers more accurately target audiences and a new ad exchange, which gives companies more tools to manage promotions on their websites.

Yahoo’s “stock has done very well based on Alibaba, but really as far as Mayer’s regime, it will start to be gauged by the success” in turning around Yahoo and bringing back its growth, Peck said. “That’s really where her legacy will start.”