Is this South Florida startup headed for an IPO?

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Venture capital database CB Insights released Tuesday its 2017 IPO Pipeline list. Among the hundreds of companies predicted to be headed for an initial public offering next year is South Florida e-commerce platform Chewy.

Since being founded in 2011 with an investment of just $50,000, the Dania Beach company has passed the $1 billion revenue mark — a sizable bite out of the online pet product market, which projected to grow by about 9 percent annually, according to IbisWorld, a market research group. (Overall, the pet products market is worth about $40 billion — just $10 billion fewer than the U.S. auto industry.)

TATIANAPUT/SHUTTERSTOCK.COM

Chewy, now nearly 6 years old, has captured about 50 percent of the online pet market, according to some estimates, despite competing directly with established companies such as PetSmart. Just last month, it signed a lease for 663,000 square feet of industrial space in Dallas for a new distribution facility.

Now people familiar with the company say Goldman Sachs is helping it prepare for an initial public offering in 2017, Bloomberg reported. CB Insights’ IPO Pipeline bolsters the rumor.

Chewy declined to comment.

This year was a slow one for IPOs. Miami-based investment banking firm Cassel Salpeter & Co. released in October a quarterly review of technology investment activity, which showed a cluster of public offerings amid a mostly stagnant 2016. The slowdown can be attributed to a strong private equity market, the presidential election and even Brexit.

But momentum is expected to follow, said Jim Cassel of Cassel Salpeter & Co. CB Insights echoed the assessment in its IPO Pipeline report.

“2016 did not turn out to see a flurry of tech IPOs as companies continue to access funding privately. But as companies in the pipeline continue to mature, increasing calls by investors for companies to go public, and a slowing down of deep pocketed investors like mutual funds and hedge funds financing late-stage startups, the drumbeat for a busier 2017 is getting louder.”

Debora Lima covers technology, startups, biotech and transportation. Get the latest tech news with our free daily newsletter. Click here to subscribe.

Six tips for growing middle-market businesses in 2017

By James S. Cassel

james-cassel-headshot-150x150

James Cassel is co-founder and chairman of Cassel Salpeter & Co. Carl Juste MIAMI HERALD STAFF

With 2017 fast approaching and a new “sheriff” coming to town who has brought optimism for a better economy, it is beneficial for business owners to evaluate key factors that may affect their businesses and take the necessary steps to position themselves for maximum success.

First, consider our current economy. The national unemployment rate is 4.6 percent. Interest rates, currently at historic lows, have started to climb. Inflation is up slightly, and wage growth has started to come back.

Many businesses have been growing slowly. Even technology companies that might be finding faster growth than general service businesses are still finding their growth slower than anticipated. What does all this mean?

Employers are likely to find it increasingly difficult to find qualified talent and are much more likely to have to pay more to attract, hire and retain employees. Healthcare costs are going up next year, both for corporations and for employees. At the same time, other business costs are expected to rise as well. Depending on U.S. trade agreements, the cost to import parts and components for manufacturing might rise.

The spike in interest rates will slightly increase business costs, and business owners will be tasked with having to address a myriad of questions, including: How do they retain or improve profit margins, and can their industries institute price increases? How much, if anything, should they spend on capital equipment or improvements, and are there any ways they can reduce their costs by investing in robotics or other innovative technologies? Can they trim or eliminate other costs or expenses? How can they increase productivity? Most importantly, if there is increased economic growth, do they have the capacity to expand and, if not, what will expansion require?

So, what steps can be taken to prepare for growth in 2017? Following is a list of some general considerations and guidance based on our experience assisting middle-market business owners through all types of business and economic cycles:

1. Evaluate your current health insurance policies and consider sharing a larger portion of the costs with your employees. Otherwise, you can continue to carry the burdens and hope things will get better next year.

2. In light of inflation and wage growth, if your business is growing and can afford it, you should consider giving raises or risk losing employees to employers offering higher compensation packages. With a better economy, more employees will expect raises and be more likely to make a move in pursuit of the best offers.

3. Test your pricing power. Raise your pricing to compensate for the higher expenses you are likely to incur. Airlines have been successful at achieving this by creatively breaking up their services and offering things à la carte.

4. Cut waste. For example, a manufacturing company producing scrap would be wise to find ways to reduce the amount of scrap created or reuse the scrap and benefit from those savings.

5. Get higher utilization out of your people. A great book to read is Gallup’s newly released, expanded edition of the international bestselling management book “First, Break All the Rules.” Among other things, it explains how the best managers know how to assess people’s strengths and weaknesses and put them in positions where they will find greatest engagement and success.

6. Prepare your company for growth. Review your existing capacity to determine how much room you have for growth. Also, start determining what you need to expand and begin taking the necessary steps to get there. Evaluate both the lead time needed as well as the capital required.

Most important, keep in mind that if you can grow faster than inflation and increase your organic growth, then you will be in a good position to absorb any increased costs that you can expect to hit your business in 2017. If you can increase your revenues by 10 percent and your expenses by only 5 percent, then your profits will increase. Indeed, by giving some thought to these issues and taking the right steps now, you can help ensure your business grows in the coming year.

James Cassel is co-founder and chairman of Cassel Salpeter & Co., LLC, an investment-banking firm with headquarters in Miami that works with middlemarket companies. He may be reached via email at jcassel@casselsalpeter.com or via LinkedIn at https://www.linkedin.com/in/jamesscassel. His website is: www.casselsalpeter.com

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What could a Trump presidency mean for middle-market businesses?

By James A. Cassel

james-cassel-headshot-150x150Donald Trump is our president-elect, and his plans to “Make America Great Again” have been delivered without much meat on the bones, making it difficult to substantively assess the likely impacts of the election on the country’s middle-market companies and determine how business owners might best prepare and protect their interests. At least one thing, however, is certain: Prepare for a wild ride, if his presidency is anything like his campaign. Already, with public anti-Trump rallies and demonstrations going on around the country, it is clear the repercussions of this election could be more unpredictable and far-reaching than any of us can imagine.

While we wait to see which of his plans materialize and to what extent they become reality, it is important for middle-market business owners to be aware of certain key issues, understand how they might affect their companies and try to stay ahead of the changes. As the new administration is formed, we might get some clues from the people on the transition team and those who are nominated or appointed to better understand in which direction policy is likely to head. Also, if we listen closely, we might be able to find some clues from the comments and rhetoric from Republican leaders and members of the House and the Senate.

Following is a list of some of the most important things to watch that can affect middle-market businesses:

Jobs: The Republicans and the president-elect have talked about creating jobs by doing infrastructure projects and bringing manufacturing businesses back to the U.S. This might mean there will be plenty of new work and business opportunity for the construction trades and factory workers. One of the challenges when manufacturing returns is whether jobs are created or replaced by robotics.

Taxes: Lowering the capital gains and income tax rates of individuals, lowering business taxes and a comprehensive tax overhaul might be in the works, which could benefit businesses and provide more capital for investment. Using changes in the tax code to encourage more investment in the U.S. and discourage exportation of jobs also might be in the works. If tax rates are lowered, it might be smart to defer income until 2017 to take advantage of the lower rates.

Healthcare: The highly trumpeted abolition of Obamacare would require putting something else in its place, so it is unclear what changes will be implemented and when. President-elect Trump already has begun conceding and/or compromising on points, and modifying his campaign statements about eradicating Obamacare. While the tax associated with the Affordable Care Act might be dropped, some of the ACA’s provisions are likely to survive in some form, such as mandatory coverage for preexisting conditions and continued coverage for young adult children. The big issues are cost and coverage.

Energy: While Republicans continue to steadfastly support a reemergence of the coal industry and expansion of the oil and gas industries, at some point they cannot continue to ignore the reality of global warming and the undeniable effects we are already feeling. It is unclear what will happen to solar and other sources of alternative energy, as well as alternative energy- related advances made under President Barack Obama’s administration.

Trade: International trade could become a problematic issue. If we start retaliating, other countries can do the same, which could have a negative effect and begin a trade war. We need to wait and see the specifics, but it is clear this could have a major effect on the economy and not necessarily in a good way.

Cuba: The Trump administration has announced plans to review the U.S. relationship with Cuba and has suggested it will peel back the diplomatic progress of relations that Obama instituted during the past few years. Clearly, this would diminish any potential business and growth opportunities in Cuba for U.S. middle-market businesses.

Immigration: Expelling illegal immigrants from the country will leave huge job openings and hurt the GDP and economy. If visa programs are changed, companies might find it harder to find skilled workers among a limited labor pool.

Regulation: Rolling back government rules and regulation will lower overall costs and be good for business. A careful review might be very beneficial. This will enhance growth.

Most important, with many of the policies, we will see an increasing deficit and therefore should keep our eyes on the rise of interest rates and the possibility of inflation.

While we wait to see what the president-elect and the new administration do and Tweet about when he takes office, middle-market business owners should protect their best interests by studying the issues and preparing for the best- and worst-case scenarios.

We certainly live in interesting times.

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 may be reached via email at jcassel@casselsalpeter.com or via LinkedIn at https://www.linkedin.com/in/jamesscassel. 

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Cassel Salpeter & Co. Represents Boxycharm in Successful Follow-on Investment by KarpReilly

Based on Boxycharm’s Success, Connecticut Private Equity Firm Exercises Option to Increase Stake in Boxycharm

MIAMI – November 14, 2016 – Cassel Salpeter & Co., a middle-market investment banking firm, today announced that Connecticut private equity firm KarpReilly LLC has invested additional capital in Boxycharm, an option in the successful deal completed by Cassel Salpeter earlier this year. Cassel Salpeter, which provides capital-raising services as well as merger, acquisition, divestiture and corporate finance services, served as exclusive financial advisor in both deals.

The money will be used for innovative marketing programs and other initiatives to reach new subscribers for Boxycharm, a monthly beauty box subscription service providing high-end beauty and cosmetic products. The amount of the deal, which closed on October 13, is undisclosed.

“We are thankful for Cassel Salpeter’s guidance in both of these significant deals, which effectively enable us to strengthen Boxycharm’s momentum and leadership positioning,” said Joe Martin, who will continue in his role as Boxycharm’s CEO. “Cassel Salpeter identified and brought on KarpReilly, a premier PE firm behind many of the nation’s biggest and most well-known consumer brands. It was a master-stroke, as our partnership with KarpReilly was immediately off to a great start.”

The team at Cassel Salpeter was led by Director Joseph “Joey” Smith and Vice President Philip Cassel, who assisted the Miami-based Boxycharm through the closings of both transactions.

“We are pleased to continue to work with the high-caliber professionals at Boxycharm and KarpReilly and support their mutual goals of maximizing Boxycharm’s phenomenal growth potential,” Philip Cassel said.

Added KarpReilly Principal Hank Spring: “We continue to be very impressed with what Joe and his team at Boxycharm have accomplished and are excited to be able to further support him and the company in delivering value and a best-in-class experience to their customers.”

Berger Singerman attorneys Daniel Lampert, David Black and Mitchell Goldberg represented Boxycharm. Ropes & Gray attorneys Daniel Evans, Darlyn Heckman and Michael Ross represented KarpReilly.

 

About Cassel Salpeter & Co.

Cassel Salpeter & Co., LLC is an independent investment banking firm that provides advice to middle market and emerging growth companies in the U.S. and worldwide. Together, the firm’s professionals have more than 50 years of experience providing private and public companies with a broad spectrum of investment banking and financial advisory services, including: mergers and acquisitions; equity and debt capital raises; fairness and solvency opinions; valuations; and restructurings, such as 363 sales and plans of reorganization. Co-founded by James Cassel and Scott Salpeter, the firm provides objective, unbiased, results-focused services that clients need to achieve their goals. Personally involved at every stage of all engagements, the firm’s senior partners have forged relationships and completed hundreds of transactions and assignments nationwide. The firm’s headquarters are in Miami. Member FINRA and SIPC. More information is available at www.CasselSalpeter.com

 

About Boxycharm

Boxy Charm Inc. is the premier monthly beauty box subscription service, delivering 4-5 full-size and luxury travel-size products of well-known, popular, chic, and up-and-coming cosmetic brands for only $21 per month. For more information, please visit www.boxycharm.com

 

About KarpReilly
KarpReilly, LLC, is a private investment firm, founded by Allan Karp and Chris Reilly, whose primary mission is to partner with premier small- to mid-size growth companies and help them achieve their long-term vision. KarpReilly currently manages funds and affiliates with capital commitments in excess of $500 million. Over the past 15 years, the principals of KarpReilly have invested in, sat on the boards of and nurtured over 25 growth companies. For more information, please visit www.karpreilly.com

Tecogen to Acquire American DG Energy

ne91281logoWALTHAM, Mass., Nov. 2, 2016 /PRNewswire/ — Tecogen Inc. (NASDAQ: TGEN) (“Tecogen”) and American DG Energy Inc. (NYSE MKT: ADGE) (“American DG”) today announced that their Boards of Directors unanimously approved a definitive agreement under which Tecogen will acquire all of the outstanding shares of American DG in a stock-for-stock merger. Each share of American DG common stock will be exchanged for 0.092 shares of Tecogen common stock, valuing American DG at an approximately 27% premium to the company’s most recent closing share price. The transaction creates a vertically integrated clean technology company able to offer equipment design, manufacturing, installation, financing, and long term maintenance service. The combined company will retain the Tecogen Inc. name and be led by Co-Chief Executive Officers John Hatsopoulos and Benjamin Locke.

“We are extremely pleased with this transaction and believe that over time it will create significant value for shareholders. I’d like to thank the independent special committees of the boards of both companies for their diligent work to bring this deal to fruition,” said John Hatsopoulos, co-founder, co-CEO, and director of both Tecogen and American DG.

Transaction Rationale and Highlights

  • Competitive Advantage– Bringing American DG under the Tecogen umbrella allows Tecogen to offer a cost-free-installation option to customers without access to financing, sufficient capital on hand, or for those who may not be interested in owning and maintaining the equipment – creating a vertically integrated clean technology company better able to compete with other distributed generation peers offering in-house financing arrangements.
  • Stable Revenue Base –On a combined basis, approximately half of total company annual revenue is initially expected be from stable, long-term contracted sources (Tecogen Service revenue and American DG Energy revenue). This revenue base will provide a reliable funding source for both operating expense and growth initiatives while also making the combined company’s revenue profile more predictable, reducing the revenue volatility caused by somewhat cyclical equipment sales and installations.
  • Growth Potential –Shareholders of the combined company will benefit from Tecogen’s ongoing growth initiatives and joint venture interests, including automotive emissions control joint venture Ultra Emissions Technologies Ltd. (“ULTRATEK”) and cogeneration joint venture TTcogen LLC.
  • Cost Savings– The combined companies expect to benefit from approximately $1 million of general and administrative cash savings as duplicative functions are eliminated.

Upon closing of the transaction, Tecogen shareholders are expected to own approximately 81% and American DG shareholders are expected to beneficially own approximately 19% of the combined company.  The stock-for-stock transaction is intended to be structured such that it is tax-free to shareholders.

Approvals and Timing
Completion of the transaction is subject to satisfaction of customary closing conditions and the approval of shareholders of both companies.  No voting agreements have been entered into in connection with the transaction, and there are no lock-up agreements, no-shop covenants or termination fees contained in the merger agreement.  The transaction is expected to close in the first half of 2017.

Advisors
Scarsdale Equities issued a fairness opinion to the Special Committee of the Board established by Tecogen Inc. in connection with the transaction, and White, White and Van Etten, P.C. are acting as the Special Committee’s legal counsel.  Cassel Salpeter & Co. is acting as financial advisors to the Special Committee of the Board established by American DG Energy Inc. and Gennari Aronson, LLP is acting as legal counsel to the American DG Special Committee.

Conference Call and Webcast
Tecogen and American DG will take questions regarding this transaction on their third quarter 2016 earnings conference calls hosted Thursday, November 10, 2016. For information about the conference calls please visit:

For Tecogenhttp://investors.tecogen.com/webcasts or http://investors.tecogen.com/2016-10-12-Tecogen-Schedules-Earnings-Release-and-Conference-Call-for-Third-Quarter-2016-Results.

For American DG http://investors.americandg.com/webcast or http://investors.americandg.com/2016-10-14-C-O-R-R-E-C-T-I-O-N-American-DG-Energy-Inc.

About Tecogen
Tecogen® Inc. designs, manufactures, sells, installs, and maintains high efficiency, ultra-clean, cogeneration products including natural gas engine-driven combined heat and power, air conditioning systems, and high-efficiency water heaters for residential, commercial, recreational and industrial use. The company is known for cost efficient, environmentally friendly and reliable products for energy production that, through patented technology, nearly eliminate criteria pollutants and significantly reduce a customer’s carbon footprint.

In business for over 20 years, Tecogen has shipped more than 2,300 units, supported by an established network of engineering, sales, and service personnel across the United States. For more information, please visit www.tecogen.com  or contact us for a free Site Assessment.

Tecogen, InVerde, Ilios, Tecochill, Ultera, and e+, are registered trademarks or trademark pending registration of Tecogen Inc.

About American DG Energy
American DG Energy supplies low-cost energy to its customers through distributed power generating systems. We are committed to providing institutional, commercial and small industrial facilities with clean, reliable power, cooling, heat and hot water at lower costs than charged by local utilities – without any capital or start-up costs to the energy user – through our On-Site Utility energy solutions. American DG Energy is headquartered in Waltham, Massachusetts. Learn more about how American DG Energy reduces energy costs at www.americandg.com or follow us on Facebook and Twitter.

Additional Information about the Proposed Transaction and Where to Find It
This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any proxy, vote or approval.  In connection with the proposed transaction, Tecogen and American DG will prepare and file with the Securities and Exchange Commission (“SEC”) a registration statement on Form S-4 containing a joint proxy statement/prospectus and other documents with respect to the merger.  INVESTORS ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS (INCLUDING ALL AMENDMENTS AND SUPPLEMENTS THERETO) AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC IF AND WHEN THEY BECOME AVAILABLE, THESE ITEMS WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION.

Investors may obtain free copies of the registration statement, the joint proxy statement/prospectus and other relevant documents filed by Tecogen and American DG with the SEC (if and when they become available) through the website maintained by the SEC at www.sec.gov.  Copies of the documents filed by Tecogen with the SEC will also be available free of charge on Tecogen’s website at www.tecogen.com and copies of the documents filed by American DG with the SEC are available free of charge on American DG’s website at www.americandg.com.

Tecogen, American DG and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from Tecogen’s and American DG’s shareholders in respect of the proposed transaction.  Information regarding Tecogen’s directors and executive officers can be found in Tecogen’s definitive proxy statement filed with the SEC on May 5, 2016.  Information regarding American DG’s directors and executive officers can be found in American DG’s definitive proxy statement filed with the SEC on May 13, 2016.  Additional information regarding the interests of such potential participants will be included in the joint proxy statement/prospectus and other relevant documents filed with the SECin connection with the proposed transaction if and when they become available.  These documents are available free of charge on the SEC’s website and from Tecogen and American DG, as applicable, using the sources indicated above.

Cautionary Language regarding Forward-Looking Statements
This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  All statements regarding Tecogen’s, American DG’s or their respective separate or combined future financial position, results of operations, cash flows, funds from operations, business strategy, budgets, projected costs, operating metrics, capital expenditures, competitive positions, acquisitions, investment opportunities, merger integration, growth opportunities, dispositions, plans and objectives of management for future operations and statements that include words such as “anticipate,” “if,” “believe,” “plan,” “estimate,” “expect,” “intend,” “may,” “could,” “should,” “will” and other similar expressions or the negative form of the same are forward-looking statements.  Such forward-looking statements are inherently uncertain, and security holders must recognize that actual results may differ from the companies’ expectations.  Neither Tecogen nor American DG undertakes a duty to update such forward-looking statements, which speak only as of the date on which they are made.

Tecogen’s and American DG’s actual future results and trends may differ materially depending on a variety of factors discussed in their filings with the SEC.  These factors include without limitation: (a) the satisfaction of the conditions to closing the transaction in the anticipated timeframe or at all; (b) the failure to obtain necessary regulatory and stockholder approvals; (c) the ability to realize the anticipated benefits of the transaction; (d) the ability to successfully integrate the businesses; (e) disruption from the transaction making it more difficult to maintain business and operational relationships; (f) the negative effects of this announcement or the consummation of the proposed transaction on the market price of Tecogen’scommon stock; (g) significant transaction costs and unknown liabilities; (h) litigation or regulatory actions related to the proposed transaction; (i) the ability and willingness of each company’s customers to meet and/or perform their obligations under their respective contractual arrangements with the company; (j) the ability of each company to maintain the financial strength and liquidity necessary to satisfy their respective obligations and liabilities to third parties, including without limitation obligations under their existing debt instruments; (k) each company’s success in implementing its business strategy; (l) the nature and extent of future competition and technology developments; (m) the extent of future or pending regulation of the energy sector; (f) the future cost and trends in electricity prices from utilities and other sources; (n) changes in general economic conditions and/or economic conditions in the markets in which each company may, from time to time, compete and the effect of those changes on the company’s revenues and its ability to access the capital markets or other sources of funds; and (o) each company’s ability to pay down, refinance, restructure and/or extend its indebtedness as it becomes due.  Many of these factors are beyond the control of the companies and their management.

Reinvent your customer experience to maximize profitability

By James S. Cassel

James Cassel headshotMiddle-market business owners can improve profitability and customer loyalty by routinely evaluating and enhancing the quality of the experiences their companies provide for two of their most important stakeholders: customers and employees.

Consider the success story of Starbucks (NASDAQ:SBUX), which incorporated the right design and branding to turn coffee houses into institutions where people spend hours and pay a premium for what is perceived as the right experience that encourages folks to congregate. Apple (NASDAQ:AAPL) turned computers and other devices into status symbols by, among other things, using great design and strategically positioning its iconic logo on laptops to face onlookers rather than users. The Apple Store became the poster child of an innovative venue by implementing things like the genius bar for on-site consultations; a welcoming, open design; and an engaging atmosphere. Google (NASDAQ:GOOGL) is acclaimed for providing employees with uniquely generous benefits, including free meals and access to the latest technology, free massages on campus, permission to bring dogs to work, generous parental leave policies and spousal death benefits, among many other things.

Why are these companies going to these lengths? To a large extent, these trends are being driven by the desire to attract and retain loyal customers as well as quality talent. They are particularly interested in a new generation of workers, including millennials, who want the “total package”: innovative, forward-thinking business environments as well as stock options.

Recognizing this, middle-market businesses and even more traditionally conventional businesses, such as law firms and accounting firms, are beginning to take steps in this direction. As a middle-market business owner, how can you apply these learnings to help take your business to the next level? Here is some practical guidance based on my experience helping middle-market business owners navigate these questions.

While a variety of elements ultimately create your customer experience, addressing the following key factors is a good start: your office layout and design; your company atmosphere and activities; and your marketing and branding.

Before doing anything, it is important to engage your key stakeholders and ensure that you have established (a) consensus upfront that a modification of your business experience is necessary or beneficial and (b) an internal committee that will be able to weigh in on the process. Outside firms and consultants can be beneficial. Without this, you are likely to waste valuable time, money and other resources undertaking a process that may not lead to the right result, that may get road-blocked by internal resistance, and/or that may never get implemented due to lack of support for the financial and other investments that may be required.

The most important thing is to find the approach that will fit your company’s unique needs. Try evaluating what other companies in and outside your industry have done, and find bits and pieces that are a fit for you.

Identify a realistic budget. Not every company can afford to give employees the free meals, unlimited paid time off, and some of the other benefits that a growing number of technology companies are offering today. Work with qualified experts with proven experience helping similar companies in your industry to develop a plan for identifying and creating the right solution for you. It might not be necessary to move your office to a new location or to completely overhaul your culture or your brand; you might be able to get by with just making a few strategic adjustments. These adjustments could include creating special events and promotions to appeal to affinity groups. For example, lululemon (NASDAQ:LULU), which is credited for pioneering the “athleisure” clothing business, has achieved great success by providing free yoga classes at its stores and discounts for yoga instructors and company employees.

Your marketing programs also should be continuously evaluated for maximum impact. It is important to work with skilled marketers who can ensure your brand positioning and all aspects of your marketing — including your logo, business cards (if you still use them), messaging, and website — are consistent with the experience you wish to create. With folks relying on their technologies to evaluate companies and make business decisions, it is imperative for your brand across earned, owned and paid media channels to be consistent and effectively support the experience you seek to create. For example, it makes little sense for a company seeking to position itself as high-tech and appeal to consumers on mobile, to have an outdated website that is not optimized for mobile.

The key is to work with the right experts who can help guide you through this process and ensure you find the right solution for your needs — and to do so continuously to ensure you are keeping pace with the changing needs of your employees and customers.

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 may be reached via email at jcassel@casselsalpeter.com or via LinkedIn at https://www.linkedin.com/in/jamesscassel.

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Tech investments report highlights cluster of IPOs amid stagnant year

By Debora Lima

Miami-based investment banking firm Cassel Salpeter & Co. released this week its quarterly review of technology investment activity, which highlights a recent cluster of initial public offerings amid a mostly stagnant year.

The report covers the period between July 1 and September 30. It finds that a bulk of public offerings occurred during Q3 — five in September (Nutanix, Tabula Rasa Healthcare, The Trade Desk, Everbridge and Apptio) and Impinj in the previous month. The activity overwhelmed that of the preceding eight months’ combined — five IPOs in Q2 and none in Q1.

The average enterprise value of Q3 IPO companies was about $150 million, about half of Q1 IPO companies’ average enterprise value of $300 million.

The underwhelming pace of 2016 can be attributed to the robust private market, said Cassel technology director Ranjini Chandirakanthan, who helped compile the report.

“There is so much money in private equity,” she said. “There is a willingness to pay and value, more than the public markets do today.”

Acquisitions remain the most common — and attractive — exit options for high-growth startups, said Jim Cassel, a founding partner of the firm.

“[Firms are] looking for an exit strategy. They have a life in which they’re supposed to put money out, harvest and liquidate. IPO isn’t that event. Because they have to liquidate stock over time,” he said.

Startups are similarly drawn to M&A. Chandirakanthan estimates that “a vast majority” exit through those vehicles.

But it isn’t uncommon for startups to toy with the prospect of an IPO as a vehicle to private equity. According to Cassel, some companies prepare the necessary materials for a public offering and intentionally let word get out.

“It implies [to private equity] that, ‘If you buy now, you’ll pay less than later,’” once the company goes public, he said. “And that may or may not be true. The public markets are fickle. It’s just conjecture.”

Looking ahead, a number of IPOs are likely in the pipeline for 2017 — but the status quo holds.

“M&A will be the exit for many companies,” Cassel said. “There is a private equity market that is flush with cash that is looking for companies that fit their ethos.”

Cassel Salpeter & Co.’s full 2016 Q3 technology investment activity report is available online.

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Boxycharm participated in a majority recap and received growth capital from KarpReilly

  • Background: Headquartered in Miami, FL, BOXYCHARM is the premier monthly beauty box subscription service, delivering 4-5 full-size and luxury travel-size products of well-known, popular, chic, and up-and-coming cosmetic brands. BOXYCHARM’s unique value proposition is their ability to provide a combination of the newest and highest quality brands and products in full-size offerings, while most competitors offer sample-size products.
  • Cassel Salpeter:
    • Served as financial advisor to the Company
    • Ran a competitive capital raise process, identifying and contacting over 100 strategic and financial parties
    • Structured a minority recap and growth capital raise with a built-in option for a majority recap
  • Challenges:
    • Earn-out structure to increase valuation of capital infusion contingent on success-based performance benchmarks
    • Minority shareholder buyout
    • No prior relationship with investor
  • Outcome: In February 2016, KarpReilly Investments, LLC invested in BOXYCHARM. Subsequently, in October 2016, KarpReilly exercised their majority recap option. KarpReilly is a private investment firm based in Greenwich, CT.

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How much should you spend to boost your non-core divisions?

By James S. Cassel

James Cassel headshot

Many middle-market business owners struggle to determine whether to continue pouring significant time, money and other resources into non-core business divisions or subsidiaries— that is, those that are not vital, essential or are no longer necessary to a company. For many, finding the right answer is a difficult task that often gets deprioritized while they focus almost exclusively on the immediate needs and daily operations of their businesses. Unfortunately, neglecting to address these questions often ends up hurting their businesses and diminishing their success.

How should you approach a division that is troubled, not growing, no longer fitting your core business or strategic plan, and/or consuming a disproportionate amount of time and capital? Following is some practical guidance based on my experience helping middle-market business owners evaluate the alternatives and navigate these complex issues.

First, an easy answer could be: If the non-core division is losing money and/or dragging down the rest of your business, you might shut it down. However, this quick fix is not always the best course of action. Another party might find value in the division and give you additional capital that you can redeploy for growth. Keep in mind that what is not good for you might be ideal for someone else. If the line of business has this type of potential, you might try to find a buyer capable of maximizing it.

So, how should you begin your analysis?

▪ Start by closely evaluating the financials for the business unit you might be looking to sell or shut down. You should also examine on a pro forma basis the financial situation of the remaining business as a standalone unit, thereby enabling you to examine the financial implications of the potential divestiture and make sure it will not hurt your business financially or otherwise. For example, the division might actually be contributing to help cover a part of your overhead. In this case, a divestiture could have more serious financial implications on your overall bottom line than you had imagined.

▪ Evaluate your company’s current management and employee headcount. If you divest the division, do you need to reduce management, as well as your company’s overall headcount? How would this impact your company? Would losing these employees hurt other areas of your business?

▪ Evaluate your real-estate facilities and determine what you should do with any physical space that will be vacated after the divestiture. Let’s say the division you are looking to sell occupies 30 percent of your warehouse. Would you be better off subleasing that space, moving other core business operations into that space, or leaving it open to accommodate future expansion?

▪ You must also evaluate the potential impact of the sale on your clients or customers. Do they currently choose to do business with you because of your ability to serve as their one-stop shop and offer those products or services, even if those products or services are non-core business areas that are unprofitable or loss leaders? Could the sale potentially cause you to lose customers or diminish their satisfaction? Also, what about your competitors — do they currently provide any of those sought-after products or services? If you were to eliminate that part of your business, would you be in effect giving your competitors a greater advantage by positioning them to serve your customers and steal your market share?

Big companies continuously evaluate the return on equity, performance and viability of their non-core business divisions or subsidiaries. This helps them to ensure that these lines of business are not hurting their growth rates, overall profitability and success by forcing them to devote disproportionate amounts of time and energy to these areas. Many large companies like GE and P&G continuously evaluate their varied lines of business and remain ready to sell any non-core assets. This best practice helps make them stronger and better focused on growth and acceptable levels of profitability.

Some companies may have the in-house expertise to handle these evaluations independently, but others may need assistance from outside consultants. Whatever the case, it is important for middle-market business owners to work with qualified professionals with proven expertise helping companies similar to theirs navigate these issues. While this may require some investment in terms of time, money and other resources, it will pay off in the long run by helping ensure your business is well positioned for continued success.

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. 

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