Bad hire? Fast fire!

By James S. Cassel

Imagine: You hire a new employee but after a few weeks, you realize you made a bad choice. What to do?

Whether the problem is competence or chemistry, or anything else in between, the best advice is to be decisive and act — fast. Some business owners hesitate to pull the trigger because they do not want to admit they made a mistake. Unfortunately, the mistake magnifies with time and does not get better. It is OK to admit you made a mistake in hiring someone. Not terminating sooner rather than later is a bigger mistake.

Firing employees can be difficult for many reasons. As Warren Buffett said: “It’s pure agony, and I usually postpone it and suck my thumb and do all kinds of other things before I finally carry it out.”

Regardless, it must be done. As many of my clients have told me over the years, when you keep around a bad hire or employee it only gets worse the longer you retain them. Moreover, when you terminate a senior-level hire, such as a CEO, and you bring back a former CEO on an interim basis, most of the time that interim CEO will find things worse than they were when he or she left. If things were the same, then you probably would have kept the new hire.

Former General Electric Co. CEO Jack Welch — distinguished as one of history’s most famous managers, and noted for turning the struggling GE into a global giant during his 20-year tenure — was not called “Neutron Jack” for no reason. Indeed, he was known for his aggressive approach to categorizing and promptly terminating employees he ranked in the bottom 10 percent of his workforce, encouraging leaders to automatically fire their lowest performers as part of an annual corporate improvement process.

As part of his “rank and yank” system, managers were asked to group all team members into A, B, and C categories: the top 20 percent, the middle 70 percent, and bottom 10 percent. According to Welch, the middle should be coached and groomed to move up to the ranks of the top 20 percent. The bottom 10 percent, according to Welch, had to go.

Welch innately understood what many business owners neglect to realize: Keeping around poor performers becomes a major drain on your company, costing you money, time and energy, not to mention morale. It also makes things worse for the bad hire. I tell you this from experience.

So, how long should you wait before pulling the trigger? There is no cookie-cutter time line, and you should do it as soon as you realize it.

However, while it is never too “soon” to fire a bad apple, it should not come as a surprise to the person being fired. As Welch said, they should have had an opportunity to hear and respond to feedback. Make sure your employees have well-defined job descriptions and expectations, so they know what is required for success and can minimize the likelihood of failing.

When firing someone, the key is to take ownership of your hiring mistake and implement the right strategy to reposition your company. It is always good to consult with human resources specialists and labor attorneys.

As it relates to high-level terminations, communicate properly with your internal (employees) and external (clients/customers, vendors, partners, etc.) stakeholders. Provide reassurances the company is on track and will continue moving forward as planned. Also, identify what lessons can be learned to avoid the same problem with the next hire.

Bad hires or bad employees are part and parcel of doing business, for any company in any industry. We all make mistakes. Business owners who take timely, decisive action are protecting the best interests of all parties involved — including the bad hire, who is now free to find employment somewhere that he or she will be a better fit.

 

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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Why more banks are launching IPOs

By Jackie Stewart

A bullish outlook on the financial sector encouraged more banks to go public this year.

A number of banks were eager to take advantage of investor optimism after last year’s presidential election. Several had compelling stories built around high flying niches, while others were looking to provide liquidity for investors or create a currency for acquisitions.

Eleven banks have held initial public offerings this year, excluding mutual conversions, or almost double the number that took place in 2016, based on data from Sandler O’Neill. Though down from the 15 IPOs conducted in 2014, a year when post crisis investors pursued exit strategies, momentum could continue if bank stocks remain hot.

“I think the stock market is a factor, but also which banks will have a good earnings growth story,” said Vincent Hui, a senior director at Cornerstone Advisors who oversees the firm’s risk management and M&A practices. “People will buy into you if you have a good earnings growth story. But we will have some headwinds.”

The KBW Nasdaq bank stock index is up about 16% this year, which has spurred more investors to pump more money into bank stocks, industry experts said.

Banks also have cleaner balance sheets and stronger operations compared to the post crisis years, said Brian Sterling, co head of investment banking at Sandler O’Neill.

“If you put together good stories, you’ll get increased activity,” Sterling added. “I do think you have some unusual business models [of banks that have gone public] and different approaches with good management teams.”

Banks with unique business models are also appealing to investors.

Esquire Financial looked at the IPOs at Triumph Bancorp in Dallas and Live Oak Bancshares in Wilmington, N.C., as it was preparing to go public, said Andrew Sagliocca, the Jericho, N.Y., company’s president and CEO.

Triumph, which focuses on factoring and other nontraditional businesses, held its IPO in 2014; Live Oak, a major small business lender and technology innovator, went public the following year. Triumph’s stock is up more than 25% this year, while Live Oak’s shares have increased by roughly 35%.

Executives and directors at Esquire, which has a specialization in offering services to law firms, began mulling an IPO in early 2016 to create liquidity for shareholders and allow employees to take an ownership stake in the company. A publicly traded stock also allows the company to access capital markets more efficiently, Sagliocca said.

“We were in a true inflection point,” Sagliocca added. “There were a lot of institutional investors that wanted to invest in a unique business model. The market conditions were stronger than in the past.”

An increasing number of banks with less than $1 billion in assets are bucking conventional wisdom by going public, said Rory McKinney, managing director and head of investment banking at D.A. Davidson. Such institutions can make the leap if they have strong management teams and returns that are beating out larger rivals.

“Investors are always looking to invest in different types of new stories,” McKinney said. “There is interest in the sector as a whole … because of the bright lights economically across the country, tax reform, reg relief. Those things come into play from an investor perspective in connection with an IPO.”

Esquire, with $480 million in assets, was familiar with the view that banks of its size may be too small to go public, Sagliocca said. Investors, however, seemed more concerned about the company’s business model and performance metrics.

Esquire’s stock price has increased by more than 25% since its June IPO.

“The proof is we have been successful,” Sagliocca said. “Based on the stock price, there’s interest I would assume.”

M&A is another factor. Aspiring acquirers can benefit from having a stock to offer a target.

“Banks need a currency to do deals,” Tom Michaud, president and CEO of Keefe, Bruyette & Woods, said during a recent panel discussion at the University of Mississippi. “Cash can’t compete with a bank that can offer stock trading at 2.5x tangible book.”

While there is an expectation that IPO activity can remain steady next year, some constraints exist. The number of banks is down 7% from the end of 2015, providing fewer candidates for public offerings. At the same time, there are only so many management teams that have want to go public and have a constructive use for extra capital.

Earnings stories could also be challenged for executive teams that relied heavily on cost cutting to boost the bottom line, Hui said. Some institutions, which have run into concentration limits in areas such as commercial real estate, could face challenges as they try to diversify their portfolios.

Investors could also turn bearish based on a domestic or international shock, noted James Cassel, chairman and co founder of investment bank Cassel Salpeter. “There’s no reason next year shouldn’t be good for bank IPOs — but with an asterisk,” he said.

“My view in general is that time is never your friend with an IPO because so many things are outside of your control,” Cassel added. “If you want to raise capital in the third quarter of next year, you might want to have your head examined as to why not now.”

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Norquay has been acquired by MPD Chemicals, a portfolio company of Addison Capital Partners

  • Background: Norquay Technology, Inc. (“Norquay”) is a specialty chemical manufacturer with over 30 years of expertise in providing the scale-up and production of advanced proprietary custom materials, including organometallic, inorganic, and organic molecules. Norquay’s product line includes chromic, electronic, catalyst, ligand, medical adhesive, and UV performance products, with a customer base that ranges from startups to large multi-national corporations.
  • Cassel Salpeter:
    • Served as financial advisor to the Company
    • Ran a competitive sales process, identifying and contacting over 60 financial and strategic partners
  • Challenges:
    • Balancing owner’s objectives to maximize value while preserving company culture
    • Complexity of the specialty chemical industry and navigating the strict environmental regulations
  • Outcome: In December 2017, Norquay was acquired by MPD Chemicals, a portfolio company of Addison Capital Partners, broadening MPD’s specialty chemical manufacturing capabilities; Norquay’s owner now holds a minority equity stake in MPD.

Trucker Path has been acquired by Renren

  • Background: Trucker Path, Inc., is a leading software platform for the trucking industry. Trucker Path’s core product is the Trucker Path app, a trip planning companion for truck drivers, enabling a large driver community to assist each other in updating the real-time status of relevant points-of-interest on their route. Expanding on the success of the Trucker Path app, Trucker Path also introduced the Truckloads app, a mobile marketplace providing freight load matching with over 3 million loads posted monthly.
  • Cassel Salpeter:
    • Served as the exclusive financial advisor to the Company
    • Ran a competitive sales process contacting approximately 50 potential strategic acquirers, resulting in 6 indications of interest
  • Challenges:
    • The Company had a solid user base and software platform, but had not monetized the assets well
    • Company management and board dynamics
  • Outcome: In December 2017, Trucker Path was acquired by Renren. 

Prepare your middle-market business now for future storms

By James S. Cassel

In light of the devastation following the recent hurricanes, it is important to evaluate what happened in Puerto Rico, Texas and even Miami, and consider how our middle-market businesses would have fared if a major hurricane, like Irma or Harvey, had been a direct hit on South Florida.

We fortunately dodged a bullet this time, and the damage to South Florida was nothing compared to what it would have been if we had taken a direct hit. Without a doubt, companies must have the right emergency contingency plans in place to protect businesses and people before, during, and after a storm. With proper planning, we can minimize the damage to our business operations and best protect our property and our relationships with customers, employees and community. We need to be able to expedite the return to normal operations.

So, how can we achieve this? Planning. While the appropriate steps may vary depending on your industry and the type of company you own, in general these best practices can be helpful:

Review your insurance policies now, before an impending storm. Get an expert to assist you so you truly understand your coverage. When a storm approaches, it is generally too late to make changes.

Have a written contingency plan and a preparedness checklist to put in place five days in advance of the storm. The Internet is full of many good resources like this one http://www.preparemybusiness.org/planning, and I recommend combining ideas from several resources and creating a customized checklist for your company. Additionally, it is important to identify appropriate protocols for protecting and securing your valuables, including everything from documents to property. Assign specific roles and responsibilities and train employees to execute the plan.

As the storm approaches, refresh your recollection of your insurance policies. Keep printed copies safely stored as well as digital copies.

Negotiate upfront with key suppliers to ensure that you have an appropriate system for receiving key materials and with fair pricing in place. You can ensure better outcomes and lower pricing by negotiating ahead of time, well before hurricane season. Also, make arrangements for alternate sites for storing products or running operations in the event that yours becomes unusable.

Ensure that you have adequate technology to communicate with the necessary team members and clients. Cellular phones might not work. Consider satellite phones.

Identify key team members to help ensure your company has adequate power generation (i.e. a generator) and key employees have access to power in order to keep the business running during outages. Have a secondary location(s) outside the market where you can move key people to continue operations.

Develop a post-storm plan, including assigned tasks, and train your employees to follow it. The plan should first assess the condition of your work force. Conduct practice drills — well in advance, and not just days before the storm. Make sure you do this regularly so that any new employees are properly trained.

Arrange for you and your key employees to have enough fuel, food and cash on hand. You would be surprised how many people fail to properly prepare for storms and are caught without basic necessities for a period of days. ATMs may not work.

While we cannot say for certain when it will happen, there is no doubt that, at some point, South Florida will get hit by a “big one.” Although it can be time- consuming to plan for future storms, it is a fact that when a major one strikes, the right planning can have a big impact on our businesses. Those who plan will protect their best interests and potentially gain an advantage over any competitors who, instead, opt to focus on their day-to-day business operations.

 

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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Recruit, train and mentor to create a diverse workforce

By James S. Cassel

Without a doubt, companies need a diverse workforce to reflect the population that defines the United States and makes us strong. As discussed in my last column, while most middle-market business owners recognize the importance of a diverse workforce, many still struggle to find the right strategy for recruiting and retaining the right team members. This month’s column will provide practical guidance for creating a diverse workforce and the culturally sensitive atmosphere necessary to retain it.

Why is diversity so important? Diversity brings together people of varied talents, skills, experiences, and perspectives, significantly expanding a team’s capabilities and fostering innovation by increasing access to new ideas. Representing a variety of nationalities and ethnic backgrounds can also make companies more relatable to a broader customer and client base and enable them to work in new global markets. A diverse client or customer base requires a diverse workforce. Workforce diversity also has proved to enhance employee and client satisfaction, leading to greater retention.

So how can you create a diverse workforce? While you should always hire the best candidates for job openings and internships based on their qualifications, here is some helpful guidance to keep in mind:

Recruitment: Expand your recruitment and think outside the box. Contact ethnic clubs on college campuses to find good candidates. Develop a strategy for speaking at events and positioning your company in front of a diverse audience. Practice what you preach. An ethnically diverse recruiting force helps you attract more candidates. When using headhunters, indicate that you seek qualified candidates with language and cultural diversity, and do not assume that someone bilingual speaks English and Spanish. Years ago, a former employer in Miami assumed my wife spoke Spanish when my wife said she was bilingual, and was surprised to learn she was referring at the time to Russian.

Training and education: Knowing it might not be possible to hire the strongest candidates with the right experience and skills off the street, you should develop strong training and education programs. Hire younger employees with potential and train and empower them to grow into the desired roles. Do not only look for talent in the big-name universities. Community colleges are a great place to look for talented candidates. Some of Miami’s most prominent business and community leaders graduated from Miami Dade College, for instance.

Mentoring: Mentoring is key to helping cultivate diverse talent. A great strategy is to pair up people. However, mentoring should not only be delegated to your staff — it should extend to you as the owner as well as other senior management. Make sure to personally invest time in mentoring and meet routinely with your employees. This is critical if you seek to cultivate a mentoring-driven corporate culture and instill mentoring in your company’s DNA.

Compensation: Pay people equally and give them the same opportunities for advancement.

HR practices: Advertise job openings broadly, and take advantage of word-of- mouth and referrals from employees, clients and community partners, as well as various websites like CareerBuilder.com and Indeed.com. Make sure your human resources department is properly trained and has the right policies — and perspective — to ensure your diverse employees have the support and working environment they need for success. Because all people are created equal, all people should have equal opportunity. Provide diversity-focused events to elevate everyone’s understanding of other cultures as well as an open forum for folks to communicate and build better relationships with those of different backgrounds.

All of this takes a conscientious effort on your company’s part and starts at the top. Considering our country’s labor challenges and uncertainties surrounding its immigration policies, it is not likely to get any easier to establish a diverse workforce. But we should never, ever give up. The future of our middle market and our country depends on it.

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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Cooper’s Take: Hurricane or Not, Private Equity Continues to Shine in Florida

Cassel Salpeter & Co. Represents Diversified Aero Services, Inc. (“DASI”) with Growth Capital Financing

MIAMI – October 6, 2017 – Cassel Salpeter & Co., a middle-market investment banking firm providing financial advisory services, served as exclusive financial advisor and facilitated a growth capital financing for Diversified Aero Services, Inc. (“DASI”) by an undisclosed, global investment firm. The investment will enable DASI to expand its distribution platform and broaden its offerings.

Diversified Aero Services, Inc. is a leading global aircraft inventory solutions provider. For nearly 25 years, DASI has been providing comprehensive aircraft inventory support for airlines, MROs, OEMs, and distributors. DASI’s unique value proposition is exemplified by the magnitude and diversification of its inventory, combined with a focused commitment to speed, ease of use and customer service. Additionally, its e-commerce web store, which is unmatched in the industry, affords the scalability and integrated support to offer real solution flexibility and growth to its customers.

Based in Miami, Florida, with service centers in London and Singapore, DASI is a global partner, serving its customers’ parts and inventory needs in more than 140 countries. Additionally, DASI’s new Miami headquarters is a state-of-the-art, 250,000 sq. ft., warehouse and logistics center, with close proximity to Miami International Airport (“MIA”), the busiest air cargo hub in the Americas.

The Cassel Salpeter team, led by Director of Aviation Services Joseph “Joey” Smith, Vice President Marcus Wai, and Associate Laura Salpeter supported Diversified Aero Services, Inc. through the closing of the transaction. “We recognized that DASI was an institutional ready, high-growth company with a unique and defensible value proposition within the commercial aviation industry and were eager to get involved with a company of this caliber and support its next phase of growth,” Smith said. “We enjoyed working on this transaction, and believe that the creative deal structure was advantageous for all parties, and we look forward to our continued collaboration with DASI.”

Cassel Salpeter, with its headquarters in Miami, has experience providing clients in diverse industries with a range of 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.

Rhod Gibson, DASI’s President remarked, “We greatly appreciate Cassel Salpeter’s ability to understand our needs and assist us in all aspects of the marketing, negotiations, due-diligence, and legal documentation. We are confident that this will be a long and successful relationship for all parties.”

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 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 Diversified Aero Services, Inc.

Diversified Aero Services, Inc. is a leading global aircraft inventory solutions provider. For nearly 25 years, DASI has been in the business of providing comprehensive aircraft inventory support for airlines, MROs, OEMs, and distributors. Headquartered in Miami, Florida, with service centers in London and Singapore, DASI is a truly global partner, serving customers’ parts and inventory needs in more than 140 countries. For more information, please visit www.dasi.com

Hurricanes Put Private-Equity Firms’ Continuity Plans to the Test

Florida’s private equity deal flow declines in Q2