Archive for year: 2018

By Breana Patel

James Cassel, chairman and co-founder of Cassel Salpeter & Co., is an investment banker who uses his unique experience as a dealmaker and attorney to guide clients and help them achieve their goals. Focused on representing middle-market companies, Jim has successfully negotiated, structured, and executed a broad spectrum of transactions including mergers, acquisitions, and divestitures, corporate and transactional financings, and public offerings for clients nationwide and worldwide.

Can you tell us a story about how you were able to build a business from scratch, scale and sell it to a bigger firm?

I, along with two partners, started the investment banking firm Capitalink. When we started in 1998, we thought we would raise money primarily for technology companies. Unfortunately, we were not successful at it, so we pivoted in a new direction providing financial advisory services to lower middle market companies. I had provided legal services to these same type of companies when I practiced law. We went on to build a successful M&A and advisory shop becoming known as “Mr. Fairness Opinion” in South Florida and New York. In 2006, we were approached by Ladenburg Thalmann, one of the oldest members of the NYSE, which was looking to expand its South Florida presence. It was a great opportunity and as a result we sold our firm joining to become part of Ladenburg. I became Vice Chairman and Head of Investment Banking.

Can you share a story about the funniest mistake you made when you were first starting?

The biggest mistake we made when we started the firm was believing we could raise capital for technology companies. Turns out although just about anybody could raise money in 1998 for technology companies, we couldn’t. It’s funny now, but it wasn’t at the time.

Can you tell us what lesson you learned from that?

What we learned was that we should stick with what we know. We also learned that when we were ready to expand, we should hire experienced talent with the right skill and relationships to assist as we ventured into new areas.

Can you share with our readers “6 Things You Need To Know If You Want To Build, Scale and Prepare Your Business For a Lucrative Exit”:

1: find a need in the market and service it well. That need may be closer and more familiar to you than you may at first think. Remain focused.

As I mentioned earlier, when I started out in investment banking, I thought we could raise capital for tech companies and soon discovered that it was much more challenging than I, or my partners, had anticipated based on our prior experience. Many entrepreneurs looking to fill a need in the marketplace also assume the answer may lie in the tech sector. But, more often, the tech market can prove to be a bit of a Wild West, with new players emerging to service customers who have yet to settle into predictable behaviors related to these emerging products. It’s difficult to plan for and to serve a market that is still in a state of flux.

Though our firm eventually was able to find success in tech M&A, we learned from the many different industries of companies we have worked with, that sometimes finding your niche is less about relying on tech, than on having a new spin on a conventional product or service.

We encounter opportunities for improving products and services more than we know. A small innovation in this area could mean a huge payoff if executed correctly. In this vein, I often think of the success of Proctor & Gamble’s Swiffer mop. The mop, in one form or another, has been around probably as long as humans have wanted to keep their floors clean and dry. But it took a bright mind in the 1990s to rethink the mop and see it like a razor blade and handle combo: cheap handle, disposable and replaceable blades. That product continues to successfully circle the world. I use it myself.

2: While this article is focused on the ultimate sale of a successful company, you may be taking the wrong approach if you are only thinking about your lucrative exit. Build a business that you envision as being around for a long time, with or without you, not necessarily one you want to sell. But when the opportunity appears, don’t be scared to seize the moment.

3: Hire the right people. You can’t go it alone. Succeeding, which means growing, is a team effort. From the perspective of an investment banker who often helps companies prepare for an exit, I know that growth and success starts with the people you hire.

My own success has come in great part from carefully choosing who joins our team. I can tell you from experience that if you have chosen badly, you have to react quickly. Don’t delay the termination. Your team is everything. Hiring the right people means everyone works together and is contributing, doing their part. Those who don’t fit the program have to go. The sooner you cut your losses, the better for all concerned.

When you go to sell your business, you will be rewarded for a good management team and penalized if you do not.

4: Treat your people well. When you’ve found the right people you have to let them know they are the right people. You do this by compensating them for their talent, expertise and labor. You treat them with respect and you present them with opportunities to grow and excel. And, you give them the loyalty which you, in turn, expect from them.

5: Treat your clients and customers well, too! Seems simple and obvious, but you’d be surprised how many business owners fail to extend their regard for their own company to their clients, who not only deserve the best service but optimal transparency about it.

6: Dreams and hunches about growth are a beautiful thing, but if they aren’t tied to reality you won’t get any traction when it comes to scaling up. To ensure you can really grow your company you have to see what that growth would look like on paper first. Do you know how much you want your business to grow? Can you assign a number to that? How many more customers are you thinking of reaching? Can the market sustain that number? Are there going to be that many consumers flocking to your product? Do you know, in detail, how you will attract them? Do you know how much it will cost to attract them? You have to game all of this out as if it were really happening. Now ask yourself, if I had all of those customers, how would my business need to change to accommodate them? Now you are into a whole new set of predictions, analysis and research. Do you need new staff or a new facility? Will you need to visit an investment banker like myself to find the funding you need? The dream of your company’s growth must be built on these hard facts.

Can you give a few examples of things to avoid when trying to build a business to sell?

Try to avoid a business being dependent on one person, being a one product or service company, or having large customer concentration.

What are some of the differences in approach for building a service- based business versus a product-based business with an intent of selling the business at a lucrative price?

When it comes to service businesses, it’s all about the people and the brand. Quality is very important in finding the appropriate niche. The more value that is perceived for your service, the more the value of your company. When it comes to a product-based business, it is about quality, design, functionality and value.

How does one go about the process of finding a buyer?

You should not do this alone. One of the benefits of hiring an investment banker is that they have the relationships and can get to the right people. They do research. There are different databases one can use such as capital IQ or PitchBook. Generally, you’re looking at one of three types of purchasers: strategic, financial buyers such as private equity firms, or family offices. Finding the right buyer is difficult and finding the right people at a prospective buyer to make contact with can be even more difficult. One of the benefits of hiring an investment banker is that they do this day in and day out and have many relationships.

How can one decide if it is better to build a business in order to exit, or if it is better to stick around for the long term and let the company bring in residual income or go public?

If one is looking to replace their income from the sale of their business, it is difficult to do. In order to determine whether one should sell their business versus retain it for residual income there are many things to consider. Some might have to do with your personal wishes as to involvement, or whether you believe you can hire the right people to lessen your involvement. Other issues to think about are technological obsolescence or when your business is no longer needed. Imagine if you still owned a Blockbuster franchise. Best to have sold it years ago.

Can you share a few ways that are used to determine a good selling price for the business?

The best way to determine the value of a business and therefore a good selling price is to go to market. The market will determine what a business is worth. Many people hire firms to perform valuations prior to sale. I generally do not believe this is a worthwhile expenditure as it’s more of an academic exercise than determining the true value. One can certainly find a range of value by looking at comparable transactions and comparable public company values. However, every company is different, therefore valuations can vary by a large amount. The larger the company, the higher the multiples they generally will get upon sale.

You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be?

My movement would have to do with the environment. I am scared for my children and grandchildren as to the earth that we might be leaving them with. I remember over 30 years ago the first Earth Day. I’m not sure the strides that we sought to take have been accomplished. These days, many businesses are more concerned with the immediate rather than a long-term view. This is very troubling.

Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?

“God gave you two ears and one mouth. Therefore, try to listen twice as much as you talk,” which was my father’s variation on the famous quote from the stoic Greek philosopher Epictetus.

How can our readers follow you on social media?

I can be found on both LinkedIn and Twitter
at: https://www.linkedin.com/in/jamesscassel/ https://twitter.com/jamescassel

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By STEPHANIE VOZZA

The holidays are the time for gatherings and good cheer, and that makes them a natural time for networking. Business is about relationships, and sharing kind wishes and getting some face time can help to strengthen them. Since the season is a busy one, make the most of your connections by creating a plan. Here are six ideas for effective holiday networking.

CHOOSE OPPORTUNITIES WISELY

Be smart about the ones you attend, says James Cassel, chairman of the independent investment banking firm Cassel Salpeter & Co.

“[Attend] as many relevant holiday events as possible,” he says. “Taking advantage of them requires being strategic, disciplined, and committed to follow-up. Think of yourself as a smart marathon runner, not a sprinter. That means doing serious research as you target gatherings that you think will draw the people you see as your best prospects.

“In a digital age in which we’re losing the human touch, there’s nothing finer than a handwritten note,” says Cassel. “I begin my follow-up within a day or two after meeting people, and I’m careful to include something specific and personal about the encounter, as well as verbiage that reminds the prospect what it is my company has to offer. Sounds simple, but you’d be surprised how many people fail to execute it completely.”

MAKE A LIST

Create a “meet list” of key individuals you’d like to connect with during the holidays and why, suggests corporate connections consultant Judy Robinett, author of Crack the Funding Code.

“Events can be jam-packed with opportunities,” she says. “Narrowing it down in order to ensure you’re being strategic, and maximizing the time you have with these key individuals, will help to ensure you’re making more lasting than fleeting connections.”

If you’re looking for conversations that can further your business, approach them with mentorship instead of profit in mind, she adds. “Mentors can be valuable players in your future success—and possible investors in the future—so building these early bonds can definitely pay off in the long run,” says Robinett.

HELP OTHERS NETWORK

It’s the season of giving, and being a connector is one of the most valuable things you can do for people in your network, says Kevin Hamilton, SVP of marketing at the restaurant technology platform Toast.

“The holidays are a great time of year to canvas your network and connect individuals that you think could be helpful to each other in the New Year,” he says. “This might include employees looking for a potential mentor, clients looking to break into a new region, or colleagues who want to acquire new skills. Use your wide network for good, and connect people to one another in a way that’s helpful, authentic, and meaningful.”

CONNECT ON THE SPOT

With all the festivities and conversations people are having throughout holiday networking events, it can be hard to remember who’s who, says Solomon Thimothy, CEO of Digital Marketing Agency. Instead, keep your phone on hand and take advantage of LinkedIn.

“Download the app and keep it on your home screen so it’s easy to access,” he says. “Then, as you’re meeting new folks, pull up the app and find them. This enables you to make that real-time connection and is an easy access point to avoid their crowded emails so that you’re able to send a more personalized, direct message.”

Added bonus: You might find out on the spot that you have mutual connections that can help continue to drive the conversation, Thimothy says.

BE INCLUSIVE

Winter holidays of Christmas, Hanukkah, and Kwanza are often recognized, but the employees of cloud communications provider 8×8 use every holiday as a chance to connect with each other.

“We celebrate diversity and welcome all cultures,” says CEO Vik Verma. “If you’re smart and have good values, you’re of great value to us. We like to create an environment that demystifies different ethnicities. We celebrate Christmas and Diwali. We feel like if our employees can be themselves without having to create some act and be somebody they’re not, we create a safe environment.”

Every Wednesday, 8×8 employees get a chance to relax, mingle, and enjoy a catered lunch. “My general philosophy is that people work hard,” says Verma. “We try not to have evening parties that take them away from family. Why create an obligation to stay late for a beer bash? If we can gather at lunchtime, you’re providing value to employees.”

OR JUST WAIT UNTIL THE NEW YEAR

While the holidays are prime for networking, they’re also hectic. If you’re feeling overwhelmed, why not wait? asks Brian Rowe, CEO and founder of Perceivant, an educational technology company.

“December is such a busy and stressful time for everyone, so wait until the New Year to reconnect with current and new customers,” he suggests. “Thinking in this mind-set helps us kick off the year strong and connect with contacts straight away once January rolls around to stay more top-of-mind.”

Rowe has the same philosophy with his employees. “There are enough holiday parties in December. So, to avoid any added stress, we all gather together as a company in mid-January to celebrate,” he says. “This allows us to reconnect, discuss what happened in the previous year, and get excited about what’s coming ahead.”

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By James S. Cassel

Growing at a furious pace, political polarization in America is creating a seemingly unbridgeable rift. Since President Trump’s election, the majority of likely voters believe America is more divided, and 31 percent think we may experience a civil war in the next five years, according to a recent Rasmussen Reports.

Given the highly charged political climate evident in the recent elections, when sensitive issues come up in social or business situations, middle-market business owners may want to tread thoughtfully — or risk losing business and friends, as well as their reputation.

There are several approaches a business can adopt to navigate political landmines, but the first step is for companies to make a conscious, deliberate decision on how to proceed.

One option is to avoid politics altogether. If, at a gathering, a politically charged issue like immigration, gun control, or healthcare comes up, simply don’t go there. Diplomatically deflect and redirect to common ground that everybody can agree on, such as the value of good schools.

However, avoiding politics also means carefully monitoring social media content. Google, Facebook and LinkedIn are usually the first stops for people you meet, and those platforms should reflect neutrality. As the saying goes, “social media is like a glass house and when you live in a glass house you must dress the part.” With profiles subject to ongoing scrutiny, people may not want to do business with you based on a post charged with political innuendo. Much care should be taken to filter out politics from online discourse if neutrality is what you have chosen.

Another alternative is taking a stance. For example, you may be willing to risk the loss of both customers and employees who are not like-minded. Not for the faint-hearted, this choice requires the courage to stick to your convictions, like the baker who refused to bake a cake for a gay couple and whose decision was upheld by the Supreme Court; or like Nike taking on the controversial Colin Kaepernik, the former San Francisco 49ers quarterback who kneeled in protest, for its commemorative 30-year “Just Do It” campaign.

As you decide if taking a stance is the right option for your business, consider the ramifications with those whose views are diametrically opposed to yours. For many, principles and doing what they feel is the right thing may be more important than maintaining or expanding a client base. If that’s the case, you may be surprised to find you might actually gain new business from people who share your beliefs.

A word of caution: the last approach should never be an excuse for undermining people with viewpoints that differ from yours. Be inclusive. Agree to disagree in a way that is civilized, thoughtful, and respectful of the rights and beliefs of others. Failure to do so not only runs counter to our democratic principles but can hurt you and your business’s image — even among clients who share your political inclination.

Regardless of the approach you adopt, establishing clear workplace policies will help guide employees with their own political agendas in the office or at networking or other business events.

Speaking with your company’s lawyers to get a comprehensive picture of federal and state laws governing what employers can do in relation to their employees is also important. As a general rule, businesses may have policies in place prohibiting all forms of solicitation, including political campaigning in the workplace. Speak to your employees about social media: help them understand the potential implications, both for your company, and for them as professionals. While you can’t necessarily dictate the content they post personally, you can develop clear rules regarding how social media should be used on the job.

In this era of unprecedented political divisiveness, it is essential for business owners to thoughtfully choose how they proceed. When confronted with emotionally-charged subjects, they must be prepared. Although employees cannot and should not be forced to adopt your political views, establishing pertinent guidelines for workplace and company-related social events can minimize sending conflicting signals.

James S. 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 at jcassel@casselsalpeter.com or via LinkedIn at https://www.linkedin.com/in/jamesscassel.

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By Danielle Fugazy

With the explosion of technology, the question of what an investment bank’s role will be in the M&A process in 25 years from now is not a crazy one.

“You can take some guidance from looking at where banking was 25 years ago. There was huge information asymmetry. There were no web sites to find information on funds and you couldn’t compare groups so easily,” says Bryan Cummings, a managing director and head of financial sponsor coverage with D.A. Davidson. “Today, there are many more private equity firms to know and they have to work harder to convince business owners to sell to them. All this competition has driven more transparency in the marketplace. When you think about the future, it’s hard to think there won’t be more capital and more competition. Deals will be highly sought after. Buyers will have to figure how to portray themselves as the best in the sea of buyers and investment bankers have to figure out how to portray themselves as the best, most trusted advisor who will get the seller the highest price. How do they do that?”

Some argue technology will help and that it will play a larger role in helping investment banks do their job. The theory goes something like this: Through various technologies such as AI, automation, and big data, computer programs will be able to do much of what bankers spend their time doing today. Some believe technology will be able to spit out comprehensive buyer lists, and that they will be more comprehensive and precise than anything a human would be able to produce.

Lots of industries are using artificial intelligence today and more are expected to embrace the technology in the future. According to Hampleton Research, the AI market size is forecast to grow from $21.46 billion in 2018 to a whopping $190 billion by 2025 at a CAGR of 36.62 percent. While technology is slow to take hold of the banking industry, it is happening. According to an MIT Technology Review article, the U.S. equity trading desk at Goldman Sach’s New York headquarters employed 600 traders. Today they employ two; 598 traders have been replaced by automated trading programs and they are supported by 200 computer engineers. Apparently, 45 percent of the revenue from cash equities comes from electronic trades. Complex algorithms are being built that can understand what a trader would do, not just across equities but even asset classes like currencies and credit. AI has already been used by hedge funds in stock trading, according to Imarticus Learning Inc.

More technology and less human interaction wouldn’t be so different than what happened in the travel industry, for example, where the travel agent’s role became diminished with the invention of online travel booking services like priceline.com and Airbnb. In the mortgage industry, sites like Zillow.com and realtor.com have forced mortgage brokers to change how they do business.

However, some argue that just because technology can provide more information doesn’t mean it will be more useful to sellers. “Even if a computer can show a seller 1,000 potential buyers, why is that more helpful than showing the seller 100 of the right buyers? The computer can’t evaluate how a buyer handles closing negotiations or what the players will likely do, but a banker will have some past experience that will shed light on behaviors,” says Cummings.

The reality is many believe buyers and sellers will still want to work with investment banks and will favor those who use technology to enhance the process. Investment banking is dependent on human emotion, which is unique.  “The middle market and the lower middle market is still a very human business. Technology is enhancing what we do, but not replacing us,” says Cummings. “You still have to personalize the experience.”

Many believe bankers will play an important role moving forward. Algorithms or AI still require human input to make sure their suggestions make sense and that the right questions are being asked. What’s more, algorithms can’t negotiate. The human touch is essential in helping buyers and sellers come to terms for a deal.

James Cassel, chairman of Cassel Salpeter & Co., argues that most bankers are already using technology to their advantage already. “Many firms are already using tools like Capital IQ and Axial to help get information on buyers and sellers. It’s become much easier to put together a buyers list and gather intelligence. Technology will continue to make this easier, and more efficient, but those lists still need to be vetted by a human.”

A human voice is needed to tell the story. “Companies are complicated. You can’t just send a one-pager. Having the technology speeds up the processes, but there has to be a balance between the personal and the impersonal. Bankers are now challenged with finding the right balance between doing their jobs and using technology to help their clients to the best of their ability. Technology should continue to be an enhancement to good service, not the answer to providing it,” says Cassel.

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By James S. Cassel

As the Federal Reserve continues to raise interest rates in today’s strong economy, middle-market business owners should keep a watchful eye on the economic and political developments during the next 18 months and beyond and take the necessary steps to best position their businesses. The key question is for what. Will it be a recession?

So much of government money is currently being spent on non-discretionary items. Defense, entitlements and interest payments on the national debt are examples. This type of spending will further tighten the squeeze on our government and cause potential problems for continued funding of such discretionary items as healthcare, infrastructure improvement and education. Very few are focusing on the deficit spending and the growing national debt.

While the jury is still out on whether we will see a recession in 2019 or 2020, the government will ultimately need more revenue unless spending is reduced. As a result, the government will have no choice but to raise taxes and/or cut expenses. It does not seem that the present growth in GDP will be sufficient to bridge the gap with increased revenues. It will be tough and overdue for the politicians to address these issues.

It appears the Fed will raise rates one more time this year. Despite today’s historically low rates, people will start to see the effects of this plus the prior rate increases in the form of higher borrowing costs. Americans, except those with substantial cash savings, will feel their spending power begin to diminish. Making matters worse, we have recently seen a spike in energy prices.

Another issue: tariffs and the trade war. While they do not seem to be hurting most people yet, they too are likely to have a negative impact on Americans by causing prices to increase on affected imported items, as well as goods that require affected foreign components or materials to produce. This will cause an increase in the inflation rate. According to recent news reports, polls show that large numbers of voters nationally and in key midterm states think tariffs will do more harm than good.

So, considering all this, what should middle-market business owners be thinking about and doing? For starters, they should closely reevaluate all areas of their businesses to confirm what expenses are necessary, look at efficiencies and determine how to protect their best interests. Expert guidance from trusted professionals, including accountants and consultants with proven experience, is always helpful and important to ensure the best outcomes.

Here is some general guidance and insight based on our experience working with middle-market business owners in all types of economic cycles:

• Hiring. No matter how much you may think you need to hire, you might be overlooking ways to work more efficiently and minimize the expense of adding new employees. Consider more flexible hiring in terms of temporary staffing so you can stay nimble as you watch how things play out in the coming months. Be careful not to over hire. When managed correctly, paid internship programs, particularly those involving partnerships with local universities, are a great way for business owners to address certain business needs while also cultivating new talent and potential hires.
• Capital expenses. As it pertains to capital expenses, such as purchasing new capital equipment, consider whether you are buying to support expansion or increase efficiency. Buying more efficient equipment can increase productivity while effectively reducing costs. Unless you have significant certainty, do not risk over committing your business.
• Borrowing costs. Evaluate your borrowing costs and lock in any variable interest rates that you can. Certainty has benefits. If you have excess cash, it may be a good time to pay down some of your debt.
• Manufacturing, supply chain and resource costs. If you believe tariffs will increase your costs, look for alternative supply sources and try to lock them up.
• If things start to deteriorate, seek help fast. Do not wait. Time is not you friend.
• A good consultant or investment banker can be a savior of your value.

Middle-market business owners who keep a close pulse on these issues and take the right steps will best position their businesses in the near and long term.

James S. 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 at jcassel@casselsalpeter.com or via LinkedIn at https://www.linkedin.com/in/jamesscassel.

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