In today’s uncertain world, just do the right thing. It’s good for business

By James S. Cassel

With so much noise and confusion surrounding the current political, business and economic climate, middle-market business owners are unsure how to protect the best interests of their businesses in the short and long term. The simple and common-sense answer: No matter what anyone else may be doing, you should continue doing the right thing, and support like-minded companies that do the right thing.

While it may be true that there are too many regulations, the fact is many are very important and necessary. The current administration has been reducing regulations (some believe  indiscriminately) without really considering the true long-term impacts of these decisions. This might be great for business in the short term, but it could hurt significantly in the long term. So, we reduce regulations but we damage the environment, consumer protection, endanger people, or curb protections — how does that help anyone? It is shortsighted.

What can you do? Continue to run your business with the highest moral and ethical standards of sustainability and social consciousness — and choose to do business with companies that do the same. In this way, beyond protecting your business, you will exert influence in very positive and powerful ways: rewarding the do-gooders by supporting them financially, while letting the negligent ones feel it in their bottom lines.

For example, our government has reduced incentives for alternative energy — including solar and wind energy — in the recent tax code, which may be good for the coal, hydrocarbons and energy industries, but may not be good for the environment and for business. Additionally, the reduction of many of these regulations is chipping away at consumer protection. Again, you can lead by example and with your wallet by only doing business with companies that do the right thing.

One positive step that you might take with the extra money you will probably receive from the recent tax breaks is to apply it to environmentally friendly, sustainable, socially responsible initiatives. Additionally, you might invest in marketing programs to promote your sustainability policies and elevate your profile as a good steward of our environment, motivating others to follow suit. Look at shoe company TOMS or eyeglass company Warby Parker, two companies that since their founding as startups have provided one pair free to someone in need for every pair purchased.

Already, a growing number of companies are leading the charge. Consider Coca-Cola’s widely promoted “World Without Waste” packaging vision, which involves gathering and recycling a bottle or can for every one sold around the world by 2030 and renewing its focus on the entire packaging life cycle.

Dunkin’ Donuts recently announced its commitment to eliminate all foam cups by 2020, a highly responsible act. These initiatives are not only good business but vital for our planet. More companies should follow their lead.

At the same time, firms like Blackstone, one of the nation’s biggest asset managers, is making it clear to companies that it wants to invest in companies that are socially responsible. Its mission is clearly articulated on its corporate website, which reads: “Protecting the environment of the communities in which we operate is critically important. Fostering growth and creating enterprises of enduring value is a vital part of Blackstone’s commitment to being responsible corporate citizens. Our commitment to corporate responsibility is embedded into every investment decision we make.”

While bigger businesses like these have endless options and resources, middle-market companies should do their part within their own spheres of influence. Additionally, being socially conscious and socially responsible increases long-term value. You do not have to pay to clean up what you do not mess up. If you are going to sell your business, building sustainability as a socially responsible company can enhance the value of a sale as more private equity firms and investors look to ensure they are dealing with quality, responsible, sustainable companies.

Like it or not, while it can be nice to get extra money and live in a bubble, we are only fooling ourselves and hurting future generations by only considering the short term.

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How To Know If It’s The Right Time To Hire

By Bryan Borzykowski

James Cassel has hired hundreds of people to work at the various companies he has helped start and run over the past four decades. Still, after all that time, the lawyer and investment banker says knowing when to staff up remains one of the hardest parts of being an entrepreneur.

“We struggle, as do many small and medium-sized firms, in deciding when to hire that additional person,” said Cassel, chairman and co-founder of Cassel Salpeter & Co., a Miami-based investment bank.

These days, Cassel takes a slow and steady approach to hiring. Since he started his current company seven years ago, Cassel and his colleagues have brought on only eight people, in addition to the four who started the firm. With previous companies, he would hire quickly, only to have to lay those people off when work dried up during the recession.

“I’ve had the pleasure of bringing in great people and the angst of letting those good people go,” he said.

Knowing the precise time to hire a new employee is a constant headache for business owners. Challenges include not only finding the money to pay the new person’s salary and benefits, but also keeping him or her busy, motivated and contributing to overall productivity.

Hiring is like a puzzle, according to Sara Whitman, chief culture czar at Pepercomm, a New York-based communications firm. It’s a process of constantly seeking the piece that fits. “You’re always moving things around to get the picture,” Whitman said. “And once you get it right, you have to move it around again.”

It All Comes Down To ROI

Deciding when to hire comes down to one thing: profit. Can another employee help you generate more profits now or not far down the road? That’s the question all business owners should ask themselves, said Richard Allaway, general manager and division vice president at ADP National Account Services. “Get out the spreadsheet and the calculator,” he said.

The answer isn’t always a simple yes or no, though. Numerous factors play into the equation. What’s the best way to generate that profit? It might be by landing a new customer, in which case you may need a sales or business development person. Or maybe it’s by filling orders more quickly, which means you’ll need someone in operations who can speed up the production process. Maybe you’re trying to accelerate the launch of a product, so you’ll need to hire someone in product development. It depends on what kind of help the business owner needs most, Allaway said.

An Investment In Your Business

Cost is one reason companies wait too long to hire. Employees are expensive. Besides salary, companies also need to shell out money on overtime, benefits plans, potential 401(k) matches and so on. But an organization that focuses only on cost of employees would never hire. Instead, an organization should look at new hires as an investment, as long as it can afford to finance additional headcount until profits grow. “It could be months before people pay for themselves. So you have to have the capital to fund that growth,” Allaway said.

In many cases, especially for service companies, hiring depends on how many clients are coming and going. An expanding client roster largely drove Pepercomm’s growth from a dozen at launch 30 years ago to 100 people now. “A lot of times hiring is driven by the business,” Whitman said. “When you win a new piece of business you might need another body to help fulfill that work.”

In recent years Pepercomm has become more analytical when it comes to hiring. Today, it has four employees who assess the organization’s overall needs and, starting with that assessment, decide where to put existing staff and what holes they need to fill with new hires.

They analyze budgets to see how much money the organization is spending on people costs versus expenses such as rent and equipment. How many people are working on certain client accounts is another matter for inquiry. If the data indicates they need to hire, they will, Whitman said. If it indicates that they require only part-time help, they’ll look for freelancers they can employ on a temporary basis.

The Importance Of Due Diligence

Deciding when to hire is a decision organizations shouldn’t take lightly. You might feel like you need help, but hiring out of frustration or desperation isn’t a good strategy.

“If you hire the wrong person, it could introduce some risk or liability,” Allaway said. “Maybe you end up with someone not as skilled as you and they treat a customer badly or you have to let them go and give them a severance. These are things that can impact the business financially.”

When you do get it right, though, your business — and profits — can soar. “Hire a great employee and they can grow the business beyond what their expected contributions might be,” he said.

For Cassel, the key is adding new bodies only when he’s confident it might help move his business forward.

“If you’re looking to build on your business plan, then you try and match the right people who can help you execute on that plan,” he said. “Hire the right people who fit the culture and can help the company in the future.”

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Sense of the Markets: IPOs on Ice Amid Volatility

After January 2018 racked up the most deal volume by dollar amount ever, February could see a bit of a respite as firms looking to list wait for enormous market swings to settle

By Kinsey Grant

In a market rife with volatility, going public doesn’t scream “logical” and after a January that saw almost 80% more volume than the previous year, February’s volatility may have put the IPO hot streak on ice.

The Dow, S&P 500 and Nasdaq have endured wild swings in value over the past week that have led the Cboe Volatility Index to rally 80% in the past five days. While that enormous volatility has quieted some Wednesday, Feb. 7, the market has yet to return to the ultra-low volatility nature it maintained throughout 2017 and into January.

Because of that, the IPO landscape could simmer down some as firms looking to list wait for a more even-keeled environment in which to do so. February’s quiet spell comes after January 2018 won the title of the biggest start to a year on record in terms of dollar IPO value. Last month, there were 20 IPOs in the U.S. valued at $9.266 billion total, according to data from Dealogic. There have been three IPOs in the month of February so far, valued at a total of $908 million.

IPO action was especially slow last year, Cassel noted. Deal value in January 2018 topped the same month a year earlier by 79%. In January 2017, there were about half the number of IPOs listed in the U.S. For the whole of February 2017, there were six listings total valued at $710 million.

“Obviously when people are doing IPOs volatility is not something they like, especially the underwriters,” said James Cassel of Miami-based independent investment banking firm Cassel Salpeter & Co.

“People who were probably ready to go might have held off,” Cassel said of February’s swings that have seen the Dow open lower 500 points only to nish the session in the black.

“[Volatility] is not great for IPOs because nobody knows where anything is going,” said Heidi Mayon, partner at the Silicon Valley office of Gunderson Dettmer. But if the process was by and large complete, the IPO show must go on, Mayon said.

“People will wait,” Cassel added. “And then they’ll come back out. You have a lot of pent up demand.”

Some market watchers have called for sustained volatility throughout the rest of 2018, but that likely won’t impact IPO action for the next 10 months. Cassel said IPOs won’t be held off much by 100-point swings in the market. It’s really only the 1,000-point swings like the market endured this week that are enough to delay an IPO.

As for this spate of swings, it was a long-time coming, Mayon said. “Everyone kind of expected some kind of downturn.” But all in all, the market is healthy, Mayon said. “We’re seeing really strong interest in IPOs as a whole.”

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Liquor Sector to See More Consolidation in 2018

The Patrón and Avión tequila purchases likely will not be the last deals this year for producers of tequila, whiskey and gin.

By Cathaleen Chen

So much for dry January.

So far this year, there have been two major deals in the spirits industry: Bacardi Ltd.’s acquisition of Patrón Spirits International AG, and Pernod Ricard SA’s purchase of the remainder of Avión Spirits LLC, both hip-hop- approved tequila brands.

Thanks to heightened consumer demand and the fragmentation of liquor brands now offered on the market, the industry can expect to see even more mergers ahead, industry sources said, especially among whiskey, tequila and gin producers.

“Being acquired by a major player is the dream for people who build these smaller brands,” said Ken Austin, founder of Avión. “Typically, what happens for them is they get to second base, and to bring it home, they try to get acquired.”

Part of the obstacle to scaling up for growing brands is the issue of distribution, as U.S. regulatory measures largely prohibit direct-to-consumer outreach from distillers. Instead, in a three-tier system, wineries and distilleries must go through distributors, or wholesalers, to reach retailers — stores, bars and so on — which only then access the consumer.

“It’s a really challenging space for smaller brands to build architecture because there are so many channels of distribution you must populate,” said Derek Benham, founder of Graton Distilling Co. as well as multiple wine brands. Graton, based in namesake Graton, Calif., produces D. George Benham’s Sonoma Dry Gin, Redwood Empire American Whiskey and D. George Benham’s Vodka Vodka, the latter not a typo but a “vodka-flavored vodka.”

“Each of these distribution channels requires a different type of investment and expertise, and it’s always a battle because when you get to this second tier, you’re battling the huge brands with [deep pockets] for market share,” he said. The solution, then, is to be acquired by a large player, such as Pernod or Constellation Brands Inc. (STZ).

The spirits industry, across the board, is in a sweet spot, and the stock charts say it all. Jack Daniel’s, Herradura and Finlandia producer Brown-Forman Corp. (BF.B) , for instance, has seen shares skyrocket more than 52% in the past year. Stock in Constellation, home of Casa Noble tequila and High West whiskey, not to mention Corona, Modelo and Pacifico beer, is up more than 46%, and shares in Pernod (Jameson whiskey, Beefeater gin, Absolut vodka) have jumped more than 16%.

The reason for investors’ love of spirits producers is that alcohol consumption in the U.S. is higher than ever. According to an August study published in medical journal JAMA Psychiatry, alcohol use rose from 65% of the adult population to 73% in a 12-month period.

Not every drinker, of course, toasts with the same drink — and the strongest consumer segment, according to Austin, is millennials.

“The younger consumers are looking for better products. They want to know the story behind a brand, they want to understand the taste profiles, and they don’t want alcohol with artificial ingredients,” he said. That’s why, he added, small, local distilleries are on the rise.

According to bar analytics firm BevSpot Inc., the three most ordered spirits are whiskey, vodka and tequila. Whiskey and tequila in particular are seeing a number of deals, said Jim Cassel, co-founder of investment banking firm Cassel Salpeter & Co., but gin is the up-and-comer.

“One space that hasn’t seen a lot of M&A is gin, but there are a lot of smaller gin brands out there now,” he said, pointing to The Botanist, made by Scotland’s Bruichladdich Distillery Co. Ltd., as an example of a brand that’s gaining traction. Bruichladdich, however, is owned by Rémy Cointreau Group, the French entity behind Rémy Martin cognac and Cointreau liqueur.

As for future acquisition targets, Benham pointed to the Michter’s whiskey brand of Louisville, Ky., and Sonoma, Calif.’s 3 Badge Beverage Corp., which produces a range of spirits and wines, as two of the few distilleries that remain private.

“We are a dwindling species!” he said. “The ones that haven’t been bought are tiny companies.”

As for his own company, Benham said, “If something comes along that’s a generous offer that makes sense, as a businessman I’ll look at it.” (He previously sold the Mark West wine brand to Constellation in July 2012 for $159.3 million and the Blackstone and Codera brands in October 2001 to a Constellation joint venture for $138.1 million.)

There also could be larger consolidation deals down the line, such as Constellation swallowing Brown-Forman, Benham added. Other smaller liquor companies that remain private include Jose Cuervo, Bushmills and Hangar 1 maker Proximo Spirits Inc. and Heaven Hill Distilleries Inc., producer of Evan Williams bourbon and Christian Brothers brandy.

But there is another elephant in the room: Tito’s Handmade Vodka, the Austin, Texas, distillery that makes what was recently billed as the world’s fastest-growing vodka. Founded 20 years ago, Tito’s went from producing 150,000 cases in 2006 to 2.78 million in 2015, according to Impact Databank. Between 2016 and 2017, Tito’s sales grew 44% to nearly $190 million, becoming,the top-selling spirits brand in the U.S., Wine & Spirits Daily reported last October.

The company has remained private under founder and sole owner Bert “Tito” Beveridge.

“I’m sure the guy gets calls multiple times a week. It’s grown almost logarithmically,” Benham said. “But what I’ve heard is that he’s just not willing to sell.”

Tito’s could not immediately be reached for comment.

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