As the Fed continues raising rates, middle-market business owners should begin preparing their businesses

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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Q3 2018: Tech Deal Report

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Which MBA Programs Are Best for VC or PE Jobs?

Top B-schools are the most likely to lead to jobs in venture capital or private equity, experts say.

By Ilana Kowarski

If you admire the millionaire and billionaire investors on the TV show “Shark Tank,” then you might be interested in attending an MBA program where you will learn how to identify companies worthy of investment.

Many business schools offer courses in venture capital, an investing specialty which involves identifying and buying stock in startups that have the potential to become wildly profitable. Similarly, business schools also offer courses in private equity, a finance field which requires taking ownership of mature companies and transforming those companies into more profitable ventures. Strengthening a company typically involves a combination of financial engineering, organizational restructuring, adjustments in the company’s strategy and maximizing the efficiency of a company’s business operations.

Venture capitalists and private equity investors say that prospective MBA students who are looking for a business school that will help them break into either venture capital or private equity should know these two fields are difficult to enter.

“Have a Plan B, because there’s a lot more people coming out of business school that want those jobs than are going to get those jobs,” says James Cassel, co-founder and chairman of investment banking firm Cassel Salpeter & Co., which specializes in arranging mergers and acquisitions deals.

Here are five factors that experts in private equity and venture capital say MBA applicants should consider when applying to and choosing a business school.

Prestige matters. Cassel says that people with MBAs from highly ranked business schools have an enormous advantage when competing for venture capital and private equity jobs.

“The challenge in today’s market with many of the venture capital firms or private equity firms, when they go out to do their recruiting, is they’re trying to recruit from top business schools,” he says.

MBA hopefuls with an interest in venture capital or private equity should focus on applying to B-schools with an abundance of investment firm recruiters on campus, Cassel adds.

Dileep Rao, a former venture capitalist and a clinical professor at Florida International University, says the most important factor in whether an MBA program is likely to lead to a private equity or venture capital program is if the program is at a “top, top tier school.”

Networking opportunities are crucial. Rao says a key sign of an MBA program that offers solid prep for careers at private equity and venture capital firms is when partners at these firms serve as guest lecturers and speak at school events. Another positive indication is when a school touts key relationships for student internships or job placements at venture capital or private equity firms, he says.

Patrick Mullane, the executive director of HBX, the online education portal of Harvard Business School, says that one key way to tell if a school offers solid connections to private equity and venture capital jobs is to look at placement rates within those two fields. He says prospective MBA students should contact alumni at their target school who are working in venture capital or private equity to ask if the school helped them find venture capital or private equity jobs, if there were on-campus interviews for these types of jobs and if the school’s courses prepared them well for those roles.

The best B-schools for venture capital and private equity excel in multiple business disciplines. Experts say one common misconception about venture capital and private equity is that all you need to excel in these fields is finance and accounting expertise.

While knowing how to read a balance sheet and make financial forecasts is a fundamental component of success in venture capital and private equity investments, it’s also necessary to have a solid grasp of business operations and strategy principles and to be familiar with a variety of industries, Mullane says.

“I think being well-versed across a spectrum of industries and problems is very, very helpful,” he says.

Mullane adds that anyone who intends to work in private equity or venture capital needs to understand the concept of disruptive innovation, which is when startups transform an industry by introducing a new technology or a new idea that allows them to challenge long-established companies. With this in mind, it’s valuable to enroll in an MBA program that offers courses covering the influence of technology on business and teaches students how to make informed predictions about industry trends.

It’s valuable to attend a school that has expertise in a field where you lack expertise. Cassel says a prospective MBA student who has a depth of experience in finance should look for a school where he or she can learn other skills that matter in venture capital and private equity, such as entrepreneurship. In contrast, prospective MBAs who have deep expertise in a specific industry like fashion should look for an MBA program that will cultivate their finance skills. Cassel advises aspiring venture capitalists and private equity investors to choose an MBA concentration that complements their prior work experience by teaching them a new skill.

Look for lessons on how to successfully expand a company. Linda Darragh, a clinical professor of entrepreneurial practice at Northwestern University’s Kellogg School of Management and the Larry Levy Executive Director of the Kellogg Innovation & Entrepreneurship Initiative, says learning how to grow a company is essential. “At Kellogg, we focus on a growth and scaling track,” she wrote in an email. “While much media hype continues to focus on ‘launching’ new ventures, real value is created in actually ‘growing’ them.”

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Cassel Salpeter & Co. LLC Represents Convert IT Marketing LLC, in its Sale to Abbey Road Capital LLC

Cassel Salpeter & Co. LLC served as exclusive financial advisor to Convert IT Marketing LLC, a leading performance-based digital marketing company to the legal vertical, on its sale to Abbey Road Capital LLC.
Founded in 2011, Convert IT Marketing provides outsourced pay-per-click marketing solutions for local law firms in specialty practices throughout the U.S. The company’s unique and proprietary strategies deliver superior performance to its 500+ customers in terms of cost and quality of leads, placing it in the top 1% of all digital marketers serving the legal vertical.
“The decision if and when to sell a company is a difficult one,” said Convert IT Marketing Owner and Founder Paul Rubenstein. “I spoke to several advisors and made a decision to move forward after speaking with Cassel Salpeter. I felt Cassel Salpeter had my best interests in mind from pre-engagement to post-close.”
“We enjoyed working with Paul on this transaction,” said Ranjini Chandirakanthan, Managing Director and Head of the Technology Practice for Cassel Salpeter. “We worked hard to minimize the disruption to the business and we are happy to be part of a great result for the company.”
“Paul and his team have built a tremendous business in Convert IT Marketing,” said Todd House, Managing Partner of Abbey Road Capital. “With a superior customer value proposition and a highly scalable platform, Convert IT Marketing is a clear leader in providing digital marketing services to the legal vertical. We are thrilled that Cassel Salpeter introduced us to the company and guided the company and the entire deal team to a successful close.”

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 extensive 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 professionals 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.