10 questions to consider when you receive an unsolicited offer to buy your business

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By James Cassel, Special to the Miami Herald
April 20, 2014

 JAMES CASSEL

JAMES CASSEL

When middle-market business owners receive unsolicited offers from potential buyers, they often fail to take the offers as seriously and evaluate them as strategically as they should. As a result, they often end up hastily accepting or rejecting the offers and regretting their decisions in hindsight days or years later.

The common mistakes made by business owners in these cases are varied and numerous. They close doors on offers that would have been in their best interest in the long term, sell prematurely, take the first deal that comes their way without looking for better ones, or fail to use the opportunities to strategically analyze their businesses and determine what the offers potentially represent.

Here are some of the key considerations that my investment banking firm generally takes into account when counseling clients who come to us after having received unsolicited offers:

1. Are you interested in selling your business at this time? An unsolicited offer should, at a minimum, prompt reflection and evaluation.

2. If it turns out that you have an interest in exploring the possibility of a sale, should you negotiate with the party who approached you on an exclusive basis or explore other possible buyers by running a limited or broad sales process, which may help you maximize value?

3. Is the offer coming from a sincere, legitimate potential buyer or from a buyer with ulterior motives, such as acquiring intelligence about your business and its customers? It’s critical to conduct proper due diligence upfront to understand the suitors’ motivations and whether to engage.

4. Do you have enough capital to continue to grow your business and stay competitive, or is now a good time to sell? Would seeking external capital or recapitalizing by selling a minority or majority part of your business be better options?

5. Is now the right time for you to sell? There are internal and external considerations. Many owners wait to begin considering selling their businesses until their businesses are headed downhill or they have been hit with unexpected major events, such as divorces or deaths in their families. They take reactive, emotional approaches rather than proactive, strategic ones. This is the opposite of what should be done, as they’re more likely to extract higher values for their businesses if they sell when their businesses are highly profitable and positioned for continued growth. Also, with today’s low interest rates, limited supply of available quality businesses for sale, and high number of buyers with available capital, prices are high.

6. What do the near- and long-term prospects look like for your business? Does the marketplace in the coming years look promising or does it look increasingly challenging as a result of emerging business trends or new technologies that may hurt your business? Although perhaps you were not thinking about selling your company, selling might be in your best interest if, for example, the offers are significant enough or if the competitive landscape is likely to intensify and you would be well served to make a timely exit.

7. Is your business too dependent on its current owners or on a handful of specific customers, and how likely is your business to survive without them? Buyers are not likely to pay top dollar for businesses they believe may be threatened by factors like these. Thus, it’s always helpful to make necessary adjustments to ensure businesses are in the best possible position when they are marketed and sold. This process takes time, and it is simply not possible to get all this done in a few days or weeks.

8. Do the potential buyers have the financial wherewithal to acquire your business? How likely are they to close on the deal?

9. Are the potential buyers likely to be good stewards of your legacies and keep up aspects of your business that you might consider important, such as providing a certain quality of services or products, financial opportunities for your employees, or certain support to your community?

10. What are the potential buyers relying upon to value your business? Owners of family businesses should seek professional assistance to prepare normalized financial information with appropriate add backs to reflect their true business earnings. This is critical for business owners looking to maximize value. Price is generally based on a multiple of something. Therefore, higher adjusted earnings equate to higher purchase prices.

There always will be advantages and disadvantages to selling or keeping any business, so it’s critical to know how to evaluate and respond to potential unsolicited offers. For important decisions like these, it’s wise to consult qualified advisors such as attorneys, accountants and investment bankers who can bring significant value by helping you understand all of the options, avoid making emotional decisions, and protect your best interest.

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 can be reached at jcassel@casselsalpeter.com and www.casselsalpeter.com

 

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Yahoo’s Alibaba Cash Enables Tumblr-Sized Deals: Real M&A

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By Tara Lachapelle
March 18, 2014

Alibaba Group Holding Ltd. may give Marissa Mayer a $10 billion chance to accelerate her dealmaking.

Since Mayer became chief executive officer of Yahoo! Inc. (YHOO) in July 2012, she’s focused on acquisitions of small companies, with the exception of Tumblr Inc. for $1.1 billion last year. While the Sunnyvale, California-based Web portal gained engineering talent with the three dozen deals Mayer struck, that won’t be enough to keep revenue from falling again this year, according to analysts’ projections compiled by Bloomberg.

Yahoo’s stock has been buoyed by its about 24 percent stake in Alibaba, China’s biggest e-commerce company, which is preparing to go public. The chunk of Alibaba shares Yahoo plans to sell could at least double its $5 billion cash stockpile for buybacks and acquisitions, JMP Group Inc. said, giving the company firepower to restore growth faster. Yahoo also could go after mobile-applications and websites such as Pinterest, Snapchat or OpenTable Inc. (OPEN), SunTrust Banks Inc. said.

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Yahoo! Inc. CEO Marissa Mayer
Chris Ratcliffe/Bloomberg
Since Marissa Mayer became chief executive officer of Yahoo! Inc. in July 2012, she’s focused on acquisitions of small companies, with the exception of Tumblr Inc. for $1.1 billion last year.

“They’ve been doing these tuck-in acquisitions, but on the table is something larger,” Robert Peck, a New York-based analyst at SunTrust, said in a phone interview. “Mayer wants to focus on mobile, video and even social, so anything that plays to those means would be interesting.”

Sarah Meron, a spokeswoman for Yahoo, declined to comment on the company’s plans for its cash or acquisitions it may make. Tiffany Fox, a spokeswoman for OpenTable, and Mithya Srinivasan, a spokeswoman for Pinterest, said the companies don’t comment on takeover speculation. Representatives for Snapchat didn’t respond to a request for comment.

Growth Potential

“We want to acquire companies that would have inherent growth themselves so that they are, what I call, growth accretive,” Ken Goldman, Yahoo’s chief financial officer, said at a Morgan Stanley conference March 4.

Yahoo’s revenue declined in four of the past five years, data compiled by Bloomberg show. The exception was 2012 when it increased by less than half a percent. Analysts estimate the company will generate $4.5 billion in sales in 2014, a 3.8 percent drop from last year, the data show.

Even so, the stock has surged almost 80 percent in the past 12 months as investors await the IPO of Alibaba, which has yet to price. Alibaba said in a statement this week that it has decided to start the process for a U.S. listing, which may be the biggest since Facebook Inc. in 2012.

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Photographer: Brent Lewin/Bloomberg
Yahoo’s stock has been buoyed by its about 24 percent stake in Alibaba, China’s biggest e-commerce company, which is preparing to go public.

“There’s a fair amount of excitement over the windfall that’s going to land on Yahoo’s balance sheet,” Colin Gillis, a New York-based analyst at BGC Partners Inc., said in a phone interview. Exactly how much “comes down to what Alibaba prices at. But either way, it’s going to be a nice chunk of change.”

Alibaba Value

Last month, the average valuation forecast for Alibaba was $153 billion, based on 10 analysts’ estimates compiled by Bloomberg News. That implies almost $37 billion for Yahoo’s stake in the Hangzhou, China-based company. Yahoo’s own market value is about $40 billion.

Even if Alibaba commanded just $100 billion, Yahoo could sell a 10 percent position and still receive more than $6 billion in cash after taxes, according to Ronald Josey, a New York-based analyst at JMP Securities, a unit of JMP Group. That would leave Yahoo with at least $11 billion of cash.

“Alibaba is the spark,” Josey said in a phone interview. “The big debate right now is, post-Alibaba, what do they do with this cash and can the core business actually start growing again?”

While much of the Alibaba proceeds will probably be used to repurchase shares, there will still be plenty left over to continue making acquisitions, Peck of Suntrust said.

Expensive Targets

Yahoo could pursue a larger deal for a content provider such as Pinterest, which lets users bookmark images or recipes to share with their social network, or Snapchat, a photo-sharing app, he said. Another possibility is a website focused on local data such as OpenTable, the $2 billion online restaurant reservation service, according to Peck.

Valuations for Internet companies are high right now and many of them don’t yet generate sales, Gillis of BGC said. Yahoo is also competing against the likes of Facebook Inc. and others for those targets, he said.

Facebook announced last month that it’s buying WhatsApp Inc. for $19 billion, without disclosing whether the text-message service had any sales.

“My concern, if I were in Marissa Mayer’s shoes, is that with a significant acquisition you’re going to pay a big premium and you’re putting an awful lot of eggs into one basket,” James Cassel, chairman and co-founder of investment-banking firm Cassel Salpeter & Co. in Miami, said in a phone interview.

Pricey Purchase

Under Mayer’s watch, Yahoo bought Tumblr in May for $1.1 billion, which represented the richest valuation for a dot-com company since 2000, according to data compiled by Bloomberg on deals for which revenue figures were available.

Yahoo could instead look for targets that would bolster its revenue from advertising technology, Josey of JMP said. Yahoo’s share of the U.S. digital-ad market is projected to shrink to 5 percent in 2015 from 5.8 percent last year, while rivals Google Inc. and Facebook may expand their shares to 42 percent and 9 percent respectively, according to an EMarketer Inc. report published Dec. 19.

“Companies that have revenue are going to be less flashy,” Gillis at BCG said.

Mayer unveiled updated advertising services in January, including a service to help marketers more accurately target audiences and a new ad exchange, which gives companies more tools to manage promotions on their websites.

Yahoo’s “stock has done very well based on Alibaba, but really as far as Mayer’s regime, it will start to be gauged by the success” in turning around Yahoo and bringing back its growth, Peck said. “That’s really where her legacy will start.”

Older business owners holding on longer to their businesses, potentially facing increased risks

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By James S. Cassel
March 16, 2014

Untitled To sell or not to sell? That is the question weighing on the minds of many middle-market business owners as they approach what would have previously been their retirement years.

Years ago, when life expectancy was shorter, things were much simpler: When you reached your late 50s, you’d begin to think about selling your business and focusing on enjoying your golden years. But with many Americans now living well into their late 70s and 80s, it seems that a growing number hold onto their businesses longer, thinking they will need the income as well as the psychological stimulation as they age.

Making matters worse, the Great Recession of 2008 significantly hurt the retirement savings of many retirees, and left them without enough money to continue to sustain their lifestyles. While most have recovered the majority of their net worth by now, they still feel vulnerable. Although the solution might seem to be to continue holding onto the business for a few more years, there’s more to this equation than meets the eye, and holding on might pose more risks than rewards.

Most owners who sell their businesses will not be able to replace their business income through conservative investments. They believe their only option would be to keep their businesses as long as possible so they can continue to receive the profits and cash flow needed to maintain their lifestyles and maybe accumulate some wealth outside their businesses.

On another level, holding on is also an emotionally convenient decision to make. Many business owners consider their businesses an intrinsic part of their identities, and their desire to continue running their businesses extends well beyond sustaining their financial livelihoods. “I enjoy running my business, and working keeps me busy. I wouldn’t feel as fulfilled if I weren’t doing what I’ve been doing the past 20 years,” they worry.

The Guardian Life Small Business Research Institute reports in a study that although many business owners expect to live 20 years into retirement, less than half feel prepared enough for life after work. The trouble with this line of thinking is that it is driven by emotions and fear rather than by a pragmatic analysis of the numbers. Unfortunately for most business owners, there are some serious downsides to holding on too long.

Typically, for most business owners, the majority of their net worth is tied up in their businesses, so their assets are not properly diversified. They are tied, and fully committed in every sense, to their businesses. If bank loans come up for renewal, the owners generally still have to personally guarantee them, thereby prolonging their financial exposure.

Moreover, these aging business owners will continue to be exposed to all the usual risks of keeping up with new market entrants and competitive, innovative technologies that might cause them to lose market share, profits and value.

That said, it is critical to know when to consider selling. In my experience at Cassel Salpeter, I’ve seen many business owners turn down significant, fully valued offers. Years later, they regretted these decisions when circumstances required them to sell quickly due to major life events, and they no longer had the power of choosing the best deals or timing.

Or they were forced to sell when interest rates were higher or profit multiples in their industries were lower, and they could not get the maximum value for their businesses. I’ve seen many who had turned down strong offers to buy, only to be put out of business a few years later when new competitors entered the scene or the industry changed. If you owned a Blockbuster video franchise 10 years ago and held it until today, where would you be?

Determining when and how to sell your business is one of the most important strategic decisions you’ll make as a business owner. It is crucial to recognize when you should go to market and not just wait for unsolicited offers. Otherwise, you may end up having to sell your business at depressed values or on other people’s terms rather than your own terms. If you decide to wait, you should closely monitor the market and constantly evaluate your options.

It can be quite difficult to set aside the emotional considerations of parting with the “baby” that you have been nurturing for so many years and is such a large part of your business and personal lives. To help ensure that you make the most informed decisions and avoid the common pitfalls faced by many business owners, it is important to work with qualified, trusted advisers. who can help you take the steps that will have the most positive impact on both the company you are leaving behind and the years of life left ahead of you.

You can evaluate your options, which might include selling control to a family office or private equity firm so you can remain involved and get a second bite of the apple. Remember, the decisions you make now will have ramifications for generations to come. They should be made with cautious consideration of all of the facts and variables and should not be based on emotions or unrealistic expectations.

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. www.casselsalpeter.com. He can be reached at jcassel@casselsalpeter.com

Family offices are seizing more opportunities in middle-market M&A, so keep an eye out for them

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By James S. Cassel
February 16, 2014

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James Cassel
NEED A SMALL BUSINESS MAKEOVER?
If you would like a makeover, here’s what you need to do:
• Tell us why your business needs a professional makeover. No more than 250 words, please. Concentrate on one aspect of your business that needs help, and tell us what your problems are.
• You must be willing to share company information with our consultants so they can help you. (Businesses selected for makeovers will need to fill out a short financial form.)
• The makeover is open to anyone who has been in business at least two years. No start-ups.
• The business must be your primary source of income.
• Your venture must be in Miami-Dade or Broward.
• E-mail your request to ndahlberg@Miami Herald.com and put ‘Makeover’ in the subject line.

When middle-market business owners begin looking outward for potential investors or buyers, they often limit their searches to a lineup of the usual suspects: private equity firms, venture capitalists, strategic buyers, and so forth. But often overlooked alternative investors — family offices — can be a good fit for those seeking investment relationships with longer term horizons and less complicated approval processes. South Florida in particular has a growing group of family offices. Family offices primarily manage the family affairs of ultra-wealthy families and make investments and asset allocations on their behalf. Their duties can also extend beyond this to include managing philanthropic efforts, the family’s many homes and bills, and estate planning.

Cascade Investment was established to serve as Bill Gates’ family office, Michael Dell employs 80 people at his own MSD Capital, and Oprah Winfrey hired notable investment manager Peter Adamson in 2010 to run operations at her family office. According to a recent article in Forbes, single-family offices are arithmetically multiplying, and with the wealth or influence they control, they are probably exponentially multiplying. Moreover, single-family offices currently oversee a larger pool of investable assets than all the hedge funds today combined.

Traditionally, family offices have been primarily focused on managing assets through the selection of the right investment managers to conduct their asset allocations. Recently, however, driven by many factors including historically low yields in fixed-income markets as well as volatility in equity and commodity markets, family offices have begun to make more direct investments in mid-market businesses.

While most family offices are the result of a family selling its principal business, others were formed as a method of diversification by taking substantial capital out of the business to diversify its investment holdings. Some family offices may limit themselves to specific industries and business verticals with which they are familiar. For example, if the family sold a manufacturing company, it may impose that limitation and discipline on itself to only look outward to similar ventures where it has relevant experience to make direct investments. In turn, these family offices can be intimately knowledgeable partners in certain verticals.

Whatever the case, family offices represent strong potential sources of buyers and capital for organizations looking to expand or sell. Generally speaking, family offices don’t often have the same kind of time horizons as private equity firms. This is for fairly transparent reasons: Family offices take a longer term view of the businesses they buy. Those family offices that have acquired businesses with stable long-term growth have no reason to look toward fast-approaching liquidity events. It’s in their best interest to cultivate longer horizon investment relationships that will provide consistent returns. Selling a growing business would just require them to redeploy the assets and face all the inherent risks of making new investments.

Private equity firms, on the other hand, are not investing their own capital, and as a result, they typically acquire with a four- to seven-year time horizon in mind. They raise money with the expectation that they will invest during a five-year period and exits or sales will take place during the four to seven years after they acquire. The funds have a finite life. As private equity firms go to market periodically to raise their next fund, they need to show their historical returns in order to garner interest from potential investors.

Another important difference between family offices and private equity firms is that the former can be distinctly agile decision makers. Private equity firms are far more formal, have investment committees and require multiple rounds of approvals before definitive action may be taken. On the other hand, family offices generally boil down to one or two key decision-makers who can act and react nimbly with executive authority. Additionally, family offices don’t have stiff fund structures.

Multi-family offices have also become more prevalent in recent years, as have more robust options for those seeking to establish their own family offices. For example, GenSpring Family Offices, an affiliate of SunTrust Banks, provides highly customizable wealth management advice and service options for single-purpose and multi-function family offices, ranging from multi-generational sustainment to administrative management, and more.

Without a doubt, family offices offer key differentiators and benefits as prospective partners and buyers. Middle-market business owners seeking capital sources from flexible partners with a sharp focus on their industries and the proclivity to make long-term investments should keep family offices in mind along with private equity firms. Wondering how you can find and access them? It is not easy. Unlike private equity firms, they are harder to find, as many try to fly under the radar. However, as they get more active, they become more visible. Therefore, a good start is reaching out to trusted investment bankers, attorneys, accountants and other plugged-in advisors who can help get you connected.

James Cassel is co-founder and chairman of Cassel Salpeter & Co., LLC — www.casselsalpeter.com — an investment-banking firm with headquarters in Miami that works with middle-market companies. He can be reached at jcassel@casselsalpeter.com

 

 

2014: Maybe the happiest New Year in a while for middle-market M&A

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By James S. Cassel
January 19, 2014

When it comes to middle-market mergers and acquisitions, 2014 is positioned to be quite a happy new year — the best one yet since 2008. For middle-market business owners seeking to sell their businesses, borrow money or raise capital, it looks like the stars may align to present attractive opportunities.

Typically, the M&A market gets bifurcated into large deals and small deals. In 2013, the large deal business came back but the middle market lagged. In 2014, we will see the large deal business continue while more small deals and middle-market deals begin to happen.

M&A last became bullish in 2006, and the market has since been hungry for another peak. Q4 2012 was particularly strong, and some middle-market analysts projected that 2013 would post record-breaking valuations for businesses, creating an ideal climate for exits and driving bidding wars. However, preliminary data show that the middle market lagged a bit in 2013, as the overall dollar value of deals closed in 2013 was only slightly higher than the dollar value of deals closed in 2012. According to a January 2014 S&P Capital IQ report, the dollar value of deals surged by 20.1 percent across the board between 2012 and 2013, predominantly driven by a few megadeals, but the number of deals actually slipped by 3.9 percent.

The end of 2012 was particularly strong due to the tax law changes. The slower deal volume can be attributed in 2008-2012 to a wide array of factors, including posturing in Washington over tax and estate issues, the slow debt market recovery, lack of job growth, and the stalled economy. Granted, this slow upward trend has been building since 2008, and early projections for 2014 indicate that this gradual increase will continue throughout the year. There could be pent up demand to sell.

In my experience at Cassel Salpeter, an investment banking firm that focuses on the middle market, several industries — namely healthcare, media, telecom and technology, financial services, insurance and real estate, retail, energy and manufacturing — enjoyed more concentrated deal-making opportunities. Companies with predictable cash flow were able to leverage multiples of four and five times cash flow, and companies with EBITDA in excess of $25 million gleaned even more. Calling 2013 a bad year or a good year all depends on where you happen to be standing, but across the board, it was a year of learning, and those lessons shed a telling light on what the market can expect from 2014.

In a recent KPMG survey of more than 1,000 M&A professionals, approximately 63 percent responded that their U.S. companies or clients will initiate at least one acquisition this year, and 36 percent expect their companies or clients will complete a divestiture. In a similar survey among 145 C-level executives, almost three quarters indicate that they expect their companies to make an acquisition in 2014 — almost double from last year. Are they righteously optimistic or kidding themselves?

The key drivers of this uptick in M&A confidence include: employment is improving; GDP has increased and is expected to be north of three percent in 2014; customer confidence has improved; home values are improving; the stock market is up; and interest rates remain relatively favorable. Despite the doom and gloom forecast that has been permeating some media, which is now finally subsiding, there is still a powerful notion of stability and safety in North America’s M&A markets. So, while regions like Western Europe and China might have some opportunities, the U.S. will undoubtedly attract dollars from investors seeking stability and growth.

Although 2014 might produce some megadeals, the middle market will be the main driver of M&A. According to the KPMG survey, approximately 77 percent of survey respondents say they expect their M&A deals to be valued under $250 million. This is an important detail: Middle-market executives have expressed confidence regarding their ability to access credit markets to finance deals, and simultaneously, a wide swath of companies are sitting on large reserves of cash, so these middle-market deals will become attractive targets for larger companies in the coming 12 months. The savvy ones have spent the past few years paying down lines of credit to prepare for the next bullish era of opportunities.

On the subject of credit, interest rates will remain low for at least the first six months of the year, maybe longer. Simply put, it’s ideal to borrow now, because if and when the Federal Reserve reduces its stimulation, interest rates may begin to move. A small uptick will produce minimal impact, but more significant increases could shake things up.

That doesn’t mean there isn’t money out there, particularly in the private equity markets and strategic buyers. Private equity firms are flush with cash and credit availability as are companies. Companies are looking to buy, and the convalescence of factors like cash reserves and increased consumer confidence will produce a favorable environment in 2014 for companies looking to make acquisitions. In addition, we can also expect that this will be a good year for initial public offerings, particularly for technology, financial services and health care ventures.

The unknown is not whether there are buyers but whether there are sellers willing to sell. At some point, aging business owners will make the difficult decision and take the plunge. As with all things, time will tell how the New Year will treat the middle market’s M&A sector, but insights from last year and new developments in the market are promising a healthy and strong 2014.

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. www.casselsalpeter.com

American Banker: Florida Likely to Experience More M&A in 2014

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By Jackie Stewart
January 2, 2014

Much like Florida’s weather, the forecast for bank consolidation in the state is bright. Mergers in the state picked up last year and some industry observers believe the pace of acquisitions could accelerate in 2014. Interest from foreign investors, along with regulatory pressures, could prompt more banks to sell.

“I fully expect there to be a flurry of activity in the coming year,” says Bowman Brown, a partner at Miami law firm Shutts & Bowen. Small banks in Florida are “under tremendous pressure so a very large number … are thinking in terms of acquisition or disposition.” Through Dec. 12, Florida had 13 deals last year, or nearly twice the activity that took place a year earlier, according to KBW. Nationwide, M&A is on pace to be relatively flat compared to a year earlier, in terms of the number of deals.

The bulk of Florida’s deals involved banks in the southern part of the state. South Florida has roared back since the financial crisis, as evidenced by several new construction projects, says James Cassel, chairman and co-founder of Miami investment banking firm Cassel Salpeter.

“For a while when I looked out [my office window] there were maybe 20 cranes and then there was a time there was just one,” Cassel says. “Now we are on our way back up to 20. South Florida is a growing, thriving market.”

The Miami area’s recovery involves an influx of investment from foreign groups based in Spain and South America. Citizens from countries like Brazil frequently visit south Florida, and Miami continues to serve as an important place for international trade, says Fernando

Alonso, a partner at Miami law firm Hunton & Williams. So it makes sense for foreign banks to seek out acquisitions to expand in the region.

In early 2013, Chilean bank Banco de Credito e Inversiones agreed to buy the $4.7 billion- assetCity National Bank of Florida from Spain’s Bankia. Banco Sabadell in Spain agreed
to buy JGB Bank in Doral, Fla., and Lloyds Banking Group’s international private banking business in Miami.

Similar acquisitions could take place next year, industry observers say.

“Miami has shown it is a resilient market, not just domestically but also with strong foreign investor influence and strong infrastructure from international trade,” says Carl Fornaris, co-chair of the financial regulatory and compliance practice at the firm at Greenberg Traurig. “You will see continued interest in south Florida.”

Pricing has firmed up, with at least five banks selling for more than tangible book value. Valuations should continue to rise next year, especially around Miami, as banks have fewer problems, industry experts say. As the number of community banks declines, buyers might be willing to pay more for the institutions that remain, Fornaris says.

Foreign interest in southern Florida could influence activity elsewhere in the state, says Alonso, who worked with Sabadell on the JGB and Lloyds deals.

“It is not unusual to look up the coast for other potential targets,” he says. “I do think Florida can and does work in many ways as a unified market. I don’t think it has in the past, but it is becoming more of a natural expansion for those already in south Florida.” There were a handful of deals across the rest of Florida in 2013, and industry observers are hopeful that more will take place next year. Real estate prices have recovered enough to allow banks to sell foreclosures at better prices, says Thomas Rudkin, a principal at FIG Partners. Stronger community banks are also looking for ways to grow in existing or adjacent markets, especially in areas like Orlando, Tampa and Jacksonville, he adds.

Buyers could include other Florida banks or institutions in nearby states such as Arkansas, Louisiana and Texas, Rudkin says.

For instance, John W. Allison, chairman of Home BancShares in Conway, Ark., has indicated an ongoing interested in Florida’s banks. The $387 million-asset

FirstAtlantic Bank in Jacksonville was also looking for deals, President and CEO Mitchell Hunt said last year.

Sellers will likely include smaller banks that are finding it difficult to compete as the cost of regulation rises, though this is not a unique issue for Florida, industry experts say. Some banks could opt to sell if they struggle to raise new capital, Rudkin says.

Banks with significant market share “are the ones that are seriously looking to raise capital because they have the market presence to do well,” Rudkin says. “Others have a more difficult process ahead of them.”

HCBF Holding in Fort Pierce, Fla., which bought BSA Financial Services in St. Augustine, Fla., last year, would like another deal, possibly along Florida’s east coast or the central part of the state near existing markets, says Chairman and CEO Michael Brown Sr. The $621 million-asset company has access to enough capital for a bigger deal, he says. HCBF would prefer to buy a bank with a clean balance sheet, though it is willing to consider one with some troubled assets. HCBF’s first acquisition was a failed bank, so Brown feels like his management team has the expertise to work out problem loans. “Clearly the operating environment has improved in Florida,” Brown says. “We still have the regulatory challenges, so we are likely to see the same pace of deals next year. Not everyone who talks to suitors is really ready to sell, though. There are a lot of conversations.”

Sun Sentinel: South Florida banks expect to grow in 2014

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By Donna Gehrke-White
December 31, 2013

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Boca Raton-based First Southern Bank has a new location on Las Olas Boulevard in Fort Lauderdale. (Mike Stocker, Sun Sentinel / July 26, 2013)

No South Florida bank went under in 2013 and earnings reports were robust throughout the banking sector. That’s good news, and there’s more to come in 2014, with a healthier banking sector freer to lend more to both businesses and consumers.

“Things are getting better,” said Richard Brown, chief economist of the Federal Deposit Insurance Corp. that last oversaw the closing of a South Florida bank in October 2012 when Tamarac‘s First East Side Savings Bank went under.

Banks in Broward, Palm Beach and Miami-Dade counties in 2013 got a welcome gift from the real estate sector, which shot up in double-digt value early in the year.

“The real estate market turned on a dime,” he said.

That helped banks trying to unload foreclosed properties while it kept some homeowners from dropping over the edge into foreclosure, FDIC’s Brown said.

While conditions still aren’t up to pre-recession levels, South Florida banks are much healthier than they were in the dark days when the entire state led the nation in bank closings in 2010, according to Brown and FDIC spokesman David Barr.

“The banking industry has made an unbelievably quick rebound in South Florida,” said Raul Valdes-Fauli, president and CEO of South Florida-based Professional Bank. “So much so, that I fear we may have missed a few steps and might be setting ourselves up for another downturn.

“We all need to be cognizant of that.”

Still, his bank increased its “loan books 45 percent in the past 12 months,” Valdes-Fauli said. “The bank overall has grown in 2013, and we project healthy growth for next year, too.”

Many other South Florida banks have been growing. Boca Raton-based First Southern Bank, for example, expanded into downtown Fort Lauderdale’s financial district in May to cater to small businesses.

Overall, the number of bad loans continued to drop at South Florida banks, said Karen Dorway, president of the Coral Gables-based research company, Bauer Financial.

“We are very optimistic,” about an even better year ahead, she said.

Her company gave its highest award of five stars to several South Florida banks — including the largest, Miami Lakes-based BankUnited — and the newest — Broward Bank of Commerce — that opened its doors in 2009 in Fort Lauderdale. Broward Bank was the state’s No. 1 success story in lending to small businesses, with the help of federal money, according to a U.S. Treasury report published in October.

In December, BankUnited was named among the top 10 banks in the country, ranked as No. 8 by Forbes. It also was named the top-performing, publicly-owned mid-sized bank in America by Bank Director magazine.

“South Florida has really led Florida out of the recession. We expect it to get better,” Kanas said in an interview. “We see continued improvement in the South Florida market.”

Part of the bank’s expected growth will be in new accounts and giving out more loans, he said.

New commercial loans at BankUnited, including real estate loans and leases, grew to $4.5 billion in the third quarter that ended Sept. 30, jumping about 20 percent — or $762 million.

Since September, BankUnited has continued its upward lending, giving out in December, for example, a $60 million loan that will reduce costs and free up money for ongoing improvements to the Lauderdale Marine Center in Fort Lauderdale, a 50-acre boatyard and marina, one of the nation’s largest.

“We’ll grow loans probably in excess of a billion dollars over a quarter,” Kanas said. “We expect to see dramatic growth.”

South Florida’s economy should grow more in 2014 as other banks increase their lending to businesses, said South Florida banking analyst Ken Thomas.

That will help add more jobs to the area as companies get the money to expand, he said.

Regulations on commercial lending haven’t tightened as much as they have on mortgages, Thomas added. That’s more of an incentive for banks to focus on lending to small businesses, although Thomas expects them also to give out more mortgages.

Local banks should also make more profits in 2014 as the Federal Reserve raises interest rates. “We know rates are going up,” Thomas said. “That’s even better news for banks’ spreadsheets” as the banks will make more money from new loans’ higher interest payments, he said.

Still, South Florida banks aren’t at their healthiest pre-recession level, he and other analysts said. That may take another two years or so.

“The banks in South Florida are in pretty good shape but there are a handful that could use a little help,” said James Cassel, chairman and co-founder of Cassel Salpeter & Co., an independent South Florida investment banking firm.

 

Handle your employees with care. Though oft said, the dictum remains true: employees really are your firm’s most valuable assets.

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By James S. Cassel
December 31, 2013

No matter what size or type of business you own, your success depends largely on the people who comprise your team. The decisions you make in all phases of the employment cycle — recruiting, hiring, training, retaining, evaluating, and promoting, laying off or firing — are critical.

Based on my experience over the years helping middle-market business owners, I believe that they often don’t give the necessary attention to many basic principles. Employment decisions are often made by the wrong people, at the wrong time, for the wrong reasons, and without the proper considerations. Here’s some practical advice I have found helpful.

Recruiting, interviewing and hiring. This process begins before you even look at the first résumé. First, you should identify what characteristics you need in your prospective hires and carefully determine who within your firm should become involved in the process of creating job descriptions, screening résumés and conducting interviews. While the CEO of a mid-size firm may not be directly affected by a bad entry-level hire, such a hire might create tremendous burdens for other team members.

Southwest Airlines famously hires for attitude and trains for skills. Despite the company’s ongoing success, other firms often underestimate the importance of personality of potential employees. Consider conducting a well-regarded personality test (such as the Myers-Briggs Type Indicator) at some point in the recruitment process. You can conduct these internally or use an outside provider. Who conducts the interview is important, but who conducts the test is not as important.

The hiring process can be an even trickier proposition for family-owned businesses — especially when it involves making decisions like going beyond the bloodline to bring in the best candidates at senior levels. Automaker Ford was managed on and off again by Ford family members until 2006, when the company made the strategic decision to bring in Alan Mulally, a former executive with Boeing, as Ford’s president and CEO. Although these decisions might be difficult for some families, such moves can bring great value to the businesses. In the case of Ford, the hiring of Mulally has been largely credited with returning Ford to profitabilityand avoiding bankruptcy.

Training. Although training is vital to employee retention and business growth, it is often overlooked by many middle-market business owners who are focused too tightly on day-to-day operations. Consider exploring options like online courses or sending employees to outside conferences for training. You can also bring trainers in house on a contract basis.

Larger companies may have access to more comprehensive resources that enable them to train internally. Technological solutions such as MindTickle that gamify and socialize employee training can keep businesses of any size competitive.

However, while game-style technological solutions may be useful for training entry-level staff members, they may fail to stimulate more senior executives or encourage them to stay at the leading edge of their fields. Therefore, it’s helpful to identify high-level industry conferences and events where upper-level management may connect with their peers and get inspired from the nexus of knowledge.

Workplace: Inspiring and training your employees is great, but employees also want good working conditions, compensation and benefits. More than ever, job applicants are looking beyond salary and are paying attention to the fine print related to health insurance, 401(k) plans, paid vacations and other provisions. Unfortunately, many businesses fail to provide competitive benefits packages because they don’t have the in-house human resources departments necessary to manage these benefits as well as the costs. Options like professional employer organizations that outsource human resources administration, payroll, benefits administration and other functions can enable middle-market businesses to provide the same or better benefits to their employees as larger companies — and do so at more reasonable costs.

Evaluating. Continuously examine your team all the way up the ladder, from the entry-level to the C-suite. Incentivize strong performance and enforce training to respond to sub-par performance. In so doing, you can reap maximum productivity out of your team long after the initial hiring.

When it becomes clear that a bad hire has been made or you have a problem with an employee, it’s to everyone’s benefit — including the employee’s —to end the relationship as soon as possible.

James Cassel is co-founder and chairman of Cassel Salpeter & Co., LLC, an investment banking firm with headquarters in Miami. www.casselsalpeter.com

 

 

Forbes: BankUnited 8th best bank in U.S.

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By Donna Gehrke-White
December 20, 2013

Forbes named South Florida-based BankUnited, which expanded into New York this year, as one of the top 10 banks in the country.

BankUnited moved up this year from Forbes’ tenth spot to #8 this year, noted bank spokeswoman Mary Harris. “We were really excited about that,” Harris said.

It was the only Florida bank in the top 10 list. Other top banks are based in California, Illinois, Massachusetts, Texas, Hawaii and Missouri.

Forbes listed BankUnited as having $14 billion in assets while enjoying an almost 12 percent return on total equity. Only 0.5 percent of its loan portfolio was non-performing.

The bank has had a swift turnaround since the Federal Deposit Insurance Corp. took it over in 2009 during the Great Recession and appointed new owners led by longtime banking executive John Kanas and Palm Beach billionaire Wilbur Ross.

The FDIC took over much of BankUnited’s bad loans, allowing the new owners — “excellent management” — to focus on improving the bank’s performance, said James Cassel, chairman and co-founder of Cassel Salpeter & Co., an independent South Florida investment banking firm.

In four years, BankUnited, which now is based in Miami Lakes, has added branches in Florida; this year it moved into New York with branches established in Manhattan, Long Island and Brooklyn. It has 39 branches in Broward and Palm Beach counties.

John Kanas, BankUnited chairman, president and CEO, said the bank will be loaning more in 2014 as it adds deposits. On Monday, BankUnited announced it had closed on a $60 million loan to refinance the Lauderdale Marine Center in Fort Lauderdale.

“We expect to see dramatic growth,” Kanas said.

Frederick’s Of Hollywood To Be Taken Private

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By Sarah Pringle
December 19, 2013

More than 19 months after hitting the auction block and managing to steer clear of another bankruptcy, Frederick’s of Hollywood Group Inc. has agreed to be taken private in a deal that values the once-flourishing lingerie company at almost $11 million.

A consortium, comprised of New York hedge fund Harbinger Group Inc. subsidiary HGI Funding LCC and other common and preferred shareholders, has agreed to acquire the outstanding shares not already owned by the group for $0.27 a share, Frederick’s revealed on Thursday.

The agreement represents a 50% premium over Frederick’s closing price of $0.18 on Sept. 27, the day before the consortium made its initial $0.23 per share offer.

The group, which together holds 88.6% of Frederick’s common stock, will essentially be paying just $1.2 million for the approximately 4.5 million shares it doesn’t currently own. The agreement values Frederick’s at about $10.6 million.

Frederick’s, based in Hollywood, Calif., had already effectively handed control of the company over to Harbinger Group earlier this year, when an affiliate of HGI Funding, Five Island Asset Management LLC, acquired its Series B convertible preferred stock for $10 million.

Frederick’s, which was formed in 1947 by the creator of the pushup bra, Frederick Mellinger, put itself on the block on May 7, 2012, when it hired Allen & Co. LLC as financial adviser to evaluate its options after receiving a number of inquiries related to various transactions.

Less than two years earlier, Frederick’s had initiated a strategic review for its wholesale unit Movie Star Inc., which was ultimately sold to Dolce Vita Intimates LLC on Oct. 28, 2010, for an unknown price.

The outlook for Frederick’s still wasn’t looking very optimistic about two months ago, when, on Oct. 25, Mayer Hoffman McCann PC expressed substantial doubt about the company’s ability to continue as a going concern.

The accounting firm pointed to the once-bankrupt company’s recurring losses and negative cash flows from continuing operations, as well as its working capital and a shareholders’ deficiency.

As of Oct. 26, Frederick’s had cash and cash equivalents of just $250,000, while total debt amounted to about $24.9 million. The company has posted losses during 13 of the past 14 quarters, most recently reporting a $7.28 million loss for the first quarter ended Oct. 26.

Still, Frederick’s shareholders seemed to be enthused by the intimate apparel retailer’s latest attempt to turn the company around, which has failed over the past several years to keep up with others in the space including its mainstream rival Victoria’s Secret, which operates as part of L Brands Inc., formerly known as Limited Brands Inc.

Shares, trading on the over-the-counter market under the symbol FOHL, advanced about 30.7% midday on Thursday to $0.26, from $0.20 the previous day. Shares have climbed about 44.4% since the day prior to the consortium’s initial offer on Sept. 27.

Thursday’s agreement, which requires shareholder approval representative of at least two-thirds of the company’s outstanding stock, calls for Frederick CEO Thomas Lynch to continue serving as chief executive for three years following the merger.

Though Frederick’s appears to have escaped bankruptcy for now, that wasn’t the case 13 years ago. Frederick’s declared Chapter 11 on July 3, 2000, and on Jan. 7, 2003, the reorganized company emerged from bankruptcy controlled by a secured lender group headed by Crédit Agricole Indosuez. At the time, it had $65 million in assets and $70 million in debt.

It wasn’t until Jan. 29, 2008, that Frederick’s began trading as a public company on the New York Stock Exchange as it completed a reverse-stock merger with Movie Star and FOH Holdings Inc., its parent company at the time. Frederick’s was eventually delisted by the NYSE because of non-compliance with stockholders’ equity requirements.

Still, the lingerie company remains far from the value it once was, with a market capitalization of just $7.9 million as of Dec. 18. On Sept. 15, 2009, the company was worth about $64.93 million, representing its highest value over the last five years.

Miami-based Cassel Salpeter & Co. LLC’s James Cassel is providing financial advice to Frederick’s on the transaction, while Paul Lucido and Eric Schwartz of New York-based Graubard Miller are serving as legal advisers.

HGI Funding retained Milbank, Tweed, Hadley & McCloy LLP as legal adviser.