Buyout Firms Expand and Prosper in Florida’s Environment

By: James Cassel

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MIAMI, Florida, November 20, 2011 – Leveraged buyout firms, private equity firms — call them what you want — these companies have dug their heels into the South Florida sand. Certainly, 2011 has seen volatile market swings, and the general state of the economy pretty much stinks. Nevertheless, South Florida has attracted a growing roster of private equity firms that have identified our turf as fertile ground for their operations, and that means more options for Florida-based companies contemplating a sale or recapitalization.

Buyout firms raise capital from deep-pocketed investors — or leverage their capital — using equity along with borrowings to purchase or invest in companies that have the potential for growth. In addition to these companies with growth potential, buyout firms are looking for undervalued or underperforming companies, businesses with strategic value to other companies in a firm’s portfolio, or companies in financial distress or bankruptcy. Many of these companies are capital constrained.

After a firm purchases a company, it may rely on existing management or regime change (new management) to grow the company and ultimately sell it for a profit, typically after a period of five to seven years. The profits get distributed back to the investors, and a portion, along with a management fee, goes to the private equity firm itself.

South Florida’s oldest private equity firm, Trivest Partners, has operated here since the 1980s and has handled high-profile transactions such as Aerobed, Banana Boat and Polk Audio. It also has the good company of other legacy firms based in South Florida including HIG Capital, Brockway Moran, Sun Capital, ComVest, Palm Beach Capital, Pine Tree Equity Partners and Boyne Capital Partners. Newcomers to South Florida include Empire and Huntsman Gay, to name a couple.

What brings private equity firms to South Florida? As simple as it may sound, many come here for the same reason as tourists and snowbirds — the lifestyle! Come January, it’s a heck of lot nicer to do a deal on the beach than on Wall Street. The strategic value of our location means private equity firms can attract sun-starved talent from the northeast as well as investors who enjoy a yearly meeting in the subtropics. Since most travel regularly, a good hub airport is a must.

There are solid financial reasons as well — the tax benefits. Florida’s low corporate income tax and absence of state individual income tax are notable draws. Plus, Florida has many entrepreneurs, a magnet for private equity firms operating in the state.

Perhaps most significant is that Florida — and South Florida in particular — has grown up. South Florida has a growing finance community. As the fourth-largest state in the nation, and with a more sophisticated international business community, private equity firms have come to recognize that South Florida is a viable alternative to New York, Boston and California.

Whether your business has revenue of a few million dollars or over a hundred million dollars, it’s good for you to have an army of eligible buyers right outside your door. Business owners no longer have to travel to New York to find someone high-profile to sell to or to recapitalize.

This applies to distressed companies as well. Sun Capital and HIG have been two of the most active buyers of distressed and healthy companies in North America and Europe over the last few years.

There are other firms with established specialties, such as MBF Healthcare Partners, which focuses on investments in healthcare, and Trivest, which specializes in family-owned businesses. Firms have honed their expertise to suit particular segments of the Florida business landscape.

Entrepreneurs can benefit from this enhanced investment activity. Venture capital is available to high-risk and early-stage companies.

During the first two quarters of 2011, businesses in Florida had more funding opportunities. We saw increased investments in small and mid-size businesses, increased inquiries from business owners seeking to acquire firms, and, best of all, increased buzz.

We anticipate merger and acquisition activity in 2012 to expand to a wider range of companies, with many deals involving private equity firms. Specifically, we will see more acquisitions in industries like technology, healthcare, distribution and manufacturing.

The growth of buyout firms in Florida spills over into lots of other industries, including sectors like my own, investment banking. We also see commercial lenders, the legal community, and the accounting industry benefiting from the increased deal activity these private equity firms generate.

If you’re a business owner, watch what’s happening here — what businesses are being bought and sold, who’s joining forces, and what new firms form. Private equity firms in Florida made national headlines and drove a lot of attention our way this year, and they are poised to continue to do so. Also, keep in mind middle-market firms, distressed companies, and family-owned businesses are the specialties of several Florida firms.

And if you are in the market to sell right now and want to get the best deal, try the direct approach by calling a firm directly or getting an introduction from a law firm. When trying to sell or raise capital, don’t forget that competition is good — it generally gets you better terms or a better price.

James Cassel, an investment banker and co-founder and chairman of Cassel Salpeter & Co., specializes in mergers, acquisitions and divestitures; corporate finance; and public offerings. His column runs monthly.

Is it the Right Time to Sell Your Business? James Cassel Gives Factors to Consider

Now may be as good a time as any to sell a company. But know what buyers want — and why you’re selling.

By: James Cassel

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MIAMI, Florida, October 16, 2011 – With talk of a double-dip recession, continued high unemployment, and a schizophrenic stock market, business owners contemplating selling their businesses might think they would be better off closing the doors and throwing away the key. However, now is as good a time as any to take a serious look at selling your business. By waiting, you may not get a better price. Or worse, you may not be able to sell at all.

Right now, money is out there. Companies have squeezed more productivity from workers and refrained from hiring (unfortunately keeping job numbers dismal). In the process, they have accumulated lots of cash. As a result, many companies are sitting on capital, and they’re ready to invest in acquiring other businesses.

Debt is available for quality opportunities, too. Despite what the U.S. Congress and the White House have been saying, debt is not always a bad thing; and the Federal Reserve agrees. The Fed’s policies have dramatically increased the availability of money for banks to lend, at least through the middle of 2013. In addition, banks have spent the past two years cleaning up their balance sheets, and now they’re poised and ready to lend. That means buyers can obtain the financing to acquire your company.

What’s Hot

How can business owners know if their company will sell? Buyers are attracted to profitability, opportunities for growth, a diverse customer base, and the potential for a competitive advantage among others. In terms of specific industries, at the moment buyers are paying lots of attention to health care, manufacturing, social media and technology companies. However, any business that has successfully weathered the recession can be an attractive target to buyers. These companies have proven their stability.

Know your circumstances

Before a business hangs a “for sale” sign, though, owners should take a good look at their circumstances to clearly understand their reason for selling. That will help you and your advisors determine the best deal structure, identify the right buyer, and command the highest price.

Sometimes life circumstances beyond the business owner’s control force a sale. Illness and death are two common examples. Likewise, divorce can lead to a sale. (Just ask the owner of the L.A. Dodgers.) Often in these situations, selling is not “optional,” so you may have to make certain concessions on price and deal structure.

When divestiture is less urgent, there are more options to consider. For instance, when business owners want to cash out of their company — either to gain liquidity or to minimize risk — they may opt for a sale or partial sale.

Keep in mind, a partial sale brings outsiders into the business, and that comes with risk as well as strings. Owners may want a buyer with in-depth knowledge of their business, someone who can carry on the legacy of the company and grow the brand. Also, recognize that the new owners may change the status quo, especially as it relates to employees and customers.

Negotiating Price

Buyouts in the middle market typically don’t produce enough proceeds for the seller to replace the income generated by the business, unless it happens to be something like Facebook. If the business produces $1 million a year in cash flow, an owner would need to receive a net sale price of approximately $20 million to replace this annual profit (assuming your financial advisors can earn annual investment income of 5 percent). However, a business generating $1 million is rarely sold for such a large sum. Companies in today’s economic climate usually sell for four to eight times earnings.

If the seller of a business expects a higher price than the buyer is willing to pay, then an earn-out can provide additional funds if (and only if) the business achieves a certain level of earnings or revenues. The valuation gap between the seller and buyer can also be addressed if the seller retains a small stake in the business to generate future income — and maintain some control.

Owners can also negotiate an employment agreement where they stay around to lend expertise and experience to the new owners. Just be prepared to adjust to a different management style and no longer sit in the boss’ chair.

What Next?

If you decide a sale is right for you, you will need to have several documents readily available in preparation of the sale. Sellers will be asked to provide interested buyers with accurate financial reports in a timely manner — such as profit-and-loss statements as well as customer contracts, inventories information and lease agreements. Don’t even begin marketing your business until you can produce the necessary documentation.

Many owners have no idea what their business is worth, and finding the right price is essential. Unlike the sale of a home, the seller typically doesn’t have a true asking price, so hire financial advisors with specific experience in mergers and acquisitions. The right team can help market a company confidentially and structure a favorable deal that helps you achieve your goals.

Today is the debut of Minding Your Business/Inside the Deal from J ames Cassel, who is co-founder and chairman of Cassel Salpeter & Co. A veteran investment banker, Cassel’s specialties include mergers, acquisitions and divestitures; corporate finance; and public offerings. The column will appear once a month.

Read more: http://www.miamiherald.com/2011/10/16/v-fullstory/2455322/is-it-the-right-time-to-sell-your.html#ixzz1c740npOv

Florida M&A Deals Likely Flat in 2011

By Ina Paiva Cordle Icordle@MiamiHerald.com

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Merger-and-acquisition activity in Florida may be flat this year, despite earlier expectations that it would exceed last year’s total.

A boost in Florida’s merger-and-acquisition market may not come this year, while financial institutions are eager to fund deals, local experts said Wednesday.

Across the state, mergers and acquisitions have slowed since the beginning of this year, and although the volume and dollar value of deals previouslywas expected to exceed last year’s totals, the outlook now is that it will likely be flat, said James Cassel, chairman and co-founder of the Miami-based investment banking firm Cassel Salpeter & Co.

Among the reasons: Business valuations are down, and owners are cautiously holding onto their companies unless they have a compelling need to sell, such as a divorce, losing a major customer or pressure from a bank.

“People are still nervous,’’ Cassel told attendees Wednesday morning during a CFO Alliance presentation at the Coral Gables Country Club. “People are feeling better than two or three years ago, but they are still concerned.’’

Yet, at least one company, Miami-based Trivest Partners, has multiple deals in the works. Those rank in the middle market — companies with minimum annual revenue of $20 million and minimum cash flow of $5 million.

Trivest, which currently owns 10 companies, typically holds its investments for an average of 5.5 years. It recently sold one business and is in varying stages of selling three others and buying two more, said Chip Vandenberg, a Trivest partner.

Trivest focuses on founder- and family-owned businesses that are in need of a transition.

“It’s pretty busy for us right now,’’ Vandenberg said after his presentation at the meeting of the CFO Alliance, a nationwide group of finance leaders that started its South Florida chapter two years ago.

Meanwhile, banks are aggressively looking to fund merger-and-acquisition activity, said J. Eric Hartman, Fort Lauderdale-based senior vice president and market executive of corporate banking at PNC.

“The pendulum has swung back,’’ Hartman said.

“Banks are eager to deploy capital to finance M and A activity,’’ he said. “However, for those firms with EBITDA [earnings before interest, taxes, depreciation and amortization] under $15 million, finding traditional bank financing can still be challenging.’’

The meeting was held in partnership with the University of Miami School of Business Administration. Among those in attendance were corporate chief financial officers, bankers, executives of private equity firms and academicians.

Read more: http://www.miamiherald.com/2011/07/01/2294373/florida-ma-deals-likely-flat-in.html#ixzz1S6vHMPJs

Veteran investment bankers carve out a niche in South Florida

Scott Salpeter and James Cassel’s new firm works in mergers and acquisitions, raising capital, restructuring, valuations and more.To view original article click here.

Premium content from South Florida Business Journal by Kevin Gale

Launching a new business is never easy, but the investment bankers at Cassel Salpeter & Co. don’t have all the obstacles they once faced.

When James Cassel and Scott E. Salpeterstarted Capital Link LC a dozen years ago, local businesses were reluctant to engage a South Florida-based investment banking firm, Salpeter said. A big New York name was more comfortable.

“Back in 1998, 1999, we had to get business outside of Florida to get business in Florida,” he said.

Now, they not only have their track record at Capital Link to rely on, but also a stint at billionaire Phillip Frost’s Ladenburg Thalmann Financial Services (AMEX: LTS) in Miami. Cassel was previously vice chairman and head of investment bank at Ladenburg, while Salpeter was a managing director. Frost acquired the 14-member Capital Link in what was valued as a $5 million deal after moving Ladenburg’s headquarters from New York to Miami.

Cassel Salpeter works in mergers and acquisitions, raising capital, restructuring, fairness opinions, valuations and financial advice, fulfilling a need that dates back to Capital Link’s 1998 founding.

The economic downturn threw a monkey wrench into the investment banking business.

“Unfortunately, things didn’t work out as we hoped,” Cassel said. “If we could have eliminated 2008 and 2009, it could have been a love fest forever.”

Still, their investment banking operation at Ladenburg ranked in the top 10 of middle market activity, Salpeter said.

Cassel decided to leave Ladenburg at the end of 2009, and Salpeter left in May 2010.

They’ve brought along some former co-workers: VP Marcus Wai, who was a VP at Ladenburg and Capital Link; Christopher Mansueto, a chartered financial analyst who was a senior valuation analyst at Ladenburg; and associate Lindsey Smith, who was an associate at Ladenburg.

Before becoming an investment banker, Cassel was managing partner in the Miami office of law firm Broad and Cassel, which was founded by Alvin Cassel – the cousin of James Cassel’s father, Marwin.

Martin Press, a shareholder at Gunster who was previously managing partner for Broad and Cassel in Fort Lauderdale, saidMarwin Cassel told him before he died: “Jimmy was selling things to other people in the sixth grade. He was an entrepreneur from the age of 11, and only got better over the years.”

Press called the duo inseparable, but eventually the younger Cassel went on to do what he always wanted to do by entering investment banking.

Asked to describe James Cassel, Press said: “He’s tenacious. He is the type of guy who won’t give up and he will do everything in his power to make a deal work.”

A financial industry consultant, who asked not to be named, said he thought Cassel’s background as an attorney was a confidence-boosting advantage in giving fairness opinions on potential deals.

Cassel said he has 15 years of experience as a corporate and securities lawyer, and is a member of the New York and Florida Bars, despite not having a current practice.

“I think having that experience is helpful in doing fairness opinions and restructurings,” which often happen in bankruptcy court, he said.

In one high-profile case, Cassel Salpeter has done work for the secured creditors of Gulfstream International Airlines. Cassel said Jan. 3 that he was trying to help facilitate a sale of the business.

CASSEL SALPETER & CO., LLC

Website: www.casselsalpeter.com
Chairman: James Cassel
President: Scott E. Salpeter
Address: 801 Brickell Ave., Suite 650, Miami 33131
E-mails: jcassel@cs-ib.com and ssalpeter@cs-ib.com
Phones: (305) 438-7701 and (305) 438-7702

Ladenburg Thalmann Investment Bankers Start New Firm

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James S. Cassel and Scott E. Salpeter are leaving Ladenburg Thalmann to start up their own investment bank catering to private and publicly-traded middle market companies.

That new firm will be called Cassel Salpeter and it will be based in Miami. The two professionals have been with Ladenberg Thalmann for three years; they sold their advisory firm Capitalink to Ladenberg in 2007.

“We had a great run at Ladenburg, but leading a boutique investment banking firm is much closer to our roots and better allows us to provide independent, unbiased advisory services that leverage our knowledge, experience, and extensive contacts on behalf of our clients,” Cassel, chairman of the new venture, said in a press release.

Salpeter, the president of the new venture, adds that he and Cassel “have a huge network of professional advisors – lawyers, accountants, private equity firms, and fellow investment bankers – who have seen us in action and who respect the good work we do.”

In a telephone interview, Cassel said his new venture won’t be competing head-on with Ladenberg because its primary focus won’t be raising capital.  They will be advising mergers and acquisitions and offering fairness opinions as well as corporate restructuring.

Cassel said he has a good relationship with Ladenburg, which he said has “great potential.”

Just last week, Ladenburg reached an agreement to raise $14 million through a private placement with Taiwanese businessman Dr. Samuel Yin to finance its expansion in Asia.

“For me, it’s a cultural thing; I’m going back to my roots, I enjoyed building the firm and what I did with Capitalink for eight and a half years before we sold it,” said Cassel. He adds that at Ladenburg, “I was spending more time on management, and I missed and I will enjoy executing as we build Cassel here.”

Cassel Salpeter’s chairman said he doesn’t plans to grow his new firm to “anywhere near the size of Ladenburg,” and so should spend substantially less time on management and more on the “fun” things he enjoys.

Cassel, who left Ladenburg at the end of last year, said he doesn’t have a non-compete or non-solicitation agreement with the firm.

While Cassel Salpeter won’t be large, Cassel said it will have a national presence, much like Capitalink, which did some 80% of its business with companies outside of Florida.

Like Capitalink, the new company will work with a “broad brush” of industries, including restaurants, shipping, manufacturing, distribution and financial companies, but not real estate or oil, gas and minerals. And like its predecessor, the new company will also do some work with distressed companies, Cassel said.

In addition Cassel and Salpeter, two other Ladenburg alumni have joined the start-up: Marcus Wai as vice president and Chris Mansueto as an associate.