Cassel Salpeter & Co. Represents DynaVox in $18 Million Sale

MIAMI – June 12, 2014 – Cassel Salpeter & Co., a middle-market investment banking firm providing merger, acquisition, divestiture and corporate finance services, represented DynaVox Inc. (OTCPK: DVOX.Q), debtor-in-possession, in connection with a Section 363 sale transaction approved by the Delaware Bankruptcy Court to Tobii Technology AB, a Swedish technology company with offices worldwide.  In a competitive auction on May 21, Tobii was the successful bidder for substantially all of the operating assets of DynaVox with its $18 million bid.  The transaction closed on May 23.

Tobii expects the purchase of DynaVox to solidify the position of its assistive technology division as the international leader in the augmentative and alternative communication and accessibility markets.  DynaVox, with headquarters in Pittsburgh, provides speech-generating devices and symbol-adapted special education software to help people overcome speech, language, and learning challenges.

Cassel Salpeter advised DynaVox in completing the sale in an expedited three-week time frame and provided assistance throughout all phases of the sales process, due diligence, and auction.

“We are pleased to have successfully represented our client in this complex sale in a tight timeframe,” said James Cassel, co-founder and chairman of Cassel Salpeter, who led the assignment along with Philip Cassel, an associate with the firm.

Added DynaVox’s bankruptcy counsel Paul J. Battista:  “The sale was a great success in that it assures all creditors will be paid in full and money will be available to be distributed to shareholders.  Jim and his team jumped into the process, came up to speed quickly and were invaluable in helping generate this great result.”

Tobii is noted as a global market leader in eye tracking and a pioneer in gaze interaction. Its products are widely used for communications by people with disabilities. They are also used within the scientific community and in commercial market research and usability studies.

The debtors were represented by Paul Battista and Heather Harmon, partners with Genovese Joblove & Battista, P.A., and William Chipman, Jr., partner, and Mark Olivere, counsel, with Cousins Chipman & Brown, LLP.

About Cassel Salpeter & Co.

Cassel Salpeter & Co. 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 more than 50 years of 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 partners have forged relationships and completed hundreds of transactions and assignments nationwide. The firm’s headquarters are in Miami. Member FINRA and SIPC.

Deals dip in Florida amid squabbles over price

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Money: Deals dip in Florida amid squabbles over price

By Brian Bandell

May 30, 2014

The number of private equity firm investments in Florida-based companies declined in 2013 as haggling over pricing made finalizing deals difficult.

James Cassel

James Cassel

Miami-based investment banking firm Cassel, Salpeter & Co. analyzed private equity activity in Florida using data from Pitchbook. There were 135 private equity investments in local companies in 2013, down from 146 in 2012. That’s still better than the 113 deals during the 2009 financial crisis.

During the Great Recession, many of the private equity investments in Florida were in struggling firms at discounted prices, but now companies are doing better, said James Cassel, chairman of Cassel, Salpeter & Co.

“There’s somewhat of a disconnect on value between sellers and buyers,” he said. “There is so much competition for deals and, in some cases, they aren’t willing to pay the prices others are willing to pay.”

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In order to justify purchasing a company for well above its book value, a private equity firm must know it could get a strong return down the road, Cassel said. With interest rates likely to rise, that means adjustable-rate loans tied to company acquisitions should be paid off as soon as possible – otherwise they’ll become more expensive, Cassel said.

Companies in the IT and health care industries have been acquired for strong multiples of their book value, he added.

Lately, Cassel’s firm has been busy working for Florida companies looking to sell. Meanwhile, he found the number of Florida-based private equity firms has grown from 26 in 2010 to 33 in 2013.

 

Before buying a business, do your due diligence

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By James Cassel, Special to the Miami Herald
May 25, 2014

JAMES CASSEL

JAMES CASSEL

Like it or not, due diligence is necessary before buying any business. In my experience, I’ve seen business owners neglect to invest the time, money and resources required for this, only to regret it later when they have closed on the transactions and discover issues and problems they hadn’t expected and could have avoided.

Unfortunately, there are no crystal balls, purple pills, or shortcuts when conducting due diligence. While most people agree it’s important, they often feel disinclined to do all that is necessary for myriad reasons, including thinking they should save the money, don’t need due diligence because they’re buying from people they trust, can do it themselves, and/or are getting what has been represented. Some only conduct partial or minimal due diligence, which isn’t the due diligence that is needed, particularly not if they miss major items that bring great exposure.

Although every deal is unique, I’ve found some key fundamentals to be important for potential buyers to keep in mind relative to due diligence. These include:

•  A strong team to conduct due diligence: Buyers who don’t dig deep enough into potential acquisitions often fail to bring together a complete team of experienced professionals. This team includes the right lawyers, accountants, and investment bankers as well as other consultants and specialists that may be needed, such as professionals to conduct environmental studies or evaluate technological infrastructure.

•  Employment and human resources: Confirm whether the company has its HR department in order and keeps accurate and updated files on employees, benefits packages, etc. Also find out whether there are any union contracts or employment or discrimination litigation. Inheriting a legacy of HR liabilities can be a nightmare. Find the right consultants to assist you.

•  Finances: You and your accountants must dig much deeper than looking at receivables and payables. Financial due diligence means reviewing all the books and records, bank reconciliations, balance sheets, and the data behind any audited or unaudited financials that will enable you to see the big picture as well as the details.

•  Information technology and IP: The need may vary depending on the type of company you’re looking to acquire, but for a technologically based or supported company, you should determine what IP the company has, whether it’s using proprietary or home-grown technology, has solid patents, and if all the software is properly licensed and documented.

•  Real estate: You may need to conduct an environmental audit as well as have title checked. Have a real estate lawyer examine all leases.

•  Suppliers: You need to know what the existing relationships with the suppliers are like, whether there are multiple suppliers, if the pricing is strong or weak compared to the industry average, if there are any product shortages, and how to get the most advantageous pricing if the company isn’t already doing so. All supply agreements must be reviewed.

•  Customers: What is the customer concentration, how steady are customer relationships, do sales depend on contracts or purchase orders, and do customers pay on time? These are only a few questions you should ask about the customers of the business you’re looking to acquire. Money invested in niche customer due diligence firms is money well spent.

•  Management: This is a particularly important one. Are you going to keep the current management? You have to determine what the full extent of the current management team’s relationship is to the company and whether or not the company is capable of flourishing with or without the team. Also, it is also good to determine whether there are non-compete agreements and non-solicitation agreements in place.

•  Legal: It’s crucial that you conduct state and federal litigation and judgment searches on the company and all of its principals. Although litigation is not necessarily a red flag since many companies have been involved in some form of litigation in their history, all litigation should be investigated thoroughly nonetheless.

•  Competitive market: You need to know about the company’s market share, the size of its market, and who its competitors are.

•  Agreements: All company agreements should be closely reviewed, particularly the terms and conditions, as well as whether change of control provisions exist.

•  Common sense: Big problems are often sitting right before our eyes, so keep your eyes open and use common sense. For example, I always recommend that people begin with Google searches — it’s amazing what can be found on Google! Also, if you’re considering buying a business, you should take a walk around the property and look for anything that might seem out of the ordinary. When helping a client conduct due diligence before buying a factory, I noticed dead grass in a particular spot. An environmental search revealed that the seller had been dumping chemicals there. The cleanup cost was substantial, and because it was discovered before any acquisition action, the seller paid for it. This matter could have been costly had it not been discovered in the due diligence process.

Keep in mind, these considerations don’t represent an exhaustive due diligence checklist. This is a high level summary overview that should be supplemented by a meticulously detailed checklist, tailored to the transaction and a thorough investigation by an experienced team of acquisition professionals.

There are few things that business owners regret more than getting burned and losing millions of dollars because they tried to save some money upfront on the due diligence. Don’t be one of those: Take the right steps now to protect your best interest in the long run.

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

Family Businesses are More Willing to Entertain Offers Now

M&A Interview with James Cassel as featured on TheMiddleMarket.com

Business owners are more receptive to thinking “Is it time to sell?” says James Cassel of Cassel Salpeter & Co. at ACG InterGrowth 2014. Family-owned businesses are growing more comfortable with private equity firms, which bodes well for M&A.

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

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

Cassel Salpeter & Co. Secures Senior Debt Financing for IPR International, LLC

MIAMI — March 10, 2014 — Cassel Salpeter & Co., LLC, a middle-market investment banking firm providing merger, acquisition, divestiture and corporate finance services, represented IPR International, LLC,  in securing senior debt financing from Elm Park Capital Management, a private credit-focused investment firm. The financing will support numerous growth initiatives.

IPR, with headquarters outside Philadelphia, is a recognized industry leader offering private cloud and infrastructure as service solutions, cloud-based data protection and management services, and a complete range of managed solutions.

Cassel Salpeter advised IPR in evaluating its financing alternatives and provided assistance throughout the due diligence and closing process. Cassel Salpeter Director Joseph “Joey” Smith and Vice President Marcus Wai led the assignment. Smith and Wai have decades of experience helping quality, middle-market businesses raise capital and complete mergers and acquisitions.

IPR’s Chief Executive Officer Tami Fratis said: “The support provided by Cassel Salpeter reflects its confidence in our business and its future growth. Cassel Salpeter provided professional, high-quality assistance throughout all phases of the transaction, and we look forward to continuing our relationship as our business grows.”

About Cassel Salpeter & Co.

Cassel Salpeter & Co. 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 more than 50 years of 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 partners 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

About IPR International

IPR International is a recognized industry leader offering private cloud and infrastructure as a service solutions, as well as colo services and a full range of private cloud managed service offerings like virtual private data centers, storage as a service, network as a service and disaster recovery as a service. Through its comprehensive suite of services, protects, preserves, secures and makes available its clients’ data at all times, no matter when or where the data was created and no matter when or where it is needed.  Through its constantly innovative and evolving services, combined with a passion for security, integrity, availability and ingenuity, IPR helps its clients maintain their own business operations and supports them through any interruptions.  IPR has multiple redundant data centers and serves clients in 25 countries worldwide. For more information on IPR International, visit www.IPRsecure.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

Untitled

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