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


James Cassel
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

Fl-First-Southern-president 2a

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.


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.

Transitioning your business to your family? Take the right steps to ensure a smooth succession plan for your business

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By James S. Cassel
November 17, 2013

James S. Cassell

James S. Cassell

When transitioning businesses to their family members, many business owners are surprised to come face-to-face with something they never expected to surface in their families: the ugly side of business. Beyond the serious financial consequences and other damages that can hurt their businesses, previously harmonious families can be torn apart, often irreconcilably. In my experience, I have seen a lot, and I can tell you much of this can be avoided by taking the right steps in advance.

Many business owners think their families are above all this — they don’t need to develop succession plans or to put systems in place because everyone “loves each other” and “things will naturally fall into place.”

I saw a previously harmonious family get torn apart by animosity after the father left the business to his children without leaving any kind of voting trust or shareholder agreement. Ultimately, the one child who had been actively involved in running the business the entire time had serious issues with the siblings who were trying to tell him what to do despite the fact they knew nothing about the business. This rift damaged not only the business operation but also the family’s financial wellbeing. If the father had handled the issues with better communication and documentation before he passed away and if a partnership or clear voting/shareholder rights had been established, this crisis could have been minimized or prevented.

We were also involved with helping another business in which the two partners gave the business to their children who then gave it to each of their children with the hopes of keeping it “all in the family.” However, much to their dismay, the third generation did not get along. A simple buy-sell agreement could have helped them vent their differing views without destroying the successful business. Both wanted to own the business, but neither wanted to sell it to the other. The end result was liquation of a great business and financial loss to both families. Sometimes it is better to sell than transition.

In both cases, these families sought help when it was too late. Based on my experience navigating these complex issues, the following are some of the common pitfalls and key steps to help ensure your family’s best interest is protected when considering transitioning your business to your family members:

•  Inter-family issues: Begin by thinking about what you want to accomplish. Write it down. Sit down with your family members, and really work through these emotional issues with all key family members, including those who will be involved and those who may not be involved in the business who will be affected. Do this well in advance of your intent to turn over the business so that it becomes a “planning conversation” rather than the actual allocation of roles, responsibilities and assets. This will greatly diffuse the intense emotions and drama often connected with business transitions.

If you have multiple children, which ones are most appropriate to take over the business, and which ones should not be involved? If you have step-children, daughters-in-law or sons-in-law, how would you deal with them in the transition? If your family is not able to do it alone, consider getting a private equity firm as a partner or other professional management. Sometimes it helps to bring in a business coach.

•  Tax issues: It’s critical to consult with tax advisors upfront to protect your financial interests. Get them involved before the transition is structured. A good tax advisor can save you and your family significant sums of money and many heartaches during the transition process. This can be done in conjunction with your estate planning.

•  Allocation of control and assets: It’s important to think through who will own and run your business and to get buy-in upfront in this decision rather than trying to impose it upon your family members and employees later.

Consider what your role be during and after the transition. If you have other children and they are not in the business or won’t be part of the ownership, how do you allocate other assets so it’s equitable, and should it be equitable? What are the ramifications of transitioning to active versus non-active family members? When you are transitioning the business to family and you have long-term employees, should those employees get rights or ownership and how do you deal with the heir-apparent?

•  Valuation work: Work with qualified consultants to do valuation work to decide on the value for your business beforehand. This could affect your taxes. This also can help ensure you protect the maximum value for your business and allocate the business assets appropriately.

•  Outside capital: If you need outside capital, where will it come from? Do you establish an Employee Stock Ownership Plan to do it or do you bring a private equity firm, as there are some that focus on transitioning for family businesses?

Often, the business has been good to the family. But if not properly handled, the strong emotions and complex dynamics that come into play the moment a business is transitioned can become overwhelming and cause unexpected damage. Most business owners fall into this trap because they mistakenly assume this would never happen in their families. Without a doubt, it’s critical to talk with your family beforehand, get help from qualified attorneys, investment bankers, tax advisors and other experts, and put the right systems and documents in place. This type of strategic action and planning can help ensure you make sound decisions together, as a family, that will protect your most valuable assets: your business and your loved ones.

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



Debt deliberations: Startups experts say deal can’t come too soon

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By: Kent Bernhard Jr
October 15, 2013

The UpTake: Senate leaders say they’re on their way to a deal to raise the debt ceiling and reopen the federal government. That’s a good thing for the startup ecosystem, where Washington infighting is causing hesitancy for investors.

Editor’s Note: This story was modified to reflect today’s developments in the U.S. House of Representatives.

A deal to end the government shutdown and raise the debt ceiling can’t come too soon for the startup ecosystem, say experts.

But it looked early this afternoon as though the wait will be longer. Though Senate leaders have come close to a bipartisan agreement to reopen the government and raise the debt ceiling, the House is in disarray. House GOP leaders this morning floated their own plan to do the same, but apparently couldn’t sell their idea to a majority of their Republican colleagues.

“You have uncertainty right now,” Barry Sloane, the chief executive of Newtek, which provides small business lending and services, told me. “If you are an investor today, looking to invest in an early stage business, you’ve got to hesitate. There’s a lot of stuff on hold.”

Add to that “stuff” bipartisan negotiations in the Senate. Senators had appeared close to an agreement, but put their talks on hold to wait and see if a plan would emerge from the House of Representatives. As of late this afternoon, House leaders had come up with a plan and a vote was slated for tonight.

The dithering in Washington led to nervousness on Wall Street, where the Dow Jones Industrial Average fell more than 188 points. An auction of short term government bonds drew scant interest, as traders weighed the risk of a debt ceiling breach Thursday.

The agreement Senators were negotiating would raise the debt ceiling through February 7, removing the threat that the government could default on its obligations as early as Thursday. It would also reopen parts of the government that have been shut down, and fund federal agencies through mid-January.

The possibility of funding drying up is the biggest impact the drama in Washington has on startups, said Erik Kantz, a dealmaking lawyer at Arnstein & Lehr in Chicago. He said a breach of the debt ceiling, because it would shake the confidence of markets worldwide, could have a trickle-down effect to the wealthy angel investors who feed startups their early-stage cash.

“It dries up the capital that’s available,” he told me.

Some of that’s already happening with the shutdown, Sloane said. He pointed out the Small Business Administration-backed lending is at a standstill because of the shutdown. And investors are already acting more cautiously.

“What everyone’s doing…you’re continuing to line up business it’s a question of whether you’re closing things,” Sloane said. “I think it’s a small but significant subset of the investment community that is doing nothing.”

And if the Senate leaders fail in their effort to get a debt ceiling deal, or that deal is rejected in the House, things could get really bad, really quickly.

“You could wake up one morning, if this is all pushed out…and the markets don’t accept it anymore,” he said. “You could have a 10 percent correction of the stock markets in a day.”

And if something like that happens, it can’t help but trickle into every form of finance, including the bets investors make on startups.

James Cassel of Miami investment bank Cassel Salpeter was more blunt.

“I think it will have worldwide long-term impacts,” he said of the possibility of a debt ceiling breach. “I think it’s going to have a devastating effect. They’re playing with fire. I think someone needs to hit them over the head with a baseball bat.”



Anticipating the hike in interest rates: A little planning can have benefits

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By James S. Cassel
October 20, 2013

James S. Cassell

James S. Cassell

Now that the government is back in business, it’s time to think about interest rates. With interest rates having recently begun to rise and currently expected to climb higher than today’s historically low rates, it’s important for middle-market business owners to begin planning and preparing for the likely impacts on their businesses and finding ways to lock down the most favorable long-term rates. A little strategic action now can go a long way to help put their companies in the best-possible financial position.

Many business owners do not understand all of the potential impacts that rising rates may have on their businesses, including affecting their profitability and value, and how serious the impacts can be. Higher interest rates mean higher costs for borrowing money and financing equipment. They affect almost everything, including the interest rates charged on lines of credit that have floating rates as well as both the interest rates and the coverage ratios that affect the ability to refinance term loans when they become due.

Interest rates also can have significant impacts on the valuations of businesses. Although rising interest rates won’t affect Earnings Before Interest and Taxes, they will have an impact on business cash flow. Most significantly, however, they can affect potential buyers of businesses, as they will probably have to pay higher interest rates when they borrow money to the leverage their purchases of businesses. This may cause valuation gaps or discourage them from making the acquisitions. In a nutshell, the higher interest rates affect debt service coverage ratios. The higher the interest rates, the lower the amounts that may be borrowed. As a result, there’s a good possibility that business valuations will be affected as interest rates rise.

With all this considered, now is a good time to begin taking steps to ensure that you can secure the lowest-possible interest rates for your business over the long term. How should you go about this? Some strategies:

•  Take advantage of today’s historically low rates. If you’re planning to take out any new loans or can renegotiate existing ones, there’s no time like the present. Aim to lock in long-term rates or hedge the rates whenever possible.

•  Get liquid. Use your excess cash flow now to pay down as much of your debt as possible, provided you do not see a need in the foreseeable future to borrow the money back.

•  Get creative. Approach different lenders, such as trying community banks rather than national banks. Both have their pros and cons, but it might be in your best interest to work with a smaller lender that’s hungrier and more flexible for your business in order to lock in lower rates and more favorable terms.

•  If you choose to expand your business credit line, owner-occupied real estate loan or any other type of loan, use your newly found capital wisely to penetrate new markets and invest in the right people, technologies, equipment and other resources to support your business.

•  Government programs like SBA-type programs might offer lower fixed rates that are more favorable. Although it’s not always a good idea to put up your house as collateral for your business loans, if you do find yourself in the position of having to do this, you should consider locking in those interest rates for the longest-possible terms.

•  Keep in mind that some loans that are based on using cash flow as collateral might be good, less expensive options if you can provide acceptable collateral. You might consider converting some of your loans and/or changing lenders to take advantage of better terms offered by different lenders. Be careful when getting unsecured loans: Giving up the collateral is not always ideal.

•  Consider specialty lenders. Look for lenders who specialize in specific areas, as they may help you secure better terms. If you can pit multiple lenders in a bidding war against each other, you probably can get better deals.

In addition to ensuring that you are borrowing money at the most favorable long-term rates, it’s always a good idea to consult qualified, trusted advisors, such as attorneys, investment bankers and CPAs. By doing some smart planning now and taking the right strategic steps, you can strengthen your business and put it in the best position for both the short and long term.

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