James Cassel: The middle-market is important, under appreciated

By James Cassel
July 14, 2013

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MiamiHerald_logo-resized-image-150x150The middle market is the principal driver of our labor market and economy, but it’s also the most misunderstood and least appreciated. Like it or not, it’s time for everyone to brush up on their understanding of this important business segment and certain key issues surrounding it.

Many fail to appreciate the significance or economic impacts of the middle market because the vague term “middle market” means different things to different people. Some say that companies with $5 million to $500 million in annual revenues are middle market, while others say companies with $50 million to $1 billion in revenues are middle market. Others define it based on the values of the businesses rather than their revenues. Based on our experience at Cassel Salpeter, an investment banking firm specializing in the middle market, we define it as any business with $10 million to $250 million in enterprise values. We do not base it on revenues. No matter what method or range you prefer to use, the numbers confirm that the middle market deserves our attention as it is the great economic driver of our economy.

Simply put, the middle market affects us all. If you’re a small company, middle-market businesses are probably among your most important customers. If you’re a large company, middle-market businesses are either your key vendors or constitute a large share of your customer base. They also supply many goods and services to consumers.

Middle-market businesses create more jobs than small and large businesses. In Florida, middle-market companies boosted employment almost nine percent and accounted for 45 percent of all jobs created in the state during the past year, according to the National Center for the Middle Market. A recent analysis of BLS data by Forbes shows that U.S. businesses with 50 to 1,000 employees created 1.8 million jobs nationwide between March 2011 and March 2012. These jobs accounted for more than half of all new jobs in the country and more than five times the number created by companies with more than 1,000 employees. This will only increase as confidence in the economy continues to grow.

In Florida in particular, the middle market is also important because it is a key driver for the state’s private equity investment market. In 2012, Florida ranked fourth nationwide in the number of private equity investments made, according to the Private Equity Growth Capital Council. Private equity firms invested $17.3 billion in 115 Florida-based companies last year, the data show.

When it comes to mergers and acquisitions activity, the middle market clearly takes the lion’s share in the United States in terms of number of transactions. This is often overshadowed by the headline-grabbing mega deals. Considering all these trends, we can expect private equity activity to increase throughout the balance of this year. The uptick in the economy will motivate buyers to look for high-quality businesses where they can invest their capital. Moreover, many private equity funds have legacy middle-market investments that might be ripe to liquidate with the improvement in the economy.

As the U.S. continues its path toward economic growth, middle-market businesses — particularly those in manufacturing, food and beverage, consumer products, financial services, healthcare, technology and new media — are likely to experience continued growth.

How do middle-market businesses attain this success? Simply put, they combine the best of both worlds. They enjoy the benefits of smaller companies (nimble, flexible, low operational costs, etc.) and those of larger companies (experienced senior leadership, proven track records, financial stability, deep market penetration, etc.).

Middle-market businesses are also entrepreneurial and often family owned. A recent survey from Deloitte Growth Enterprise Services shows that mid-market companies that identify themselves as entrepreneurial get almost 40 percent more capital investment, almost 60 percent more employee productivity and almost 50 percent higher profit margins.

What does this mean for business owners in South Florida? OPPORTUNITY. Some things to consider as you look toward the remainder of 2013:

How strong is your relationship with middle-market businesses, and how well-positioned is your business to seize new opportunities to partner with middle-market companies?

How should you modify your product or service offerings to meet the emerging needs and growth segments of middle-market businesses?

Should you consider marketing to new customers or clients within the middle market?

How can you position your small business to join the ranks of the larger, more established middle market?

As the economy continues to grow and opportunities continue to emerge, owners of small, medium and large businesses who take the time to understand, embrace and support the middle market will gain a significant competitive advantage.

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

Jim Cassel: Remember your priorities when selling your business

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By: James Cassel
June 16, 2013

Thinking about selling your business? Think first about your employees, customers or clients, and lenders. Many business owners don’t give these key constituents the upfront attention they need as they begin to position their businesses for sale, and they miss opportunities to derive the greatest values for their businesses and reduce the potential for problems.

Fact is, planning will enable you to avoid issues that are likely to arise as potential buyers evaluate considerations related to these stakeholders, who they may consider critical to the long-term success of the business. Here are some helpful considerations for middle-market business owners interested in successfully positioning their businesses for sale:

Employees. Although employees can be a major asset during the sale process, they can be a great cause of substantial angst as companies position themselves for sale. Potential buyers believe that employees are important assets playing a vital role in the long-term success of businesses. For this reason, it is important for business owners to plan ahead and consider:

At what point should we inform our employees of a possible sale?

What members of the leadership team should be informed and how early in the process?

In addition to a strong executive management team, do we have an effective middle-management team to help ensure a seamless transition when the business is sold? How should we portray this to potential buyers?

What new contracts should we put in place to help ensure that key employees stay with the company? Should they include stay bonuses?

What current employee contracts should be amended or terminated?

Do we have in place the non-compete, confidentiality and other agreements that are necessary to protect our company’s intellectual property, proprietary information and client roster?

Does our company have strong employee morale and loyalty and should we take any steps now to improve these areas to further strengthen the business?

What messages should we be sending to employees, and how?

What steps would we take if the word gets out before we had planned?

Should we be concerned about a mass exodus of employees if they hear rumors that the company will be positioned for sale, and what message should we begin sending now to employees related to the future of the company and their careers here?

Should we give bonuses to employees after the sale to thank them for their loyalty? Keep in mind that planning ahead can enable the company to pay these in the most tax advantaged way. Former City National Bank president Leonard Abess, Jr., made headlines as “the role model for corporate responsibility” when he doled out $60 million of his own money in bonuses to 471 employees and retirees, including everything from clerical staff members to executives, following the $927 million sale of the bank. 

Customers or clients. Potential buyers want to see that earnings are sustainable or growing and that the customer base is diverse enough to minimize the risk of losing customers who would flee along with the founders. Moreover, as potential buyers evaluate businesses, they consider not only revenues from customers or clients but also the types of clients and the nature of the client relationships. Some of them may know your clients and approach them to get their insights as part of their due-diligence, which can cause problems. Key considerations for business owners include:

Do we have the necessary contracts in place, or should we amend the agreements with terms that are more desirable to potential buyers? Are there change of control provisions?

Are most of our customers or clients happy and satisfied?

What percentage do we expect will continue doing business with us after the company is sold and what steps should we take now to help increase that number?

What percentage of our clients currently renew their agreements? What is the average longevity of contracts?

What types of changes in our current structure, such as A-level clients we should consider cultivating or C-level clients we should consider terminating, in order to better position the business?

What messages should we be sending clients as we position the business for sale?

How and when do we inform key customers of our plans to sell?

What do we do if the potential buyer wants to speak with our customers as part of the due diligence?

How do we respond when rumors get out about a possible sale?

How do we deal with customer concentration?

In the sale process, what do we do if a current customer wants to buy our business?

Lenders. It’s important to check relationships with your lenders and determine:

Can our existing loans be transferred to the new owners? Are there any terms in our existing loans that should be addressed before we can sell the business?

Are our loans in good standing? Are we in compliance with all of the covenants and conditions?

Are there prepayment penalties?

What loan modifications could help strengthen the business?

Are there any terms in our existing loans that could hinder a sale, and how should we address these issues? Are there change of control or due on sale provisions?

What collateral does the lender have?

Without doubt, in today’s competitive market, buyers are more skeptical and analyzing businesses more closely than ever. There is much that can be done to prepare for a sale and ensure a smoother process. Those who work with qualified advisors and plan ahead by considering their employees, customers and lenders are more likely to maximize the value of their businesses and minimize the number of headaches.

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


For City National, it’s Chile in Miami

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By Lindsey White
May 29, 2013

Bankia’s City National Bank of Florida franchise drew a great deal of buyer interest, months of speculation and ultimately a Chilean buyer eager to expand in the Miami market.

On May 24 Chile-based Banco de Credito e Inversiones SA, or Bci, announced plans to acquire Miami-based City National in a deal valued at $882.8 million.

During the past six months, several names emerged as potential suitors for City National. While many observers had speculated that a Latin American buyer was likely, Bci garnered less attention than companies like Brazil’sBanco do Brasil SA.

“This bank kind of emerged at the last hour,” Paula Johannsen, a managing director at Monroe Securities, said of Bci.

Bankia disclosed that, after initial contact with 31 entities, it received expressions of interest from 13 financial institutions that led to six nonbinding offers. The final negotiations revolved around three entities.

Observers say the Chilean buyer got a good deal. “I think they got an excellent franchise for the price that they paid,” said Thomas Rudkin, a managing director at Syndicated Capital Inc.

The price is less than the $927.0 million that Bankia’s Caja Madrid paid for an 83% stake in City National Bancshares Inc. in 2008. “This has proven that when City National’s Spanish parent bought the bank, they overpaid for it,” said James Cassel, chairman and co-founder of Miami-based investment banking firm Cassel Salpeter & Co. On the other hand, he said Bci is paying a fair price.

A press release from City National noted the deal carries a 1.5x book value, and a company spokesman later clarified that the ratio was based on tangible book value. Johannsen said that while 1.5x book would be on the low side in some geographies, in Florida that pricing is “definitely on the high side.”

This could be due to the scarcity of franchises with size and scale comparable to City National in Florida. The bank has $4.7 billion in assets, $3.5 billion in deposits and $2.5 billion in loans.

“If you look in South Florida, there are very few banks even near this size that are available,” Cassel said.

Raymond James analyst Michael Rose notes that there are only 19 Florida-based banks with more than $1 billion in assets. “[T]he scarcity value of those franchises with greater than $1 billion in assets will only increase on the heels of the CNB acquisition in our view,” Rose wrote in a May 28 report. “While predicting the timing can be difficult, we anticipate that the pace of M&A in Florida will increase in the short to intermediate term given increased regulatory burden and the still-challenged earnings outlook for many smaller banks despite an improving economic backdrop.”

Banco de Credito e Inversiones is the third-largest bank in Chile with total assets of over $38 billion. The City National transaction is part of Bci’s effort to expand its international operations by increasing its presence in South Florida, where it has had a branch since 1999.

Several factors drove Bci’s desire to expand in the Miami market. For starters, the city has a fast-growing population (up 11% between 2000 and 2010) that is 65% Hispanic, according to a company release.

Margins also attracted Bci to the deal: The Chilean bank said that net interest margins are 3.6% for banks based in Miami, compared to 3.2% in Chile.

The Miami economy presents Bci with a big potential for growth: The company said that Miami’s GDP is about $263 billion compared to a GDP of about $268 billion for Chile.

With the acquisition, Bci aims to diversify its sources of income and its loan portfolio, create cross-sell opportunities and capture the benefits of the business flow between Miami and Latin America. In a news release, Bci CEO Lionel Olavarría called the deal the next natural step in the Miami market. “[City National] is a bank prepared to benefit from the ongoing recovery in the U.S. economy,” Olavarría said.


U.S. bank acquisitions with a Latin American buyer are few and far between. SNL Financial found just five such deals since 2000, including the City National sale. In two of these deals the buyer was based in Venezuela, while one was based in Mexico, one in Brazil, and one, Bci, was based in Chile. The targets in three of these deals were based in Florida.

Going forward, Johannsen thinks that the Miami market could see more Latin American players coming to the table, especially given how much interest the City National deal generated. “A few years ago it was the Spanish and some of the European-type banks,” she said. “Now we’re looking to South America.”

James Cassel: Seeking VC funds? Get creative

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By: James Cassel
May 13, 2013

At a cocktail party earlier this year, my friend’s daughter took the initiative to tell me about her new startup venture. Her story piqued my interest, so I did some homework and later decided to throw a little angel money into her San Francisco-based company, “FunLoop.”

Welcome to the world of “venture capital and angel investment” in South Florida.
Although we can credit the region for its progress in cultivating a venture capital (VC) community and nurturing startups, there’s no doubt the region continues to lag behind places like California, Massachusetts and New York City in terms of access to venture capital.

Think about it: Florida is the third-largest state in the country, and South Florida is the fifth-largest Designated Market Area (DMA), but we don’t have the third-largest or even the fifth-largest number of VC’s or VC-funded companies. The area has a huge gap in seed-stage capital, which happens to be the most important stage where business concepts are proved and growth strategies are developed. Although there are a significant number of angel investors in the region, they aren’t easily found unless you know what rocks to search under.

According to a recent MoneyTree Report published by PricewaterhouseCoopers and the National Venture Capital Association, the Sunshine State dropped from No. 13 to No. 18 for VC dollars invested in 2012. Investment in Florida companies dropped $141 million, or 42 percent, from 2011.

There’s no doubt that institutions like The Knight Foundation, The Launch Pad at the University of Miami, the FIU Pino Entrepreneurship Center, the Venture Hive, among others, are making tremendous strides in promoting entrepreneurship and innovation. They must continue moving forward with their fine work, which is critical to our region’s success and future. The VC’s (not to be confused with angel investors) are a growing but still small group that includes Antares Capital, Medina Capital, HIG Ventures and Florida Growth Fund, to name a few. Angel groups and networks include New World Angels and Venture Architects Investor Network.

But the undeniable truth remains that we will not be able to reach California, Massachusetts or New York City status until we have access to more capital — or the reputation for being a prime venue for this sort of entrepreneurial activity. South Florida still simply lacks the big-name, high-quality VC funds that are commonly found in other regions.

So, how do you access venture capital? Unfortunately, there’s no magic pill. Success here will require a lot of research, networking, relationship-building and luck.

There are plenty of angel investors out there, but unfortunately there isn’t one clearinghouse to find them. More often than not, entrepreneurs are finding their angels the way my friend’s daughter found me — by luck at a cocktail party or networking event.

A good way to begin: Identify and attend the right networking events and conferences that have the most fertile ground. Let your contacts know what you’re trying to do, and ask if they know any potential investors who may be interested. Some websites might be of help. Investment bankers can always help too, but few work with startup or very early stage companies. We have posted a list of venture capital resources at http://casselsalpeter.wpengine.com/knowledge/resources/

Reach out to the universities and determine what opportunities may exist for you. Florida International University, Florida Atlantic University, Nova Southeastern University and the University of Miami, for example, offer a broad range of opportunities, including everything from business plan competitions to access to funding.

Keep in mind that you may have to go find your money in other markets as well, which means you will have to travel and do lots of networking. Like it or not, you also may have to move to another city.
While we can’t ignore that VC-backed companies based in Florida, such as Citrix Systems, CBS Sportsline and Mako Surgical, have been acquired or gone public, we are still seeing many angel and VC’s investors requiring that entrepreneurs relocate to other areas before they will invest. Time and again, I’m seeing California VC’s saying: “You have to move to the valley.”

South Florida has come a very long way during the past decade. While the future looks bright, the promised land is still at least another decade away at the rate we’re going, and it will take a lot of hard work and joint effort to get there.

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

Brazilian bank set to samba with City National?

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By Lindsey White
May 16, 2013

The rumor mill keeps churning about the looming sale of City National Bank of Florida. Recent reports suggest that Banco do Brasil SA is closing in on a purchase of Valencia, Spain-based Bankia’s Florida franchise.

On May 9, Bloomberg Television reported that Banco do Brasil is near a $900 million deal. Bloomberg originally identified Banco do Brasil as a bidder in April. On May 15, Dow Jones Newswires cited an unnamed banker as saying that the 1.18 trillion-Brazilian-real bank is in the “final stages” of acquiring Miami-based City National, in a transaction expected to close at the end of the month.

When contacted by SNL, Banco do Brasil declined to comment on its interest in growing in the Miami market — but some say the City National acquisition would make sense, given the Brazilian bank’s existing footprint in Florida.

Banco do Brasil acquired Coral Gables, Fla.-based EuroBank in early 2012. The acquisition is expected to contribute to Banco do Brasil’s expansion of business in the U.S., focusing on Brazilian and Hispanic customers, the Brazilian bank said in a first-quarter presentation.


EuroBank, renamed Banco do Brasil Americas, had $82.1 million in assets at March 31. The bank has three branches, including a recently opened location on Miami’s Brickell Avenue.

“I just couldn’t imagine them going into the Miami market and staying at less than $100 million in assets,” said Paula Johannsen, a managing director at Monroe Securities. “They didn’t come there just to buy two or three branches of a small community bank.”

James Cassel, chairman and co-founder of Miami-based investment banking firm Cassel Salpeter & Co., said it can be a wise strategy to dip a toe into the U.S. market before diving in fully. A bank that does so can put the regulatory approval process behind it before going after larger deals. If Banco do Brasil were to bid on City National, the fact that the Brazilian bank already has a charter in the U.S. could make the seller’s board more comfortable, he said.

Cassel pointed to the example of Spanish Banco de Sabadell SA, which bought Miami-based Transatlantic Holding Corp. in 2007, before further expanding with the purchase of Miami-based Mellon United National Bank. Sabadell is also among those rumored to be interested in buying City National, along with a number of other banks.

Benjamin Bishop Jr., chairman of Southeast-focused investment bank Allen C. Ewing & Co., said the Miami market is “one of the most dynamic in the country” and “very attractive” to foreign banks looking for a foothold in the U.S. “Miami had a huge number of unsold condominiums a couple years ago on Brickell Avenue,” he noted. Today, he said, many of those condos have sold as foreign nationals scooped up properties.

“A lot of the wealth in Central and South America is going to Miami, and if anything will probably be accelerating,” Bishop said.

Observers agree that if Banco do Brasil is looking to buy, City National is an attractive target. Cassel called City National a “wonderful franchise.” The bank has a long history, a network of 26 branches with good locations, a solid core group of employees and a loyal customer base that stuck with it when City National was last sold, he said. In 2008, Bankia’s Caja Madrid bought an 83% stake in City National Banc shares Inc. in a $927.0 million deal.

Observers noted that there are several banks in South Florida, but few of City National’s size and quality. The bank had $4.74 billion in assets as of March 31, and nonperforming assets totaled just 0.97% of total assets.

This could help City National fetch a good price. According to SNL data, live bank deals announced since Jan. 1, 2012, with Florida-based targets have had a median tangible book value of 100.7% and a mean value of 102.3%. Johannsen characterized pricing for recent Florida bank deals as “all over the board,” but said that many people expect City National will generate more of a premium.

“For the international-type banks that want to get in there, it’s the best quality right now,” Johannsen said.


James Cassel: Plan now to get the most value from selling your business

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By: James Cassel
April 14, 2013

When selling your business, advance planning and strategic action can make a big difference toward helping you obtain the maximum value for your firm. The sooner you begin your preparation, the better.

Here is some practical advice that I have learned throughout my career leading the purchases and sales of middle-market businesses in South Florida and around the country. These tips are not only helpful if you’re planning to sell — they’re also generally good business practice.

•  Hire an effective public relations firm. Positive news coverage in credible, top-tier media outlets that reach current and potential customers as well as buyers can be invaluable in terms of elevating firm and brand awareness, securing credibility for your business and even piquing interest from potential buyers. Although directed to enhance the business, raising visibility is important. These days, depending on the nature of your business, social media might be an appropriate tool to leverage as well.

•  Get your financial and accounting records in order. It is imperative for you to be able to give potential buyers a clear, accurate snapshot of your historical financial results and condition. Without this, you won’t be able to get as much for your business. You’ll have to do all this paperwork anyway, so the sooner you get your financial house in order, the better. Preparing a budget is helpful too.

•  Review agreements with your customers. Do you have long-term contracts that will bring recurring revenues to the purchaser of your business? Do your contracts with customers have special terms, such as requirements that you personally provide service to the accounts or change of control provisions, which may have an impact on the longevity of the contracts when you’re no longer involved with the business? Make sure you review and structure agreements in advance so they will enhance the value of your business and appeal to potential buyers.

•  Review your leases. Do you have a long-term lease that new buyers will have to continue, or do you have a short-term lease giving buyers maximum flexibility? This can enhance or decrease the value of the business. I recently worked on a deal in which a long-term lease for excessive space became a roadblock to completing the deal. Sometimes, a long-term lease at favorable rates can enhance the value of a business.

•  Review agreements with your suppliers. Again, like in No. 4 above, you need to understand whether you’re locked into agreements with suppliers with which the new owner(s) of your business will be required to comply. Depending on price and terms, a long-term supply agreement can be an asset or a liability. If there are any agreements that you don’t consider beneficial to your business, then now would be a good time to try to terminate them or address the issues to avoid turning off potential buyers.

•  Review your insurance coverage. Depending on your business, liability coverage and tail coverage might be very important. Consult a good insurance agent to evaluate your existing coverage and file any gaps that might exist.

•  Do tax and estate planning. Work with qualified lawyers and accountants who can help ensure you have structured your ownership in the most tax- advantaged way in the event of a sale. Again, the sooner you do this, the better off you’ll be.

•  Discuss the possibilities with your family. As in most everything in life, it’s important to have an understanding with your family members – especially if they are part owners of your business or work in the business. Make sure your family members and other key stakeholders fully understand the possible impacts of the business sale on everyone involved.

•  Evaluate your intellectual property. Make sure it is protected and owned or licensed by the right entity. This can be a great asset or, in some cases, a great liability. Work with a knowledgeable lawyer to get your house in order. Make sure you have proper licenses for all the software you use.

•  Evaluate management. Do you have appropriate management in place or are there gaps that you should fill prior to putting your business on the market? Examine your employment agreements to ensure you have important non-compete, confidentiality and other provisions that can significantly enhance the value of your business.

•  Determine if there are environmental issues. Commissioning a study to identify all environmental issues can be a good idea. Then, you should either remediate them or at least have an accurate understanding of what will be required to clean them up.

•  Get organized. An organized business owner who comes to the table with his or her house in order gives a good impression and strong comfort level to potential buyers.

The key here is to work with qualified advisors, including attorneys, accountants and investment bankers, to put your business in the best-possible position for sale. By addressing the weaknesses and playing up your strengths now, you can help ensure you get the best value for your business. 

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



Thinking of selling your business? Better get started

By: James S Cassel
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To sell or not to sell? That is the question on the minds of business owners who didn’t sell their businesses in 2012 and are concerned about the possible impacts of rising taxes and other economic issues this year. Middle-market mergers and acquisitions activity seems to be picking up in 2013.

Fact is, if you’ve been thinking of selling, the time to begin the process was, frankly, “Yesterday.” Starting the process does not necessarily mean that you will pull the trigger and sell.

If your business is likely to be affected by any of the following factors, then it would be a wise move now to consult your trusted advisors, weigh your options, and begin taking the necessary steps to protect the best interests of your business. Timing is key to ensuring you maximize the value for your business.

Higher taxes and rising prices. Some economists are saying that the recent expiration of payroll tax cuts and spikes in food prices could subtract 0.8 percentage points from U.S. economic growth this year. According to a Reuters poll, the economy is expected to expand 2 percent this year, down from 2.1 percent last year. In light of this, households are more cautious about spending and acquiring new debt, are worried about having enough retirement savings, and are concerned about the rising prices of gasoline and almost everything else.

Choppy market conditions. While the stock market may be up at new highs, it generally does not move in a straight line and we can’t sit back and assume it’s going to continue heading north. The rebound that we’re seeing in the stock market is due in great measure to political factors, including the size of the deficit and Federal policy, making the 2013 market potentially quite a risky place.

Sales taxes for online retailers. Online retailers and other online businesses are likely to get hit with more sales taxes. In time, everyone will have to pay sales taxes for their online purchases, which will neutralize to a certain extent the competitive advantage that many online retailers currently enjoy and will seriously hurt some of margins.

Capital investments and new technologies. The continuous introduction of new technologies that we’re seeing is great in many ways, but purchasing these new technologies can often be quite expensive and require additional investments in terms of training and/or hiring employees who are able to use them.

Rising interest rates. Interest rates are expected to increase at some point and will hurt margins for some business owners.

Industry consolidations. Many industries, such as technology, travel and manufacturing, are experiencing consolidations. It’s critical for business owners to know when to take advantage of good offers to sell their businesses. I’ve seen some business owners who, after missing out on opportunities to sell, have gotten stuck holding the bag with their floundering businesses while their better-capitalized competitors have continued to grow.

Expansions. For some business owners, expansion is critically important to remain competitive and keep up with growing demands from clients, etc. However, this requires both capital and stomach – which not all business owners may possess in the right quantities.

Emotional considerations. Just as important as the practical considerations mentioned above are the emotional factors. Some business owners find that they’ve been through so many trials and tribulations during the past four years that, simply put, they’re tired. They want out. When these feelings hit, it’s usually wise to begin looking for ways to move on, as businesses require a great deal of energy and commitment to succeed.

In addition to selling 100 percent of your business to a strategic buyer, there are a myriad of other options that you can consider, such as selling your business to a private equity firm or family office. This would enable you to retain some of the upside and give you capital to grow your business while helping eliminate some of your risk by taking some of your money off the table.

Indeed, in today’s uncertain marketplace, business owners have many considerations and options to weigh, and it’s important to work with trusted advisors such as investment bankers and attorneys to find the solutions that are best for every situation. As always, it’s all about strategic planning – something that unfortunately some business owners are great at doing for their clients and customers but not so good at doing for themselves. Without doubt, business owners who roll up their sleeves and take the right steps at this time are likely to put themselves in the strongest position going forward into 2013.

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.cassel salpeter.com

Financial salaries on rise as sector bounces back amid a slow recovery

By: Meisha Perrin
Week of Thursday, March 21st, 2013

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CS - Media Clip - Miami Today - 3.21.13

Financial planners struggle to meet clients’ fiscal cliff goals

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By Paul Brinkmann

South Florida financial planners are doing their best to deal with client demands for protection from so-called “fiscal cliff” issues, but some say options are very limited.

“Ultimately, I don’t think we will plunge off the fiscal cliff, because I believe Washington will reach some compromise,” said Eli Butnaru, CEO of Miami-based Mora Wealth Management. “But at this point, this is one of the few times there just aren’t many alternatives. That’s why it’s considered a crisis. It’s much easier to say what not to do than what to do.”

Pressed for solutions, wealth managers the Business Journal spoke with for this report said they are providing ways to avoid the impact of worst-case scenarios. But many financial institutions warned that long-term investment decisions should not be based on short-term headlines about politics or fears of taxes rising. PNC Bank issued a statement Dec. 11, saying it “always maintains that investment choices should never be made based solely on headlines, and that the long-term view best serves.”

Technically, the nation will reach the edge of the fiscal cliff on New Year’s Eve, when the Bush-era tax cuts expire and mandatory spending cuts kick in. As of Dec. 12, national media reported little progress, except that President Barack Obama had offered to reduce new revenue expectations to $1.4 trillion from $1.6 trillion. But CBS News reported some Republicans in the GOP-controlled House called that “laughable.”

In Miami, Butnaru said he was dealing with limited options until a clearer direction emerges.

“In general, we don’t like defensive sectors, meaning the kind of investments that pay dividends,” he said. “We prefer equities now; we truly do not like bonds. It’s truly difficult to find a good bond today.”

Butnaru said he and his firm prefer to seek investments in emerging markets, including Chinese high-yield investments.

“It may sound like a contradiction, but we still look for quality junk bonds or investments,” he said. “High yield or junk might still do well from excess spread, because there’s still no spread available on the investment grade.”

Despite some talk about wealthy people making large investments, gifts or annuities in advance of the cliff, Butnaru said he thinks such activity is no more than normal.

Adam Bergman, senior tax attorney with IRA Financial Group, said he has seen a spike in requests to move money into IRA and 401(k) accounts.

“I’ve had a lot of feedback since November [from] people between 40 and 70 years old who are looking to do different things with their retirement funds,” he said.

“People know taxes are going up anyway you cut it, even if it’s only the health care surtax, so they want to divert as much income as possible,” he said. “We’ve seen an increase in the number of people who want this started by the new year to avoid the impact.”

Bergman said investors, who recently focused on returns from stocks and tax-deferred accounts, are now afraid of dividend taxes going up. He pointed to a few South Florida companies – including National Beverage Corp. and Heico Corp. – that issued special dividend payments in advance of the fiscal cliff.

“The day after the national elections, my phone started ringing more. I saw a 35 percent increase in calls about tax-deferred accounts on Nov. 5,” he said. “I think a lot of people just woke up and said ‘Wow, Jan. 1 is pretty close,’ and the stock market took a dive after the election.”

Bergman said some people call to ask questions, and others call to say they realize taxes will go up and they want specific things.

He also acknowledged that another reason for people putting money into tax-deferred accounts is more financial stability.

“We did see people, quite a few years ago, taking loans out on their tax-deferred plans,” Bergman said. “Things are definitely better now, and people are looking at ways to build up those accounts again.”


What is the fiscal cliff?

A combination of expiring tax cuts and across-the-board government spending cuts scheduled to become effective on Jan. 1.

The idea behind the fiscal cliff was that, if the federal government allowed these two events to proceed as planned, it would have a detrimental effect on an already shaky economy, perhaps sending it back into an official recession as it cut household incomes, increased unemployment rates and undermined consumer and investor confidence.

At the same time, it was predicted that going over the fiscal cliff would significantly reduce the federal budget deficit.

Source: Investopedia.com

7 tips to help business owners navigate the cliff

James S. Cassel, founder and chairman of Cassel Salpeter & Co. LLC, a Miami-based investment-banking firm that works with middle-market companies, offers this advice for business owners amid worries about the fiscal cliff:

  • Although interest rates are not likely to skyrocket soon, it’s still a good time to lock into long-term financing like the big boys.
  • Consider your exposure to real estate, as the elimination of mortgage interest deductions may cause prices to decline.
  • With the Patient Protection and Affordable Healthcare Act and a new health care tax on the horizon, business owners should begin evaluating how the anticipated new costs may impact their bottom lines. They should work with advisors to consider strategies – such as whether to insure their employees or opt out and pay the penalties – and determine the best course of action that will support their business goals.
  • Consider doing more business with state government. As states begin to recover and get more tax revenue, there may be greater opportunities to do business.
  • Consider foreign markets to sell services or products. While emerging markets, such as South and Central America, and Asian markets look better than Europe, don’t forget Europe.
  • With more efficient equipment available and a diminished need for manual labor, you should consider “reshoring” (i.e. bringing back to the U.S.) whatever you currently manufacture offshore.
  • Look at your customer base and, if you think your business may be affected by government actions, develop a plan and consider measures like cost reductions or layoffs.

Factors to Consider when Shopping for a Business

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By James Cassel

It’s not enough to land any company. You need to search for one that’s right for you, at the right size and price.

MIAMI, Florida, November 25, 2012 – When looking for a business to buy, you can forget immediate gratification. Businesses can’t be found under rocks. It’s a more complex process that takes more time than most people expect.

We hear it often: “I’m looking for a business in Florida with $10 million in revenues, making $2 million per year or more. Or I want to buy something with a minimum of $5 million of EBITA (Earnings Before Interest, Taxes and Amortization). Can you point me to one?” Sure, if I could find a needle in a haystack.

There’s no good database or source to search with those types of broad parameters. Even if such a database existed, the “anything goes” approach wouldn’t be in your best interest. It’s not enough to just find any business — you need to find the one that’s right for you, at the right size and price. Institutional buyers verses individual buyers may have different views, needs and wishes.

Some buyers have a pretty clear notion of what they want: a small- to mid-sized business, like a small distribution company or mom-and-pop chain of dry cleaners. In those cases, they can work with business brokers who carry listings like real estate agents. There are a couple of those in every town, and also good websites like BizQuest.com, USABizMart.com and BizBuySell.com that post business-for-sale opportunities. S&P Capital IQ is always a good source for information.

Investment bankers are helpful to those looking for larger businesses with specific and well-defined criteria. These are deals that aren’t listed and require research and knocking on doors, a very disciplined approach.

Private equity firms assign their staff members to search through databases for opportunities and make calls to owners to introduce themselves and gather all the intelligence they can. Again, databases don’t cut it for these types of business searches, as the information is often incomplete, erroneous and/or misleading. In addition to databases, there are many other places to look, such as trade magazines.

Here’s a classic example: A partner at private equity firm called us a few years ago wanting to meet a specific business owner who wasn’t returning his phone calls. Dunn & Bradstreet’s credit reporting showed the business had about $15 million in revenue per year and netted $1 million in profit per year. The owner took my call because he knew my name and was curious how I was related to my sister-in-law who’d taught his child in pre-kindergarten. We had a nice conversation and agreed to have lunch with my client. At lunch, he said his business’ revenues were actually about $80 million per year with more than $10 million in profit. When I asked why the report we had obtained contained a different figure, he said: “So people like you don’t bother me. If I gave the real numbers, every private equity firm and investment banker would be calling me.”

Those interested in bigger businesses can always leverage industry trade shows and hire investment bankers to do the buy-side work and knock on doors. Franchise fairs are a good option for buyers interested in franchises. Don’t forget to look at bankruptcies: Often you can have a good business with a bad balance sheet, and you can fix the business by buying and recapitalizing the business.

Something else that invariably surprises people: It takes much longer to find and buy a business than they imagined. We know people who have $5 million to $10 million cash to invest and want to move to Miami and buy a business, but they haven’t been successful after more than two years of searching.

So how can you do it? You roll up your sleeves and you network, call attorneys and accountants, search databases, and subscribe to receive e-alerts from websites that post business-for-sale opportunities. If you’re looking locally, you get involved in the community. If you’re more industry-specific, then you build a database of companies in that space. Attend trade shows. There’s no way around it: Finding a business to buy requires a lot of blocking, tackling and making phone calls every three months to the same people because you have to catch people when they are considering selling or try to pique their interest. Usually, that happens for a reason: when someone is sick, for instance, getting divorced or getting ready to retire. You must have your bait in the water when the fish are ready to bite.

• The best advice for finding the right business to buy: Match your skills and interests. Pick industries that you know or have experience with. South Florida has a lot of solid industries — cruise-related, real estate services (everything from construction to management to products), and import-export businesses like flowers and electronics, as well as all the usual industries like food, healthcare, distribution, logistics and transportation. A few key questions to ask yourself: Which of your skills would best translate to the potential new business? What sectors interest you and match up well with your skills? Do you need any special licenses or other qualifications to run the business?

• Narrow your target. The more you focus on specific criteria, the greater the chance you’ll find what’s right for you. When possible, get a good advisor to help you, especially if you’re coming from another country.

• Understand your finances. What can you realistically afford? Are you putting up all the money or will you need to find an equity partner or a lender? Be honest about your price range. A few key questions to ask yourself: How much can you spend on the business, how much collateral can you use, and how much income do you need to receive? Do you have good enough credit to secure financing from a bank or other lender?

• Know your motivations. Why do you want to buy the business? Are you doing it for the income or the lifestyle opportunities? For example, we know people who purchased yacht brokerage businesses because they like yachts.

• Consider the potential impacts on your lifestyle and your family. What types of hours do you want to work? Will you need to drive long distances or relocate?

• Be proactive. Network, talk to people, get some good advisors to help you.

• Be patient. Keep in mind that most sellers have likely been approached many times by potential buyers, so understand that you might not get every bit of information you need immediately. Buying a business takes time, sometimes months or years.

So, here’s the good news and the bad news: There are some good opportunities today and plenty of money available to leverage them — but there are lots of individuals, private equity firms and strategic buyers searching for those same opportunities. To succeed, you need a healthy balance of strategy, perseverance and, above all, patience.

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