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

 

Top 12 Tips to Get the Most Value from the Sale of Your Middle-Market Business

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By James Cassel
October 17, 2013

A little planning can go a long way toward helping you to obtain the maximum value for your business. The sooner you begin, the better.

Throughout my career in leading the sales and purchases of middle-market businesses nationwide, I’ve found the following 12 tips to be the most helpful for business owners planning to sell. The further in advance of the sale that these recommendations are implemented, the greater the value that can be created. They’re also generally good business practice for anyone in business.

  1. Make sure that your financial and accounting records are in order so that you can readily give potential buyers a clear, accurate snapshot of your historical financial results and condition. This is critical to ensuring that you get top value for your business. It’s also a good idea to prepare a budget and maybe get audited financials.
  2. Review and/or restructure your agreements with customers as necessary. Do your contracts have special terms, such as change of control provisions or requirements that you personally provide services, that may affect the longevity of the contracts when you’re no longer involved with the business?
  3. Review and, if necessary, restructure your leases. Often, long-term leases for excess space and high rates can be roadblocks to completing deals, while the opposite is true for long-term leases at favorable or below-market rates. Do you have a long-term lease that new buyers will have to continue or any special clauses that will create issues for potential buyers?
  4. Review and/or restructure agreements with your suppliers. As in #2 and #3 above, you should determine whether you’re locked into agreements that may not appeal to potential new buyers or reduce value. Now would be a good time to try to modify or terminate any agreements that you don’t consider favorable to avoid turning off potential buyers.
  5. Review your insurance coverage. Consult a trusted insurance agent to evaluate your current coverage and fill any gaps that may exist. For example, depending on your business, liability coverage and tail coverage might be critical.
  6. Do your personal tax and estate planning. Consult with qualified lawyers and accountants to ensure that you have structured your ownership in the most tax-advantaged way in the event of a sale. Doing this now vs. just before a sale can be very advantageous.
  7. If you have a family-owned business, talk with your family. Make sure that your family members and other key stakeholders fully understand the possible impacts of the business sale on everyone involved. Especially if your family members either work at or are dependent on your business, it’s critical to have their buy-in.
  8. Evaluate your intellectual property. Work with qualified attorneys to make sure that it’s well protected and owned or licensed by the right entities. Also, make sure that you have proper licenses for all of the software you use.
  9. Evaluate management. Ensure that you have appropriate management in place and that there are no gaps that you should fill before you put your business on the market. Also, examine your employment agreements to ensure that you have the necessary noncompete, confidentiality, and other provisions.
  10. Determine whether there are environmental issues. Either remediate them or at least develop an accurate understanding of what will be required to do so.
  11. Get organized. This gives a good impression and strong comfort level to potential buyers, which is a priceless intangible.
  12. Hire an effective public relations and marketing firm. Positive news coverage in credible media outlets that reach potential buyers as well as current and potential customers can help to elevate firm and brand awareness, secure credibility for your business, and even generate inquiries from potential buyers. Depending on the nature of your business, social media might be an appropriate tool to leverage as well.

Without a doubt, the tips listed above are general good business practice, even if you’re not thinking of selling yet. The key is to work with qualified advisors, including attorneys, accountants, and investment bankers, who can give you the strategic counsel and guidance you need to put your business in the best possible position. It is a good idea to assemble the team far in advance of a contemplated sale. By minimizing the weaknesses and playing up your strengths now, you can help to ensure that you get the best value for your business whenever you’re ready to sell.

LOLJames Cassel (jcassel@casselsalpeter.com) is cofounder and chairman of Cassel Salpeter & Co., LLC (www.casselsalpeter.com), an investment banking firm with headquarters in Miami that works with middle-market companies. Before founding Cassel Salpeter & Co., Jim was co-founder and chairman of Capitalink, an investment banking firm that was acquired by Ladenburg Thalmann & Co., a New York Stock Exchange member firm where Jim continued and served as vice chairman, senior managing director, and head of investment banking. He also was chairman of a significant company that owned hospitals.

Yellen appointment at the Fed seen as a positive for startups

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By: Kent Bernhard Jr
October 09, 2013

The UpTake: Janet Yellen isn’t expected to change the Federal Reserve’s easy money policies much, and experts say that’s good for the upstart economy.

Janet Yellen brings arguably more expertise and experience to the job of Federal Reserve chairman than anyone before her. But what does her appointment mean to the upstart economy?

“My big picture view is that stability and the Fed’s recent accommodative policies are good for the startup ecosystem,” said Stash Jacobs, an attorney with Miami-based Greenberg Traurig who works on mergers and acquisitions and funding deals for startups.

President Barack Obama nominated Yellen today to the post being vacated by Ben Bernanke. The first woman appointed to the most powerful economic post in the world, she comes to the job with a wealth of experience.

Most recently, she has served as the Fed’s vice chairman. She has held previous posts as head of the San Francisco Federal Reserve Bank and the Council of Economic Advisors.

If the Senate confirms her, she will take over at a time of continued economic duress, with the Fed pumping money into the economy through low short-term interest rates and a mechanism called quantitative easing to try and stimulate the economy and ease unemployment.

Don’t look for that to change, at least in the near future, and that’s a good thing for startups and entrepreneurs.

That’s because the Fed’s easy money policy drives down the attractiveness of such traditional investments as CDs and bonds, leading more money to enter the stock market—good for companies like Twitter that are going public—and even to direct investments by institutional investors in venture capital funds, the feeder system for startup investment.

Such investments as venture capital are more attractive, if riskier, because they offer a higher rate of return than traditional investment vehicles, especially at a time of low interest rates.

“When IPOs are happening, that’s great for startup companies because it builds confidence,” Jacobs told me. And with other investments perhaps less attractive, “It can cause investors to be interested in venture capital and early stage investing as well.”

James Cassel, co-founder of investment bank Cassel Salpeter, said the Fed’s policies could also have a more direct impact on entrepreneurs and would-be entrepreneurs. The lower interest rate policies of the Fed have a positive effect on the housing market, which can encourage someone thinking of entrepreneurship to take the leap into it.

“If the fed can encourage growth and keep down inflation, it can be good for the ecosystem,” Cassel told me. “You’re willing to invest…or take that business risk of starting a company without getting paid for a while.”

 

 

 

Lower Middle-Market M&A Expected to Pick Up; Cash ‘Not Being Lent Stupidly’

October, 07, 2013
By David Holley

Click the article and image below to expand it and view it in PDF format. James Cassel’s Q&A can be found on page 7.

Click the article and image below to expand it and view it in PDF format: