We touched briefly on the unveiling of the new website, growtheconomy.org in May’s edition of our monthly brief, The Middle Market Pulse. The new site, growtheconomy.org, combines two independent databases, PitchBook (directory of over 16,500 establishments supported by private capital) and NETS (National Establishment Time Series, a collaboration with Dun and Bradstreet, NETS is a time-series database of 44 million U.S. business establishments) allowing users to compare the performance of private capital-backed companies to the general U.S. economy from 2009 going back to 1995 by state and MSA.  It will be interesting to see the addition of 2010 and 2011 data into the mix, both from a short term timeline and long term results. 

My guess is that the additional two years of data will simply be putting an exclamation point on the fact that over time, private capital returns have solidly outperformed those in the public domain.  It’s great to have a tool like this which focuses solidly on middle-market transactions and validates the performance of private capital at work. 

Posted by Roy Graham.

They say nothing’s certain but death and taxes…but I’m not quite sure how certain taxes really are.  Don’t get me wrong.  I know they’ll always exist.  But tax laws are constantly changing.  And, taxes become very relevant when we contemplate large life events – like selling one’s business.

One of my colleagues, David DuWaldt, wrote a great piece about how taxes and M&A deal structure work hand in hand.  David does a great job explaining why the tax interests of the buyer and those of the seller are often at odds with one another and how a resourcefully structured transaction can bridge the gap between the two.  I suggest you read David’s full article here.

Because the laws are constantly changing, it’s important to work with a trusted team of advisors including your accountant, lawyer, financial planner and investment banker to design the M&A deal structure that provides the best liquidity outcome for you.  Remember…it’s what you keep that counts.

Posted by Roy Graham.

The private equity firms really don’t want to run a business.  They want you to do that.  They will provide guidance and support, and at a board level provide you resources that you probably don’t have today.  The object of the game is that with their help you can build the company to a much greater value and size.

Generally speaking, private equity groups, over a period of 3-7 years, want to accomplish that goal and make a second sale.  When they cash out, you’ll also cash out and it’s very probable that your second check could be much larger than your first check.

Watch the full video interview on “Why Work With a Private Equity Firm for Recapitalization?”

Find out more about raising capital for your business.

Posted by Roy Graham.

2010 was a difficult year for the oil and gas industry, but if we’ve learned anything about the resiliency and adaptability of the industry is that 2011 could very well signal a reversal of fortune.  M&A activity in Q1 of 2011 has heated up, the global energy markets are expanding and a new oil superpower is on the horizon.  Read the entire Q1 Energy Newsletter authored by CFA’s Bud Boles and the Energy Industry Practice group for an in depth analysis.

To subscribe to CFA’s Energy Newsletter and to download past issues, please click here.

Posted by Roy Graham.

Energy markets are in constant flux with sometimes sharp and abrupt spikes occurring while simultaneous long-term trends are evolving on an underlying plane.  The nature of these markets makes it imperative to stay abreast of energy news and to understand the multi-dimensional dynamics of the markets and their affects on the economy and your business growth strategies.  Corporate Finance Associates’ Energy Practice Group is dedicated to staying current on the changes in the Energy Markets and to identifying long-term trends.  Led by Chairman Bud Boles, an industry veteran with more than 50 years of global experience, the CFA Energy Practice Group publishes a quarterly newsletter that reports and analyzes these changes.

Some recent headlines: Crude oil prices were propelled higher at the end of January 2011 due to political unrest in Egypt and the Middle East.  According to the International Energy Agency Oil Market Report, global oil product demand has been revised up by 120 kb/d.  IEA reported that, at 87.8 mb/d in 2010, global oil demand rose by 2.8 mb/d year-on-year, and should reach 89.3 mb/d in 2011 (+1.5 mb/d year on-year).  There are many significant uncertainties that could push oil prices higher or lower than current expectations. 

Among the uncertainties are decisions by key OPEC member countries regarding their production response to the global recovery in oil demand; the rate of economic recovery, both domestically and globally; fiscal issues facing national and sub-national governments; and China’s efforts to address concerns regarding its growth and inflation rates.  In addition, even though Egypt is not a major supplier of crude oil or natural gas to world markets, the recent unrest in that country which has spread throughout the region raises concerns over world energy supplies.   Key transit routes for energy and other goods could be disrupted, while pipelines and ports could become targets for warring factions.

To read the 2010 Q4 Energy Newsletter for more Energy Market information click here.

Posted by Roy Graham.

All markets go through peaks and troughs and the middle market mergers and acquisition industry is no exception.  What’s on the horizon for 2011? Important developments in the lower middle market likely signal the acceleration of an upward trend in deal flow and more importantly for sellers, a trend in higher valuations.  For a more in depth look at how historical data trends point to increased M&A activity in 2011, check out the executive briefing “Middle Market Pulse” January edition.

Posted by Roy Graham.

You are an accomplished senior level executive with a strong record of success in corporate America but you want more. You understand your industry as well as anyone and you want to capitalize on that knowledge by acquiring a company that you can grow to build wealth. How do you get started? What is the process? Is it doable?

You may want to start by asking yourself if you would want to acquire the company that you are currently working. If the answer is yes and you believe ownership might be receptive, a management buyout may be a great place to start. After all, you already know your own company so you probably know of any skeletons that may be hidden away as well as the kinds of opportunity that exist. Your due diligence should be easier and you’ll have little, if any, learning curve.

Perhaps your company isn’t available, it’s not attractive or you have an alternative strategy and wish to focus on acquiring another company or a buildup of companies. These are all viable options for which there will likely be multiple sources of funding if you are well prepared and understand the process.

There are many investment groups that will fall over each other in their rush for the opportunity to back a strong management team and a good target company. You can reach out directly to private equity groups and try to handle the process yourself but you may find it frustrating as you navigate a myriad of hurdles. Read more »

Entrepreneurs prepare extensively over the years as they build their businesses, but many fail to plan for an exit.  In my recent article, “Exit Planning for Business Owners”, I examined an area that many business owners neglect and that may be the most important part of the business transaction: life-after-business. In fact, during the current troublesome economic and tax environment, never before has it been so important for entrepreneurs to engage world-class wealth planning professionals prior to a business sale as part of their final exit plan.  There can be no small mistakes in the wealth management plan because once a deal is finalized, it cannot be undone.

In reality, when entrepreneurs sell their company they are really just transitioning from their current business (say, Smith Widget Co.) to another business, which we will call Your-Money-Inc.  This new company will have a completely new mission and will need to be guided through an entirely new set of challenges.  Creating a mission statement for Your-Money-Inc. should always begin well before your business is sold.  This planning process starts with a seemingly simple question: “What goals do I want to accomplish starting immediately after I exit?”

How can you be sure that your company’s market value will support these goals post-close?  Read more »

Down economic cycles can offer excellent buying opportunities for well positioned companies but they may create funding challenges to getting a deal closed.  When credit is easy and senior debt lenders are liberal with leverage and terms, most buyers don’t need additional help in funding their deals.  In a down economy, it’s quite a different matter and mezzanine financing may be the solution.

Mezzanine financing is also known as subordinated debt and is junior to the security interest of senior debt while ahead of equity stakeholder rights.  Many of the features of a mezzanine loan are similar to a bank loan.  There will be provisions for interest payments, an origination fee, amortization terms, covenants, potential liens, default definition and remedies, and other items.  Additionally, mezzanine investors craft warrants into their structures to compensate for their risk as junior lenders.  Warrants provide the right to purchase equity at a later date.  Don’t worry, mezzanine investors don’t want to own your company so they will include “put” options, which when exercised, require the borrower’s company to buy-back the stock at a pre-determined price often tied to a valuation formula based on a multiple of the company’s earnings.  In short, it’s an in and out transaction designed to augment their return. Read more »

Maybe you have read that the market has peaked and deals are tougher to get done. You feel like you have missed your perfect chance. On the other hand, you are not getting any younger, you still have most of your wealth tied up in your business, and you can not get the thought of possible capital gains tax increases out of your head. What should you do?

Think recapitalization. While not for everyone, a recapitalization or “recap” as often referred to, can provide an attractive option for sellers. A recap enables a seller to sell a portion of a business now, while keeping an ongoing equity stake, maintaining an active management role, sharing in the growth of the company, and retaining the opportunity to participate in better markets which may be ahead. Read more »