Exit and Growth Strategies for Middle Market Businesses

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What Business Owners Must Know About Private Equity

By Roy Graham | Dec 08, 2015

Private EquityThe PE community has established an impressive record of success in both partnering with business owners to grow the value of their businesses and in returning high rates of returns to their own investors.  Private equity recapitalizations have proven in the aggregate to be a valuable vehicle by which a business owner can capture a portion of his business’s value today while bringing in a savvy business partner who can help create greater business value going forward.  However for a business owner to reap the greatest benefit from private equity it is essential to understand how private equity operates and to use this knowledge to determine how best to find a PE partner.

A paper published earlier this year by Harvard Business School and authored by Gompers, Kaplan and Mukharlyamov provides interesting insight into the operations of private equity via an extensive survey of 79 private equity investors.  When we study these findings, we can glean some valuable takeaways that can help business owners learn how to smartly capitalize on PE investment. Read more »

Energy Sector M&A News

By Roy Graham | Sep 03, 2015

Wind turbineWhen oil prices fell in late 2014 many companies in the energy sector dealt with the issue by thinning out operations – cutting overhead, limiting capital expenditures and reducing staff. The moves were done cautiously as no one knew how long the drop would last. Now, more than half a year later, the environment is still tenuous, which may lead to a number of distressed sales as business owners rely on M&A as a means to avoid trouble with creditors.

The energy sector performed the best of all sectors in the second quarter of 2015. A composite of energy commodities rose 13.81% and was the strongest commodity sector in the futures markets for Q2. However, there has been a dramatic change in Q3 as the price of oil has drifted below $40 per barrel. Brent crude oil spot prices decreased by $5 per barrel in July to a monthly average and fell even further at the end of July and into early August. The current values of futures and options contracts continue to predict a prominent level of uncertainty in the price outlook, which will most likely lead to a very cautious environment for perspective acquirers. Some experts predict that the current record level of inventory will cause prices to settle back down again, and that 2015 will end with West Texas Intermediate (WTI) prices at about $50 per barrel. However, with so much volatility and uncertainty most experts are not willing make predictions.

Posted by Roy Graham.

Read the Entire Energy M&A 3rd Quarter Newsletter Here

M&A News in the Energy Sector

By Roy Graham | May 01, 2015

Oil BarrelsFalling oil prices in the energy sector are affecting valuations. Many owners are reluctant to test the M&A market as valuations have dipped significantly over the past six months.  Buyers, on the other hand, see the current market climate as an opportunity to acquire good companies at reasonable multiples. According to data published by Fitch Ratings, low prices for an extended period could lead to more acquisitions of smaller, potentially distressed companies by larger ones, while reducing the major oil companies’ ability to finance their operations through disposals. The combination of lower operating cash flows, fewer disposals and some potential acquisitions could put major oil companies’ credit metrics under pressure. However, the impact would depend on how they respond, as some might choose to cut capex and exploration expenses, while others might decide to operate with higher leverage, which could lead to downgrades if sustained. There has been a large number of private equity backed energy companies formed over the past five years capitalizing on the fracking trend. Many of these companies have significant debt to service, which could spark a flurry of M&A activity – even if multiples are lower than many of the sellers would like.

Industry publication World Oil’s annual forecast and review predicts that West Texas Intermediate crude oil prices will average about $55 per barrel in 2015. If this comes to fruition, exploration projects that require crude prices of more than $50 per barrel to break even, such as Arctic drilling and crude exploration in Canada, will likely lose funding. Shale drilling in North America is also expected to decline. New well activity in Texas, which leads the US in oil production, is expected to fall nearly 24 percent in 2015. Louisiana, North Dakota, and Oklahoma are also expected to see declines. Overall, US drilling is forecast to fall by nearly 20 percent in 2015.

Posted by Roy Graham.

Read the Entire Energy M&A 2nd Quarter Newsletter Here

Energy Sector News

By Roy Graham | Feb 27, 2015

Energy Sector NewsAccording to First Research’s energy sector news,  the recent drop in crude oil prices is putting pressure on larger US producers to scale back on fracking operations. Fracking has been a huge boon to US oil production in recent years, but as prices fall, costs remain high, and the return on investment has diminished. ConocoPhillips recently announced it will cut back drilling operations and exploration spending. Shell also plans to reduce spending and cut employment. Smaller oil companies with lower cost structures are continuing to profit from fracking, but margins may be squeezed if oil prices continue downward, a scenario some experts say is likely given Saudi Arabia’s plan to keep production high. Unlike US producers, Saudi Arabia is able to profit from oil even if prices reach $30 per barrel, according to Forbes.

New Canadian rules for rail transport of oil and ethanol could boost operating costs for oil producers. Tighter regulation came nearly a year after a train derailment in Quebec killed 47 people, prompting regulators in Canada and the US to pursue tighter regulation of oil tank cars. The new Canadian rules, issued in April 2014, call for railroads to develop emergency plans for responding to explosions; the rules also fast-track the retirement of older tank cars and require the adoption of stronger tank cars within the next three years. Prompted by Canada’s moves, regulators in the US are working to update their tanker rules, which have been in dispute for years. US regulations are likely to call for stronger tank cars, reduced speeds for trains carrying oil or ethanol, and safer routes for trains carrying more than 20 tank cars.

Posted by Roy Graham.

Read the Entire Energy M&A 1st Quarter Newsletter Here

How Does FINRA Relate to Selling or Buying a Business?

By Roy Graham | Aug 11, 2014

finraMany business owners are not familiar with FINRA or how it relates to buying or selling a business.  FINRA (Financial Industry Regulatory Authority, Inc.) is an independent, not-for-profit organization authorized by Congress to protect America’s investors by making sure the securities industry operates fairly and honestly.

FINRA’s oversight of interstate securities activities includes not only publicly traded securities but also private securities of any size company including the one you may be buying or selling.  If you are buying or selling a business, FINRA is providing oversight of those FINRA licensed broker-dealers and representatives who may be working on your deal.

FINRA oversight begins with the licensing process.  Every applicant must be sponsored by a FINRA licensed broker-dealer and complete a detailed application.  This application is submitted to FINRA along with the applicant’s finger prints which are sent to the FBI as part of a criminal background check.  After an application is approved there is an examination to establish core level of expertise.  M&A activities require passing the Series 79 examination to secure an “Investment Banking Representative” license.  Certain types of private placements and other types of securities require the Series 7 “General Securities Representative” examination.  Representatives will also take a Series 63 “Uniform Securities Agent State Law” examination.

Once an individual is licensed his or her activities are monitored both by the sponsoring broker-dealer and by FINRA.  FINRA regularly examines broker-dealers and their representatives for compliance with FINRA rules and may bring disciplinary actions and fines against registered brokers and firms for violations.  It may refer particularly egregious cases to the SEC or other agencies for litigation and/or prosecution.

You may wish to check a firm and or broker you are considering.  FINRA provides convenient public access to their “BrokerCheck” feature via their website  BrokerCheck includes current licensing status and history, employment history and, if any, reported regulatory, customer dispute, criminal and other matters. FINRA recommends that it be the first resource investors turn to when choosing whether to do business or continue to do business with a particular firm or individual.

Posted by Roy Graham.

A Window of Cross Border M&A Opportunity?

By Roy Graham | Aug 15, 2013

With the value of worldwide M&A deals as reported by Thomson Reuters down 13% during the first half of 2013 compared to the prior year and cross border deals off 34%, it might seem strange to be cautiously optimistic about international acquisitions.  A look at what has been unfolding in recent weeks however indicates there may be a window of opportunity in Europe for U.S. companies that will not soon return.

 Cross Border

Source: Thomson Reuters (For full size graph, click here.)

 U.S. Acquirers Poised for International Acquisitions 

U.S. companies are positioned to go on the hunt.  A recent report by KMPG found that, “U.S. companies have more capacity than their global counterparts…”.  “Relatively easy access to capital, elevated cash levels on corporate balance sheets, and low interest rates in the U.S. translates into high transaction capacity…”.  While the US economy is still not generating the desired growth in jobs and regional weaknesses persist, sectors like energy are doing quite well and others like real estate and manufacturing are beginning to show very positive trends. Read more » – Private vs. Public Capital

By Roy Graham | May 18, 2012

Middle Market PulseWe touched briefly on the unveiling of the new website, in May’s edition of our monthly brief, The Middle Market Pulse. The new site,, 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.

Taxes – The Key to Keeping More In The Sale of Your Business

By Roy Graham | Jan 12, 2012

Money BlocksThey 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.

Why Work With a Private Equity Firm For Recapitalization?

By Roy Graham | Jul 08, 2011

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 resourcesMoney 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.



The Energy Markets – Heating Up

By Roy Graham | Jun 08, 2011

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.

Worldwide E&P Spending

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

Posted by Roy Graham.