Posted by John Slater on January 4, 2016
The holidays tend to be a time for reflection, time spent with family and friends and time spent with ourselves contemplating the future. This year has been no exception. Friday was our first Christmas with our new daughter-in-law and we all look forward to future holidays with grandchildren and the noise and excitement to come. We have much to be thankful for.
This was also a holiday season that included three funerals. Two were for adult children of long-time friends. It’s impossible to imagine the pain they feel. We share their grief. Burying a child is not in the natural order of things and events like these remind us that we are not in control of the future.
The third funeral provided a different perspective, that of a life well lived. We had the opportunity to celebrate the passing of an extraordinary entrepreneur, who made the most of the days he was given. This was a man who lived each of his 91 years to the fullest. He was a talented engineer, who, together with his wife of fifty years, also a highly talented engineer, created a vital technology still used around the world to bring light to places where it didn’t exist before. He created a still thriving business and successfully transitioned its ownership to a new generation of management. If the story stopped there, we would consider his life to be a great success.
But the story does not stop there. This entrepreneurial couple also lost their son, their only child, who had been burdened with a challenging learning disability. The pain of that loss would have been crippling for many of us. Not for this remarkable couple. Out of their personal tragedy they had the vision to build and support a remarkable school that equips dyslexic children and young adults with … read the rest
Categories: Focus Investment Banking
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Posted by John Slater on December 11, 2015
Technology is rapidly transforming numerous industries previously considered impervious to change. Earlier this year I shared my thoughts with Financier Worldwide and with Axial as to how these trends are going to affect the middle market M&A industry in which we operate.
As further proof that change is coming, I recently had the pleasure of being interviewed by a new Internet based “television” network focused solely on how business owners can successfully exit their firms. The Exit Plan Show interviews professional advisors to private business owners, including estate planners, valuation experts, tax advisors, etc. in addition to M&A advisors and investment bankers, and broadcasts these interviews in a weekly online “show”. My interview can be found by clicking on the photo below:
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Posted by John Slater on December 3, 2015
Gabe Galvez is the Founder and CEO of CAPTARGET, an innovative service provider to middle market investment banks, M&A intermediaries and private equity firms. CAPTARGET is in daily contact with a large number of M&A industry participants and has created a comprehensive directory of M&A Intermediary firms, giving Mr. Galvez unique insight into the Middle Market Investment Banking and Transactional Intermediaries Industry.
In a far reaching interview Galvez shared with us his views on the current state of the industry as well as future trends. Among the most interesting takeaways:
- Five or six years ago the average middle market boutique M&A firm had five dealmakers
- Today that number is a bit over two
- In the same period the number of intermediary firms has grown from 3000 to about 4600
- Of these more than half have not closed a deal in the past twelve months.
Gabe paints a picture of an industry ripe for radical change starting with a sharp contraction in the number of competing firms over the next several years back down to about 3000, leading to larger firm sizes and higher close rates. He also draws a roadmap for what he sees as the successful M&A intermediary firm of the future.
While I would readily agree that the middle market intermediary business is far more competitive than when I entered it thirty years ago, there is more to the story. Since the Great Recession, numerous parties, including real estate brokers, small business brokers, lawyers, accountants and consultants of all stripes have hung their shingles, claiming expertise in middle market M&A. Websites are inexpensive and FINRA and the SEC have recently walked back regulatory requirements requiring securities registration for middle market intermediaries. However, in our experience it takes far more than a flashy website to qualify a professional to represent business owners … read the rest
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Posted by John Slater on June 16, 2015
Matt Porzio, Vice President of Strategy & Product Marketing for Intralinks has a unique perspective on the M&A market. Intralinks maintains the leading due diligence secure data room service in the world and, as such, has a window on a high percentage of global M&A activity as deals are being made. Additionally, Intralinks offers a global deal networking service, DealNexus, through which thousands of buyers are provided a window on available offerings, particularly in the middle market. Using this unique position Intralinks publishes quarterly its Deal Flow Predictor gauging future M&A announcements based on the trends its sees in the usage volume of its services. Matt’s observations on the current M&A market are presented below.
The M&A market for 2015 is looking bright – kicking off with a stellar start. According to Thomson Reuters, Q1 2015 saw over $854 billion in activity – the strongest quarter since 2007. Mid-market (deal valuation up to $500 million) deal volume was at $188.4 billion, with a year over year increase of 6.2 percent. From all indications, M&A will continue to be a leading growth strategy for companies, with rich exit multiples.
Multiple deal drivers are contributing to this rich environment, including activist pressure on strategics to tighten up balance sheets/refocus on core business lines. Distressed sectors such as oil & gas are bringing a sizeable number of mid-cap deals to market, and the strongest volume of Q1 cross border activity since 2007. Financial sponsors, with plenty of dry powder, are also out to market in full force. According to Thomson Reuters, Q1 saw $171.3 billion in sponsor-backed deals – again the highest volume since 2007.
With financial sponsors coming in with plenty of dry power, deal-makers entering this space must have deep pockets and creative earn-out mechanisms in place in order stay competitive in any M&A situation. … read the rest
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Posted by John Slater on April 20, 2015
(Originally Published on Axial Forum)
The answer may surprise you, but first a bit of background. There have been signs of financial bubbles throughout global markets: US price/earnings multiples are relatively high, the Chinese equity market is on a tear notwithstanding signs of an economic slowdown, M&A valuations remain near record levels and so on. But, that’s not the whole story.
What is a bubble anyway, you might ask? The simple answer is a bubble occurs when the price of an asset class is bid far beyond its real economic value, typically as a result of mass hysteria, delusion, or misinformation. Bubbles tend to last longer than rational investors anticipate, which is why most short sellers don’t wind up billionaires.
You don’t have to look hard to find recent examples of burst bubbles. Oil is down more than 50% from its 2014 peak. Its drop was even sharper in 2008-2009 when it dropped 65% from peak to trough. Gold, the sure fire inflation hedge, is down almost 40% from its 2011 peak and could still be in a downtrend. These were big events reflecting what has been called the end of the commodity super cycle. Yet both the global and U. S. economies continue to grow.
Many claim that the U. S. equity markets are in a bubble. Yet there is little evidence of any large-scale delusion that is typically associated with market highs. On an inflation-adjusted basis, the S&P 500 has only now returned to its peak level reached 15 years ago at the height of the Dot Com boom and the inflation-adjusted NASDAQ remains almost 28% below its 2000 peak.
While excess leverage can potentially cause future pain, I would argue that the current M&A leverage and resulting high valuations are a realistic response to the “new normal” of very low … read the rest
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Posted by John Slater on February 9, 2015
Transformation encompasses not only the use of digital technology, but also incorporation of new systems and advancing scientific knowledge to solve seemingly insuperable problems. If we are going to transform the U. S. healthcare system, there is one overwhelming problem that must be solved: prevention of the chronic illnesses, the treatment of which consumes the vast majority of our healthcare dollars. Prevent or reverse arterial disease, diabetes and stroke and you have solved the Medicare financial crisis.
The FOCUS Healthcare and Life Sciences Team recently published its Winter 2015 Healthcare and Life Sciences Report, which includes an article below outlining my personal journey into the world of chronic disease prevention. I’m republishing the article on Capital Matters at the beginning of Heart Month because a high percentage of our readers (Type A business owners, investment bankers, lawyers, et. al.) are at a risk for heart disease, America’s number one killer. I’ve had my wake up call; hopefully, by sharing my experience, I will help a friend or two avoid the damage of these preventable and perhaps reversible conditions.
Prevent the Event: Make Lifestyle Changes for Lifetime Cardiac Health
As an investment banker to middle-market business owners, I spend lots of time with people who’ve reached a point in their lives the marketers refer to as “mature.” They’ve worked hard all their lives, experienced their fair share of stressful events, and may have picked up “a few pounds” since they were high school sports stars. A cardiac “event” can be a life altering experience. It may even precipitate an unplanned decision to sell a business.
Heart disease is the number one killer of men and women in the United States. According to the Centers for Disease Control (CDC), almost 600,000 Americans died of heart disease in 2010. That’s 28.5% of American deaths attributable to … read the rest
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Posted by John Slater on December 15, 2014
The modern era has witnessed two great periods of transformation that radically changed the global economy and the very nature of human existence. The Industrial Revolution of the 18th and 19th centuries and the shift to a postindustrial economy over the past fifty years are old news. Today, the Global Economy is undergoing a third period of transformation into a new Digital Age that promises to be even more dramatic in its impact. In this article, we will address some of the forces driving this change and provide our predictions as to which industries and economic sectors will be affected first. For a video discussion of the topics covered in this email click here.
Manufacturing dominated the American economy for almost 100 years commencing in the late 1860s, but, beginning in the 1960s, manufacturing was rapidly eclipsed by a new services and trade based economy. A quick look at the chart below demonstrates how overwhelming that trend has been. From 1850 to 2010, primary and secondary manufacturing in the United States dropped from approximately 80% of the US economic output to its current level closer to 20%. Tertiary industries, Clark’s name for what we would today call services, finance, retail, and distribution grew from approximately 17% of the economy in 1852, to 70% today, with the most important portion of this transition occurring since the 1960s. While the Industrial Revolution took almost 150 years to fully play out, the shift to a services and trade based economy happened in less than half that time.
We have now entered a new era that will impact most sectors of the global economy. This new transition promises even more radical change. We are only in the early innings, but this game will play out far more rapidly than its predecessors. Driving this … read the rest
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Posted by John Slater on November 10, 2014
We recently interviewed Peter Lehrman, CEO of Axial, one of the most energetic and innovative companies providing advanced technology solutions to M&A and corporate finance professionals operating in the middle market. Speaking from the “Roosevelt Room” in Axial’s headquarters in the Flatiron District, Peter covers a good deal of ground and I highly recommend you listen.
We began with a discussion of the current M&A market and Peter shared with us some highlights of Axial’s recent Concord event in New York: a packed crowd listened to various Axial members and panelist experts on the middle market, but for some of them the main event took place outside the lecture hall.
Highlighting this heightened market activity, Peter shared some of Axial’s internal data showing a rapid rise in new deal submissions. In September over 1000 new deals were submitted to the Axial site, compared with a recent average of 750 submissions a month. Just-released data shows that October submissions grew again to more than 1200. No word yet on whether this will bridge the imbalance between buyers and sellers.
Axial recently completed an $11 million capital round with Comcast Ventures. Peter envisions this capital helping Axial become the go-to meeting place for all participants in middle market M&A. Their target community includes private and public companies as well as the professionals who advise them with regard to strategic relationships and transactions.
Although Peter was reluctant to share too much about his new product pipeline, he did share Axial’s vision for the role of technology in our industry. He firmly rejected the idea that robots and intelligent systems will replace smart and creative deal professionals in the M&A industry. Instead, he believes new systems and apps will make M&A professionals more effective by eliminating many of the more burdensome administrative tasks we now endure. My… read the rest
Categories: Axial, Banking, Business Acquisition, Business Sale, Focus Investment Banking, Focus Investment Banking LLC, Focus LLC, Innovation, Interviewees, Investment Banking, M&A, Mergers, Mergers and Acquisitions, Middle Market, Peter Lehrman, SaaS, Software
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Posted by John Slater on October 16, 2014
We’ve previously reported that 2014 has witnessed a strong market with record valuations for many middle-market merger and acquisition transactions. This market strength has coincided with a powerful boom in public equity valuations as the S&P tripled from its 2009 lows. As the public equity market takes a breather, it’s time to consider the possible impact of a more significant equity market correction on middle-market M&A.
First, let’s take a look at the reality of the current situation – we are not in bear market territory for the overall market. That requires a 20% decline in value for the major Averages and as of this writing (October 14, 2014) we have only seen a drop of approximately 6%-7% in the broad market indices (S&P and Dow). For some specific sectors, however, this situation is not so sanguine. The energy sector, as measured by the XLE Energy Sector SPDR is now down more than 20%, offsetting gains in other sectors from the reduction in energy prices.
We certainly don’t have a crystal ball: while there is plenty of reason to believe that the current sell-off will continue for a while, we can make a good case that the market will move to new highs following the current sell-off. This has happened before; following the collapse of the Russian Ruble in 1998 and amid fears that one of the leading hedge funds of the era, Long Term Capital Management, would fail, the S&P suffered a precipitous 20+% drop from about 1200 to 950 in the summer of 1998. Yet the market quickly recovered and over the following 19 months the S&P climbed approximately 60% to an all-time high of 1500 in March of 2000. A similar trajectory today would show the S&P at 2500 and the Dow at 22,000 by the spring of 2016.
With that … read the rest
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Posted by John Slater on September 23, 2014
In the next ten years, technology will transform virtually every industry in the world. There will be big winners and big losers. In order to stay competitive, middle market business owners must preempt these changes to their competitive positions and sustainability with smart timely action. Just look at the newspaper publishing industry to see how dramatic the impact can be.
Is the middle market M&A industry exempt from the winds of change? My partners would answer that this is a people business: nothing happens until someone makes a sale. That’s clearly right. Bringing the sale of entrepreneurial business to a successful close involves far more than numbers; human emotions often overrule financial logic. An understanding of psychology is as essential to the success of an intermediary as auctioneering and financial analysis.
The role of the deal professional will not disappear. Nevertheless, the way he or she applies professional skills to reach the ultimate goal of the transaction will be dramatically shaped by the technological revolution now underway in our industry. The successful investment banking firm of the next decade should have access to resources unimaginable to today’s practitioners. In addition to great people skills and financial knowledge, investment bankers will need to be adept at using numerous advanced technologies that will eliminate a great deal of drudgery and that will also accelerate the speed of transaction processes. In that hypercharged environment, the race may well go to the swiftest practitioners with access to the best of data and toolsets.
When I started my investment banking firm in 1985, the most advanced technology was my Compaq luggable (38 pound) computer and a magical program that enabled me to produce both written documents and spreadsheets from a single device. Over time we added desktop computers, a Microsoft network and access to quarterly CD-ROMs with data about … read the rest