Knowing When to Fold ‘Em

Posted on August 26, 2014

You’ve got to know when to hold ’em
Know when to fold ’em
Know when to walk away
Know when to run
You never count your money
When you’re sittin’ at the table
There’ll be time enough for countin’
When the dealin’s done

If you’re a Baby Boomer, you remember well hearing Kenny Rogers’ iconic hit, The Gambler.  If you’re like me, you’ve often wondered how Kenny’s advice might be applied to important business and investment decisions.  If you’re a business owner who has survived our generation’s version of the Great Depression, you need good counsel more than ever.

Perhaps you’re feeling pretty good about your prospects – business is improving and profits are as high as you’ve ever enjoyed.  Is now the time to go all in? Or is it time to cash your chips and leave the table for new faces?  The story below presents a dilemma faced by many business owners.  Names, industry identifiers and other client specific facts have been changed to protect confidentiality, but the dilemma described below is all too real and immediate for many business owners.

Our friend Frank Mayfield (not his real name) recently approached us with a dilemma.  Frank founded Limbtronics, a medical device manufacturer, thirty years ago to provide leading orthopedic doctors with specialized tools for performing innovative surgeries on damaged joints and ligaments.  Over time, he expanded into manufacturing surgical implants for complete joint replacements.  The business has been good to Frank and in 2013 Limbtronics had a record year with revenue of $28 million and pretax profits of more than $5 million.

Over the past fifteen years, Frank has seen several of his competitors acquired by global orthopedic giants such as Medtronic, Stryker, Smith and Nephew, and others.  He’s been approached a number of times, but never felt the time was … read the rest

Is This The Summer of 2007?

Posted on August 13, 2014

(Originally Published on Axial Forum)

The summer of 2007 was a great moment.  We were enjoying one of the strongest booms in both the debt and equity markets that any of us had experienced in our lifetimes.  Just the sort of markets we’ve been enjoying for the past year or so.  The leveraged lending markets have fully recovered from their low point following the market crash of 2008 and 2009 and volume reached a new high in 2013.  While market activity declined slightly in the first half of 2014 from the prior year, current activity levels remain very high.

The question of the day:  Are we, like Bill Murray in Groundhog Day, destined to endlessly repeat this cycle with limited ability to prevent a repeat of the disaster that befell us in 2008-2009.

We’ve just interviewed one of the world’s leading authorities on the private debt markets to help us better understand the current state of the debt markets and what this portends for the level of deal activity going forward.  Randy Schwimmer was a pioneer in developing middle market loan syndication markets in the 1980s, leading the effort for what is now J.P. Morgan and later BNP Paribas.  With a small group of partners he formed Churchill Financial in 2007.  They were successful in raising a $1.2 billion loan fund before the financial crash closed the markets and were left with more than $500 million of dry powder after the crash.  Leveraging this success, they were acquired by Carlyle in 2011 where they began building that firm’s private debt business.

Randy has now left Carlyle to restart his weekly publication covering the private debt markets, which is now called The Lead Left.  This has been a must read for years for anyone who wants to understand this arcane and somewhat opaque, … read the rest