Posted on July 17, 2014
Since the 1970s, many of us have feared the threat of inflation looming just around the corner. Within the past year, economists and central bankers have led us to believe the inflation dragon has been permanently relegated to a dark hole, never to rain fire on the kingdom of men. We’re told that deflation is the real threat and that governments can continually run large deficits without reawakening the dragon. Recently, reality has intervened, however, to remind us that economists and central bankers aren’t infallible. U. S. Core CPI and global consumer prices have taken a sharp turn upward.
While this rate of price increase will have profound implications for business owners if it continues, that’s a story for another day.
Categories: Andy Greenberg, Banking, Business Acquisition, Business Sale, Economic Growth, Economics, Federal Reserve, Focus Investment Banking, Focus Investment Banking LLC, Focus LLC, Inflation, Investment Banking, M&A, Mergers, Mergers and Acquisitions, Middle Market, Monetary Policy, Monetary Stimulus
Tags: Tags: Business Financing, Business Owners, Business Ownership Transition, Business Sale, Business Survival, Economic Stimulus, Economics, Federal Reserve, Inflation, Money Supply, Private Equity, QE2, QE3, Quantitative Easing, Small business, Transition Planning
Permalink | | Comments Off on A Whiff of Inflation – M&A Valuations Lead the Way
Posted on February 3, 2014
Not only were prices in relation to earnings before interest and taxes (EBITDA) at an all-time high, leverage used in the transactions reached record levels as well. To some extent this reflects a skewing toward larger transactions, but unquestionably we are now back to levels not seen since the run-up to the 2008 financial crisis. History tells us that such heady price levels will not last forever.
So what is in store for 2014? Does weakness in global stock markets mean that the game is over? Or can we look forward to a sustained period of high valuations? Is the past is to be our guide, the current favorable trends in the M&A market have some time to run. We previously indicated that we felt market strength could run through 2014. Recently we have received confirmation of that through a uniquely qualified source.
IntraLinks is the global leader in virtual data rooms with a 30% worldwide market share. For the uninitiated a virtual data room is an online space in which due diligence documents can be securely placed during an M&A process to facilitate due diligence and other deal related activities. As a result IntraLinks has a unique perspective on the merger and acquisition marketplace. They see deals that are moving toward closing as much as six months before any public announcement of the transaction is made. IntraLinks has aggregated this proprietary business intelligence to … read the rest
Categories: Business Acquisition, Business Sale, Focus Investment Banking, Focus Investment Banking LLC, Focus LLC, Investment Banking, M&A, Mergers, Mergers and Acquisitions, Middle Market, Small Business
Permalink | | Comments Off on 2013 Deal Valuations Reach All Time Highs; What’s in Store for 2014?
Posted on August 26, 2013
Q4-2012 was a heady time for the M&A business and almost every observer of the industry expected 2013 to be the year the deals business broke out of its five year post financial crisis funk. Best laid plans and all that — the low level of deal activity that has occurred to date in 2013 has both surprised and disappointed most industry participants. Yet there are signs that this could change.
During H1-2013, deal volume fell off significantly, reflecting a cleared pipeline after the year end burst. Fortune reported that global M&A announcements for Q2-2013 were the slowest since Q3-2009. The U. S. market fared comparatively better, with the dollar value of announced deals up 34% year to year in H1 2013. European activity on the other hand collapsed 43% with the Euro crisis and continental recession still in full swing at the time. Even the relatively high level of U. S. activity depended in great part on the announcement of two large deals (Heinz and Dell) at the beginning of the year. Without those announcements the U. S. market would have appeared lackluster at best.
The middle market companies we represent depend on both strategic and private equity buyers for business exits. Most M&A industry observers believe that bulging corporate coffers and slow, organic growth will eventually dictate a strong increase in strategic M&A activity. With the exception of a few target sectors, particularly IT related businesses, this corporate gold rush has yet to materialize. As a result, private equity will be a more important source of buyside demand, at least for the near future.
PitchBook publishes a comprehensive analysis of U. S. private equity activity. Their first-half summary tells the story:
“Dealmakers were optimistic heading into 2013, anticipating one of the most active years for private equity (PE) investment since the financial … read the rest
Categories: Business Acquisition, Business Sale, Entrepreneur, Focus Investment Banking, Focus Investment Banking LLC, Focus LLC, Globalization, Investment Banking, M&A, Mergers, Mergers and Acquisitions, Middle Market, Small Business
Permalink | | Comments Off on Mid-Year 2013 Middle Market M&A Review
Posted on July 2, 2013
(Click on Picture to Watch Video)
Last month Chairman Bernanke spoke and the markets reacted by dropping more than 5% in a few days. Clearly he must have shared some very bad news for business owners.
Actually not! Coming into the year many observers thought that the federal budget sequester would put the economy at risk of stalling at best and dropping back into recession at worst. Instead the Fed now foresees annual economic growth at 2-2.5% this year, moving to as much as 3.5% by 2015. And it’s the private sector that’s carrying the load, not government programs.
Let me say that again. The Fed now believes that growth is going to accelerate over the next several years. As a result the economy may not need so much artificial stimulus (QE) going forward. The economy is no longer digging a hole; we’re back to building a foundation of real economic growth.
What does this mean for the deal business and for private companies considering M&A or corporate finance transactions? Bottom line: there is going to be much more demand for capital to fund growth. Unless the banks step up to the plate, which we believe is unlikely, this capital must come from private lenders and equity providers.
The good news is that there is a great deal of financial market capital available to meet this need. We just closed a mezzanine financing that gave us a good window into the market’s current appetite. Over the past few years, major investors have made significant financial commitments to entities designed to fill the void left by banks which have abandoned their commercial lending franchise. As a result today there are numerous private debt providers seeking opportunities to provide senior, hybrid and mezzanine capital to private companies. Where equity capital is needed, private equity groups are … read the rest
Categories: Alternative Financing, Asset Based Loans, Bank Credit, Bank Loans, Banking, Banks, Business Acquisition, Business Sale, Commercial Loans, Community Banks, Economic Growth, Economic Stimulus, Economics, Federal Reserve, Fiancial Regulation, Financial Services, Focus Investment Banking, Focus Investment Banking LLC, Focus LLC, M&A, Mergers, Mergers and Acquisitions, Monetary Stimulus, Private Equity, Revenue Based Loans, Shadow Banking, Tranche B Financing
Permalink | | Comments Off on What Does the Fed’s Prediction of Increasing Growth Mean for Business Owners?
Posted on March 7, 2013
Business owners time their exits for many reasons: health, retirement planning, availability or lack of family successors, competition, technology change, and many more. Yet, overwhelmingly, the question we are most often asked as a financial advisor to entrepreneurial companies is: “What’s my business worth?”
All things being equal, a rational business owner will presumably choose to sell at a point of optimal value for his or her interest in the firm. For the reasons outlined below, we believe that the next eighteen months may see the highest pricing for good middle market companies in the thirty years I have been in the M&A advisory business.
Historically, the market for mergers and acquisitions is one of the most volatile on the globe. In our experience, the market is very cyclical with three to four years separating peaks and troughs and six or seven years to cover a full cycle. The last bull cycle for M&A peaked in 2006-2007 and the market trough was witnessed in 2009-2010. Moderate improvement was witnessed in 2011 and 2012, with Q4 2012 being particularly strong. 2012 was FOCUS’s best year since 2007.
Source: Barclays and Business Insider
2013 started with a bang with large announced deals for Dell, Heinz, and Virgin Media just to name a few. Many observers predict these are not isolated deals and 2013 will witness a resurgence in M&A activity. While the M&A market could be derailed by a major decline in the equity markets or further chaos in Washington, we believe the odds favor a strong market for sales of middle market companies through sometime in 2014. By then a correction will be overdue and the likelihood of a cyclical bear market in equities may become increasingly high. Generally, a serious decline in the stock markets leads to a precipitous fall in M&A activity.
The … read the rest
Categories: Business Acquisition, Business Sale, Entrepreneur, Focus Investment Banking, Focus LLC, Investment Banking, M&A, Mergers, Mergers and Acquisitions, Middle Market, Private Equity, Small Business
Permalink | | Comments Off on Will 2013 See Record Valuations for Middle Market Business Sales?
Posted on March 3, 2013
Authored by John Mason – Originally Published at Seeking Alpha – Reprinted with Authors Permission
Behind almost all of the economic problems we are now facing is the need for economic restructuring. The world needs to move on and politicians and others are fighting to keep things as they are.
To me, this is one of the reasons why the common liberal/Keynesian solution to our current difficulties is more government spending, more stimulus. The common refrain is to push things right back into where they were. Push people back into construction jobs; push workers back into the auto plants; and push the untrained into information technology. Unfortunately, the world has changed. We cannot keep trying to push people back into the jobs they once held, or, push people into jobs they have not been trained for.
Everyone is excited about the boom in mergers and acquisitions. I have been among those, like James Less, Vice Chairman of JPMorgan Chase & Co. who said, “The Goldilocks era of post-crisis M&A has never been an if, but a when.”
For two years or more, I have been writing that the larger, better off companies, the larger money managers, are just waiting for the right environment to begin the acquisition binge. In terms of high profile the Dell (DELL) deal kind of kicked things off.
In the past two weeks, there have been at least four major deals announced. These have included the Dell buyout; the Comcast (CMCSA)(CMCSK) acquisition of GE’s (GE) stake in NBC Universal; the acquisition of American Airlines (AAMRQ.PK) by US Air (LCC); the Berkshire (BRK.A)(BRK.B)/3G Capital acquisition of H. J. Heinz Co. (HNZ); and the Liberty Global (LBTYA)(LBTYK)(LBTYB) … read the rest
Categories: Alternative Financing, Asset Based Loans, Bank Credit, Bank Loans, Banks, Business Acquisition, Business Sale, Commercial Loans, Community Banks, Derivatives, Fiancial Regulation, Investment Banking, John Mason on Banking, M&A, Mergers, Mergers and Acquisitions, Middle Market, Revenue Based Loans, Shadow Banking, Tranche B Financing
Permalink | | Comments Off on Coming M&A Boom Will Not Cure Real Economy’s Ills
Posted on February 17, 2013
Authored by John Mason
“Bain & Company, the consultancy, forecasts a ‘superabundance of capital’ between now and 2020. In a recent report it argued that markets would be distorted by surpluses in Asian and Middle Eastern countries and private investment funds.
“It estimates that the world’s financial assets will outbalance its domestic product by ten to one – it will have $900 trillion of financial assets compared with $90 trillion of GDP – by 2020. The result will be a ‘world that is structurally awash in capital’ chasing few opportunities.
“‘Capital superabundance will increase the frequency, intensity, size and longevity of asset bubbles. The propensity for bubbles to form will be magnified as yield-hungry investors race to put capital into assets that show the potential to generate superior returns,’ the report concludes.”
These words from John Gapper appeared over the weekend in the Financial Times of London.
The signs of this possibility, according to Gapper, are two: first, the presence of lots and lots of cash on the balance sheets of corporations, hedge funds, and other financial interests; and second, the apparent movement in the buyout and acquisition market that reflects a growing belief among international investors that the US economy is stabilizing, the eurozone crisis has reached its final stages, and that elsewhere in the world economic recovery continues and capital flows are increasing. Apparently with these events, the desire to take on more risk has risen.
I have written for three years or so about the build up of cash on the balance sheets of corporations. Companies that never had issued long-term debt before took advantage of exceedingly low interest rates to increase their cache of money. The basic reasoning behind this buildup was that these financially sound firms would “make a killing” as the United States economy began to grow faster … read the rest
Categories: Banking, Business Acquisition, Business Sale, Economic Growth, Economic Stimulus, Economics, Federal Reserve, Financial Services, Inflation, John Mason on Banking, M&A, Mergers, Mergers and Acquisitions, Monetary Policy, Monetary Stimulus, Shadow Banking
Permalink | | Comments Off on Will a Superabundance of Capital Lead to an M&A Boom?
Posted on February 9, 2013
Authored by John Mason
Things are changing in the financial markets. Financial institutions are starting to make money again in mortgages. Money market funds are “flush with cash.” Collateralized Debt Obligations (CDOs) and Collateralized Loan Obligations (CLOs) are staging a comeback.
And, now there is the $24 billion deal by Michael Dell to take his company private. The interpretation of this transaction that I am most interested in is the one being mentioned in almost all the stories coming out in the press: “This is the largest corporate privatization since the financial crisis and the largest tech buyout ever.”
I am not interested so much in whether or not Dell, Inc. (DELL) is eventually saved. What I am interested in is what is happening in finance. It appears as if money is being mobilized again.
Goodness knows, the Federal Reserve has done just about everything it can to push money out into the economy. Comedians have gotten serious about QE1 and QE2 and QE3 … and QEfinity!
It has only been in the past six months or so that there has been any evidence of funds creeping out of the commercial banking system into other parts of the economy. But now, evidence seems to be growing of money flowing into other parts of the economy. This latest transaction, the creation of a large buyout deal, with the growing possibility that others are thinking about more deals, or even mergers and acquisitions, is very encouraging.
Over the past couple of years, myself and others have wondered about all the cash being built up in the coffers of large corporations. It seemed as if these large organizations were piling up cash hoards in preparation for moving in on less well-off institutions and making deals while the getting was good and while interest … read the rest
Categories: Bank Credit, Bank Loans, Banks, Bonds, Business Acquisition, Business Sale, Commercial Loans, Community Banks, Derivatives, Economic Growth, Economic Stimulus, Economics, Euro, Federal Reserve, Fiancial Regulation, Inequality, Inflation, M&A, M3, Mergers, Mergers and Acquisitions, Monetary Policy, Monetary Stimulus, Private Equity, Shadow Banking
Permalink | | Comments Off on Dell Deal: A Sign Of The Future?
Posted on October 2, 2012
Recently the Wall Street Journal published an article entitled “The Economy Stole My Retirement”. The subcaption reads “Nest Eggs In Peril For Millions Of Entreprenuers in Their 60s And 70s Who Can’t Sell Their Companies”.
Over the years we have met many business owners who just assumed that if they waited long enough a perfect buyer would come along, offer them a great price for their business and pave the way for a timely and comfortable retirement. According to the Wall Street Journal article “Boomer entrepreneurs grew up believing in the American dream that you start a business and eventually sell it for a good return or pass it on to your kids.”
With stagnant revenues and declining profits the norm for many small businesses since the financial crisis, the sad fact is that for many business owners there just won’t be a buyer. Even worse far too many business owners who receive a serious offer for their firms will make the fatal mistake of assuming that, if they received one good offer, they will receive more and have the luxury of waiting until sale is more convenient or the price is higher. Many of those owners will regret that decision dearly.
After three+ years of economic recovery, we are at a point in the financial cycle that may soon provide many Baby Boomer business owners with the best opportunity they may see for selling their businesses at a good valuation. For good companies in many industries, earnings have in fact recovered significantly. In favored sectors such as aerospace manufacturing and various technology disciplines, buyers are willing to pay multiples for top performers that compare favorably with those of the mid 2000s when large middle market firms routinely saw offers in high single-digit or even double digit multiples of EBITDA.
Memories … read the rest
Posted on August 23, 2012
Everyone loves small business.
At least that’s what the politicians want you to believe.
The reality is different. Small business is under attack from every quarter. Government policies favor large banks and large multinational businesses. Credit is tight and the banks favor the larger borrowers. Increased regulations stifle innovation and protect large incumbents that can afford teams of lawyers and lobbyists.
What’s the little guy to do? Waiting for the politicians to change the system is wishful thinking. Smart business people find ways to prosper in every environment.
And the current environment is not great for small firms. The Federal Reserve Senior Loan Officer survey has recently confirmed what we have suspected for some time: banks have been more generous in easing underwriting requirements for larger companies than they have been for smaller companies. Paynet, which maintains data on 17 million small business loans, reports that lending conditions for small firms have deteriorated in recent months after two years of bounce back from the 2009 bottom. For additional details go to the full article on Capital Matters.
Financial Market Risk
And there’s a risk that things could get a lot worse for businesses that don’t tie down their financing soon. We just published an article on Seeking Alpha that has received a great deal of attention with more than 14,400 page views so far. Our thesis is that the Fed’s zero interest rate policy has led to a situation where longer term treasury bonds are trading at yield levels that provide a spread to inflation far below the historical norms. Markets eventually return to their mean and often overshoot it so there is growing risk in the longer term debt market. Our concern is two-fold. First, that individual investors need to be aware of the potential impact of this return to the mean … read the rest
Categories: Alternative Financing, Asset Based Loans, Bank Credit, Bank Loans, Banking, Banks, Bonds, Business Acquisition, Business Sale, Commercial Loans, Community Banks, Derivatives, Economic Growth, Economic Stimulus, Entrepreneur, Federal Reserve, Financial Services, Inflation, M&A, Mergers, Mergers and Acquisitions, Monetary Policy, Monetary Stimulus, Revenue Based Loans, Small Business, Ten Year Bond, Thirty Year Bond, Treasury Bonds, Two Year Bond
Tags: Tags: Asset Based Lenders, Asset Based Lending, Asset Based Loans, Bank Lending, Bank Loans, Banks, Business Acquisition, Business Financing, Business Owners, Business Sale, Community Banks, Derivatives, Economic Stimulus, Economics, Entrepreneurs, Federal Reserve, Inflation, M&A, Mergers, Money Supply, QE2, QE3, Quantitative Easing, Senior Debt, Small business, Treasury
Permalink | | Comments Off on August 2012 – The Future of Small Business Financing