One Secret

top secret

In a previous life I was a wealth manager – a really good one.  I rose to the top of my profession, managing about 125 people and over $6 billion in aggregate balances at the Private Bank at Bank of America.  During that time, I advised many business owners to consider selling their businesses or at least a part of them because in the 2000 to 2007 timeframe, multiples were at the peak and the markets were red hot.  Today the markets are white hot and multiples are even higher.So here’s my One Secret: Sell when the markets are high.

Sure, you can grow to $100 million or $1 billion with enough time and enough cash.  Projections are always linear.  It is very difficult to model exogenous events like financial market corrections.  Getting the timing right is even more problematic and therein lies the challenge: we don’t get to pick the timing of exogenous events.  Business owners who did not follow the counsel they had paid to receive had to endure nearly a decade of struggle to get back to pre-recession levels in most cases.  Many less fortunate businesses failed.  A few slipped through unscathed but still could not monetize because there were simply very few buyers in the market for healthy, thriving companies.  The financial community binged on the carcasses of failed and failing businesses, paying deeply distressed prices.

So I will grant you that my secret isn’t a very good one.  In fact mostpeople wouldn’t technically consider it a secret.  Sometimes the best answers aren’t derived from an artificial intelligence drive algorithm.  Sometimes they come in the form of an email or a phone call from an associate at Vertical Capital Advisors asking, “Have you considered…?”  We have run the algorithms to find your company, we have done our research and there is a reason we are reaching out.

 

 

* * *

At Vertical Capital Advisors, we are most often engaged by industry leaders to be the bridge to the capital they need to fuel growth.  We start with great leaders at great companies that have compelling, profitable business plans where the only missing ingredient is capital.

ABOUT VERTICAL

Vertical Capital Advisors is an Atlanta-area business advisory firm built on creating tangible value for our clients, serving clients in just about every industry.  Our clients are both capital growers and capital allocators.  How can Vertical help your firm maximize value?

Joe Briner
Managing Director
Vertical Capital Advisors LLC
briner@verticalcapitaladvisors.com
866-912-9543 ext 108
678-591-0273

No Deals? Here’s why. (Spoiler Alert: M&A Multiples at Peak)

Our friends in the private equity community tell us daily how hard it is for them to find good, well-priced deals.  Some of them are even straying from their core to seek deals with a “story” (read: problem).  Here’s why:

US M&A

According to PitchBook, the multiples being paid for businesses are at the post-recession peak at 10.8x EBITDA.  Keep in mind that this means many deals traded well over 11x EBITDA.

The current market is the very definition of a seller’s market.

If you successfully navigated your business through the choppy waters of 2008-2012 or if you started an enterprise more recently than that, now is the time to engage with Vertical Capital Advisors to tap into our disciplined approach of preparing your business for sale and obtaining peak value with the fewest conditions.

 

* * *

At Vertical Capital Advisors, we are most often engaged by industry leaders to be the bridge to the capital they need to fuel growth.  We start with great leaders at great companies that have compelling, profitable business plans where the only missing ingredient is capital.

ABOUT VERTICAL

Vertical Capital Advisors is an Atlanta-area business advisory firm built on creating tangible value for our clients, serving clients in just about every industry.  Our clients are both capital growers and capital allocators.  How can Vertical help your firm maximize value?

Joe Briner
Managing Director
Vertical Capital Advisors LLC
briner@verticalcapitaladvisors.com
866-912-9543 ext 108

 

 

3 Tactics Amazon CEO Jeff Bezos Uses to Make High-Velocity Decisions – Even When He Disagrees With the Decision

Amazon recently released Jeff Bezos’ 20th annual letter to shareholders (https://www.sec.gov/Archives/edgar/data/1018724/000119312517120198/d373368dex991.htm).  His letters are always packed with practical information and this one had some excellent points.

Jeff writes:

“To keep the energy and dynamism of Day 1, you have to somehow make high-quality, high-velocity decisions. Easy for start-ups and very challenging for large organizations. The senior team at Amazon is determined to keep our decision-making velocity high. Speed matters in business – plus a high-velocity decision making environment is more fun too. We don’t know all the answers, but here are some thoughts.

First, never use a one-size-fits-all decision-making process. Many decisions are reversible, two-way doors. Those decisions can use a light-weight process. For those, so what if you’re wrong? I wrote about this in more detail in last year’s letter.

Second, most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow. Plus, either way, you need to be good at quickly recognizing and correcting bad decisions. If you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.

Third, use the phrase “disagree and commit.” This phrase will save a lot of time. If you have conviction on a particular direction even though there’s no consensus, it’s helpful to say, “Look, I know we disagree on this but will you gamble with me on it? Disagree and commit?” By the time you’re at this point, no one can know the answer for sure, and you’ll probably get a quick yes.

It’s a genuine disagreement of opinion, a candid expression of my view, a chance for the team to weigh my view, and a quick, sincere commitment to go their way.”

Jeff Bezos is passionate about remaining a Day 1 company because “Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death” and “Day 2 companies make high-quality decisions, but they make high-quality decisions slowly.”

Your future self may not agree with every decision you make today so knowing that the best and brightest often make decisions with only 70% of the information they would like and many decisions are reversible (you can go back out the door you came in) form a sound safety net for just about any decision you will make and should give you the confidence to move forward toward your goals and dreams.  And in a business setting, having the option of saying “I disagree but will fully commit to your plan” empowers others to achieve what for you, with your individual experiences, talents and lenses through which you view the world, might be impossible.

Remember, “you need to be good at quickly recognizing and correcting bad decisions”.  Whether you agreed with the decision or not, your future self needs to be adept at spotting bad decisions, rapidly course correcting, and learning from them.  In our business we have done team post-mortems to dissect the causes of failures, ensuring that the entire team benefits from the learnings.  We all grow stronger and better at our roles when we share our successes and our failures.  We use a kaizen process that keeps the failures few and small and yields larger successes with increasing frequency.

 

* * *

At Vertical Capital Advisors, we are most often engaged by industry leaders to be the bridge to the capital they need to fuel growth.  We start with great leaders at great companies that have compelling, profitable business plans where the only missing ingredient is capital.

ABOUT VERTICAL

Vertical Capital Advisors is an Atlanta-area business advisory firm built on creating tangible value for our clients, serving clients in just about every industry.  Our clients are both capital growers and capital allocators.  How can Vertical help your firm maximize value?

Joe Briner
Managing Director
Vertical Capital Advisors LLC
briner@verticalcapitaladvisors.com
866-912-9543 ext 108

Puerto Rico: Beautiful but bankrupt. Who’s next?

The US Territory of Puerto Rico, an island of striking beauty and history, filed for bankruptcy protection on May 3, the largest municipal bankruptcy in US history.  The filing involves $74 billion in bonds and another $49 billion in pension obligations, over $40 billion of which is unfunded.

We visited Puerto Rico last year while Congress was debating the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA).  Prior to President Obama signing the Act into law in 2016, Puerto Rico had no mechanism for filing for protection from creditors.

While visiting Puerto Rico, we struck up conversation with many locals who proudly showed the numerous government housing options, most of which included free electricity, water and cable TV (don’t know why cable TV was such a big deal but it is a source of great pride among locals).  They boasted of government unemployment benefits for nearly half of the working-age population and a normal retirement age in one’s early 50’s.  It was clear that this model is not sustainable but that did not seem to faze the locals – it is just the way their economy is set up and they like it that way.  They also had many stories of politicians going to jail for corruption.  Correlation between giving away the key to the treasury and going to prison?  We don’t know but seeing politicians of the opposite party being carted off to prison seemed to be a national pastime of sorts.

PR flag

The NY Times reports marches BEFORE Puerto Rico’s bankruptcy filing against austerity that is surely coming.
nytimes.com/2017/05/03/business/dealbook/puerto-rico-debt.html

Who’s Next?

George Mason University ranked all 50 states for solvency in a June 2016 study (https://www.mercatus.org/statefiscalrankings) and the weakest states are:

Connecticut #50Map of US
Massachusetts #49
New Jersey #48
Illinois #47
Kentucky #46
with Hawaii and California not far behind at #45 and #44, respectively.

Forbes, JPMorgan and Price WaterhouseCoopers rank them similarly (www.forbes.com/sites/johnmauldin/2016/07/28/dont-be-so-sure-that-states-cant-go-bankrupt/#40fc3fa72f2d).

What does this mean?

It means that even though markets have been topping off at new highs and world wealth has never been greater, fundamental structural economic fault lines are growing.  And with imminent insolvency of entitlement programs like Social Security and Medicare, the US government has got to figure out a way to avoid a fate similar to Puerto Rico.  It means we can’t keep giving everything away before creditors force us to give everything up.  It means a little discomfort now to avoid incredible pain and dislocation later.  Can the US Congress get it right during the Trump years?

 

* * *

At Vertical Capital Advisors, we are most often engaged by industry leaders to be the bridge to the capital they need to fuel growth.  We start with great leaders at great companies that have compelling, profitable business plans where the only missing ingredient is capital.

ABOUT VERTICAL

Vertical Capital Advisors is an Atlanta-area business advisory firm built on creating tangible value for our clients, serving clients in just about every industry.  Our clients are both capital growers and capital allocators.  How can Vertical help your firm maximize value?

Joe Briner
Managing Director
Vertical Capital Advisors LLC
briner@verticalcapitaladvisors.com
866-912-9543 ext 108

 

 

 

 

Love at First Sight: M&A Activity Continues Slowdown in 1Q2017

S&P’s Capital IQ market intelligence report reveals that the slowdown in M&A activity that started in 2016 continued into the first quarter of 2017 in terms of the number of closed deals (excluding oil & gas and real estate).

transactions by deal size transactions by deal size 2017The dollar value of closed M&A deals managed a slight 2% increase, however:

m and a annual trends

 

We hear private equity groups and other capital allocators bemoan the lack of quality deal flow while we work hard every day to close that gap.

One interesting observation from the inside is that virtually every PEG we interact with that has a presence in Healthcare Services and Financial Services informs us that they are aggressively seeking quality acquisition candidates yet these two sectors show the largest year over year declines:

us manda activity by sector

The schizophrenic market conditions continue.  PEGs want deals yet many have become incredibly fastidious in their analysis of quality deals, bouncing them for reasons that are often difficult to articulate or that ordinarily would not be cause for concern beyond the normal due diligence processes.

We still consider the Healthcare and Financial Services sectors to be in high demand based on our work with capital allocators.  The current love at first sightmarket requires much more marketing than the average deal typically requires.  It has never been easy to place a deal but in the present market, if it is not love at first sight, we are finding that it is requiring two to three times longer to find the right partner and we have to market the deal to four to five times the number of potential partners than we market the typical deal to.

 

 

* * *

At Vertical Capital Advisors, we are most often engaged by industry leaders to be the bridge to the capital they need to fuel growth.  We start with great leaders at great companies that have compelling, profitable business plans where the only missing ingredient is capital.

ABOUT VERTICAL

Vertical Capital Advisors is an Atlanta-area business advisory firm built on creating tangible value for our clients, serving clients in just about every industry.  Our clients are both capital growers and capital allocators.  How can Vertical help your firm maximize value?

Joe Briner
Managing Director
Vertical Capital Advisors LLC
briner@verticalcapitaladvisors.com
866-912-9543 ext 108

 

 

 

 

The Owner’s Dilemma

My partner David Esmie just coined a new phrase: The Owner’s Dilemma.

We were talking about Venezuela’s Supreme Court seizing power from the National Assembly in a continuation of the socialist movement started under Hugo Chaves and continued under his successor, the lesser-talented, ham-fisted Nicolas Maduro.

venezuela

Source: http://tinyurl.com/mawl9mr

I mentioned to David that Hugo had nationalized many industries, including the cash cow oil & gas industry and, of particular interest to me due to my past investments in a tiny gold miner Crystallex, the mining industry.  Chavez and Maduro pander to the masses that foreign corporations are raping the natural resources from the country, impoverishing the great and free citizens of Venezuela.  Money that should be lining the pockets of every Venezuelan instead are flowing to profiteering foreign capitalists.  Crystallex fought in the Venezuelan courts, and won, to have their contracts with the Venezuelan government upheld.  Crystallex had invested $2 billion developing gold mines and told the new regime, “If you nationalize, we will walk.  You do not have the expertise required to run the Los Cristinas mine”.

Hugo nationalized, Crystallex walked and Venezuela now owns 100% of a giant hole in the ground.  Not an ounce of gold has been mined.  Not only does Venezuela not have the expertise to run a $2 billion gold mine, with the crash in oil process, they no longer have the capital to even buy the expertise.  Citizens wait in long lines to buy necessities of life and there are constant marches and riots.

David commented, “That’s the owner’s dilemma – once you own it, you own it.  You get 100%.  You’ve got no one to blame if it doesn’t work out the way you want”.

So on Wednesday Venezuela’s Supreme Court dissolved the opposition-led National Assembly, consolidating near-dictator power in strongman Maduro.  He now “owns” the problems bludgeoning the Venezuelan citizenry.

Maduro continues to round up scores of opposition leaders on charges of treason.  I had lunch two years ago in Miami with the publisher of a Venezuelan newspaper who fled to the U.S. to avoid arrest and imprisonment at the hands of Chavez.  He would have been long forgotten by now had he stayed, if he even survived.

People often like to romanticize the “dreamers”, the Hugo Chavezes, the Nicolas Maduros and Che Guevaras who “fight” to give the means of production to the working man.  The problem is that unless you have a plan and the means to make those gifts productive, no one wins, everyone loses, prosperity sublimes.

The corollary in business (in the event that this is your first introduction to business principles) is that businesses with exceptional leaders, great great leadersbusiness plans and relevance in the market succeed – – they thrive.  In business you can’t survive by proclaiming your dominance and imprisoning your competition, no matter how much you may wish it to be so.

At Vertical Capital Advisors, we are most often engaged by industry leaders to be the bridge to the capital they need to fuel growth.  We start with great leaders at great companies that have compelling, profitable business plans where the only missing ingredient is capital.

 

ABOUT VERTICAL

Vertical Capital Advisors is an Atlanta-area business advisory firm built on creating tangible value for our clients, serving clients in just about every industry.  Our clients are both capital growers and capital allocators.  How can Vertical help your firm maximize value?

Joe Briner
Managing Director
Vertical Capital Advisors LLC
briner@verticalcapitaladvisors.com
866-912-9543 ext 108

 

 

Black Swan Sighting?

black swan

Today marked the first significant drop in broad market indices in the Trump era.

Since the election, the S&P 500 has climbed more than 11%, the Dow Jones Industrial Average (^DJI) has gained 14% and the Nasdaq Composite Index (^IXIC) has climbed about 13.6% during the same period and the S&P 500 and Dow had now gone 109 days without a 1% decline according to Yahoo Finance, a record not achieved since 1995.

Today, all of the broad market indices dropped by more than 1%:

markets march 2017

Source: Yahoo Finance

 

The real story is what has been happening behind the scenes.  As the markets proceeded on a three-month tear, money managers have been allocating significantly more money to protect their gains.  The price of the CBOE Skew Index, a measure of the price of out of the money put options, has soared while market volatility has decreased – a diverging trend that is not typical and a possible sign of imminent volatility in the near future.  In layman’s terms, professional investors are increasing willing to pay much more to protect against downward stock prices.  You can see the increasing cost of Skew puts (white line) compared to overall market volatility (blue line) in the Bloomberg screenshot below:

tail risk hedging

Some are calling this a precursor to a Black Swan event like the one that heralded the last recession.

What does this mean to you?  Bond prices will likely rise and foreign stock markets will likely take a bigger percentage dive because when America sneezes, Asia often gets a typhoon and the rest of the world catches a cold.  Asia reacts first because their markets are the first to open, followed by Australia, the Middle East then Europe and South America.  (Absent any buying signals of which there are none at present).

What should you do?  As an investor, nothing.  You did an excellent job of creating a well-diversified and down-side protected portfolio with you investment adviser so if we do have a setback in the market, wait it out and look for buying opportunities when the dust settles.

As a business owner, the answers are more complex.  If this is truly a black swan, a repeat of 2008-2012 or worse, there are few safe havens.  If you have kept up with the Vertical Capital Advisors blog posts over the past year, you have been steadily building your cash hoard and your war chest will enable you to secure a dominant position in the markets you serve.

baron rothschild

As we published on August 3, 2016, you can channel Baron Rothschild and “Buy when there’s blood in the streets, even if the blood is your own”.

 

 

 

 

ABOUT VERTICAL

Vertical Capital Advisors is an Atlanta-area business advisory firm built on creating tangible value for our clients, serving clients in just about every industry.  Our clients are both capital growers and capital allocators.  How can Vertical help your firm maximize value?

 

Joe Briner
Managing Director
Vertical Capital Advisors LLC
briner@verticalcapitaladvisors.com
866-912-9543 ext 108

ACG CapConn – You had To Be There Live

Yesterday was the final day of the annual pilgrimage to Atlanta for over a thousand finance professionals from across the country, all converging for the pinnacle event for professionals focused on helping businesses grow and thrive – the Association for Corporate Growth Capital Connection or ACG CapConn.

#ACGATL
#CapConn2017
https://www.facebook.com/atlantaacg

atl

With over 200 exhibitors plus over 500 other capital providers in attendance, all hungry for equity, mezz and debt deals, David Esmie and I were in heaven for the past three days, starting with the private gatherings on Tuesday followed by two days of intensive networking and working sessions on Wednesday and Thursday.  Here’s a picture of me with long-time friend Gibby Thrift after he won a major award at the Chatham Capital soiree on Tuesday night at Ventana’s:

 

CapComm

 

Our feet were exhausted after three days of non-stop networking but the investment of time and energy was richly rewarded with numerous new relationships with new funding partners eager to see the client projects we are currently working on.

 

 

ABOUT VERTICAL

Vertical Capital Advisors is an Atlanta-area business advisory firm built on creating tangible value for our clients, serving clients in just about every industry.  Our clients are both capital growers and capital allocators.  How can Vertical help your firm maximize value?

 

Joe Briner
Managing Director
Vertical Capital Advisors LLC
briner@verticalcapitaladvisors.com
866-912-9543 ext 108

 

 

 

Mark Your Calendar: The United States of COW coming soon!

Yes California #Calexit

Mark your calendar for July 25.  If 585,407 or more Californians sign the Yes California petition by July 27, there will be a statewide vote in November which would establish an independence plebiscite on March 5, 2019.

How far behind can Oregon and Washington possibly be?  And why not form a new

United States of COW – California, Oregon and Washington?

The Yes California organization has enumerated their reasons for independence on their website: http://www.yescalifornia.org/.  Their points are quite compelling:

  1. PEACE AND SECURITY
  2. ELECTIONS AND GOVERNMENT
  3. TRADE AND REGULATION
  4. DEBT AND TAXES
  5. IMMIGRATION
  6. NATURAL RESOURCES
  7. THE ENVIRONMENT
  8. HEALTH AND MEDICINE
  9. EDUCATION

They state: Yes California is the nonviolent campaign to establish the country of California using any and all legal and constitutional means to do so. We advocate for peaceful secession from the United States by use of an independence referendum to establish a mandate, followed by a nationwide campaign to advocate in support of a constitutional exit from the Union.

As a management consulting firm, if California were to hire us to advise them on this endeavor, this would be the simplest engagement ever.  We are based in Atlanta.  Sherman did some pretty horrible things that leave an open scar to this day.  The census of 1860 put the US population at 31 million.  About 620,000 soldiers died in the Civil War.  Census.gov/popclock says we have 324,456,571 people as of this writing.  If an equivalent number of soldiers perish in the Second Civil War triggered by a Calexit, that translates to 6,397,641 lives.  Though you may wish a non-violent exit, guess what, that book is written and you will not like the ending.

Our advice: work within the system California, heed the words of our last president: “If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business – you didn’t build that. Somebody else made that happen. The Internet didn’t get invented on its own. Government research created the Internet so that all the companies could make money off the Internet.  The point is, is that when we succeed, we succeed because of our individual initiative, but also because we do things together.”

 

 

ABOUT VERTICAL

Vertical Capital Advisors is an Atlanta-area business advisory firm built on creating tangible value for our clients, serving clients in just about every industry.  Our clients are both capital growers and capital allocators.  How can Vertical help your firm maximize value?

Joe Briner
Managing Director
Vertical Capital Advisors LLC
briner@verticalcapitaladvisors.com
866-912-9543 ext 108

Jimmy Buffett sings “Ringling, Ringling, fading away.” Who’s next?

As we watched an episode of House Hunters International about the town of Gangi on the Italian island of Sicily, the song Ringling, Ringling from Jimmy Buffett’s 1974 album Living and Dying in ¾ Time kept playing in my head:

Ringling, Ringling, fading away, only 40 people living there today, the streets are dusty and the bank has been torn down, it’s just a dying little town… I wonder how many people will be there a year from today

Since 1970 the population of Gangi has shrunk from 17,000 to 8,000.  Gangi, too, is fading away.  The 1,100 year old town is selling homes for €1.  Gangi exists at the convergence of a falling birth rate and the human migration pattern from rural, agrarian economies to urban, centralized economies.  In fact, only 105 countries out of the 224 tracked in the CIA World Factbook[i] exceed the 2.1 “population replacement” birth rate required to maintain a population.  The global birth rate map is fascinating – take a look:

global birth rate

If your country is blue, it is shrinking.  In the short-run, the only thing that can change that fact is migration from one of the more brightly-colored countries on the map.  What this means for the established, shrinking western economies is we had better be prepared for a large influx of people who don’t look or talk like the majority of the current population to become our neighbors and, for the baby boomers, caregivers as we age.

In the Atlanta area where Vertical Capital Advisors is based, we are again experiencing a building boom.  At business gatherings the question is often asked where are all the people coming from to occupy all of these new homes and offices?  While it is true that our national economy is not growing through natural births, we do continue to see urbanization of the population as younger, more mobile people opt for jobs and homes in the urban-centric service economy where one can readily buy Chik-fil-A or Krispy Kreme donuts on the way to work.  And when people immigrate to the U.S., they too tend to live and work in the population centers.

Small, rural towns like Ringling and Gangi are likely to continue fading away throughout the developed world, even if countries adopt open immigration policies.

Gangi – one has to wonder how many people will be living there one year from today.

 

ABOUT VERTICAL

Vertical Capital Advisors is an Atlanta-area business advisory firm built on creating tangible value for our clients, serving clients in just about every industry.  Our clients are both capital growers and capital allocators.  How can Vertical help your firm maximize value?

Joe Briner
Managing Director
Vertical Capital Advisors LLC
briner@verticalcapitaladvisors.com
866-912-9543 ext 108

[i] Source: CIA World Factbook https://www.cia.gov/library/publications/the-world-factbook/rankorder/2127rank.html