How much money is there?

We are often asked “How much liquidity is there for acquisitions these days?”

You will be happy to know that a snapshot from the U.S. private equity market reveals there is three quarters of a trillion dollars in committed funds ready to buy your business.  And this is just one slice of the market, the private equity piece.

global private equity

Thank you to our friends at Fifth/Third Capital Markets for this insight![i]

The value of the record 50,600 of worldwide M&A deals in 2017 was $3.5 trillion according to the IMAA Institute[ii]:

m&A worldwide

 

And in North America, the 2,500 M&A deals were valued at $1.5 trillion

number m&A

What does this mean for you?

There is abundant liquidity in the markets.  Capital allocators are seeking candidates in record numbers to add to their portfolios.  When you get the call from Vertical Capital Advisors, listen!  This is the call you wanted the day you started your business, every entrepreneur’s dream!

 

 

* * *

ABOUT VERTICAL

Vertical Capital Advisors is an Atlanta-area boutique investment banking 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


[i]
http://images.payments.53bank.com/Web/FifthThirdBank/%7B9603ed24-84b5-4d89-adef-bafbe70713dd%7D_Fifth_Third_Capital_Markets_Market_Update_2018_01_23.pdf

[ii] https://imaa-institute.org/mergers-and-acquisitions-statistics/

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

 

 

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

 

 

 

The Trump Factors (there are 3)

 

trump

A close business associate asked me if my view on the U.S. economy changed in light of the actions taken by President-elect Trump since the election.  The question caused three points to crystallize in the answer I gave.  It went something like this:

There are three Trump factors that combined do have the potential to change the trajectory of the U.S. economy: his focus on growing businesses, his plan to reduce corporate taxes and his plan to reduce regulation.

#1 – Trump’s focus on growing business.  It has been eight years since we had a President who understands and encourages business, small business in particular.  There is enormous pent-up energy that is about to be released by businesses of every size.  We could see a wave of business innovation and transformation akin to the revitalization and creativity of the Renaissance.  Massive business investment could be unleashed by changes in the tax code.

#2 – Trump’s plans to reduce corporate and other taxes.  There is no question that the Kennedy and Reagan tax reductions opened eras of incredible business growth and investment.  Did you know that Apple, by itself, has over $230 billion of cash on its balance sheet OUTSIDE OF THE U.S.?  To put that in perspective, the FDIC[i] reports that there are 5,980 insured banks in the U.S. and Apple’s cash held outside of the U.S. is greater than the combined capital of over 2,000 banks.   That’s just one company!  CNBC[ii] reports that there is $2.5 TRILLION held by U.S. corporations overseas!  That is more capital than all but the top 50 banks.  Imagine nearly 6,000 new banks eager to make loans.  It would be transformative.  (You can tell I am a recovering banker, yes?)  If the corporate tax rate is reduced and Trump’s 10% repatriation tax is implemented, the U.S. economy could see a wave of investment unlike anything in history.

#3 – Trump’s plan to reduce regulation lifts a huge psychological weight off the shoulders of business owners.  The current administration has issued over 560,000 pages of regulations[iii] and this year isn’t over yet; “we’ll add 11,190 pages over the next 44 days, to end 2016 at around 92,830 pages” notes Clyde Wayne Crews of the Competitive Enterprise Institute.

federal-register-page-counts

Source: Townhall.com

You and I must comply with every one of those half-million pages of regulations, lest we face fines and imprisonment.  It’s a staggering concept, a sobering reality.  A wet blanket that dampens the entrepreneurial spirit.

Businesses power our economy.  Relieved of the crushing regulatory overburden and freed of confiscatory taxes, entrepreneurs will flourish under an administration that values American ingenuity.

The question is whether the renewed fires fueling a new wave of growth can escape the gravity of massive debt and spending and a population that is no longer growing but is stable to shrinking and rapidly aging.  It’s a coin flip from where we are today.  We have to catch a series of breaks and President Trump’s plans all have to come to full fruition quickly to avoid a meltdown that will reveal the 2008-2010 crisis to be just the opening act.

At Vertical Capital Advisors, we are seeing a renewed spirit in many of the new clients we are working with.  In the last month we have seen a very strong interest in securing growth capital.  Business owners feel more confident about the future.  They are willing to take calculated risks.  They are willing to invest in people, plant and equipment.  This is a marked change from the previous eight years of cautious, tentative growth where only the most certain of business investments were funded.

 

 

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] https://www.fdic.gov/bank/statistical/stats/2016sep/industry.pdf

[ii] http://www.cnbc.com/2016/09/20/us-companies-are-hoarding-2-and-a-half-trillion-dollars-in-cash-overseas.html

[iii] http://townhall.com/tipsheet/leahbarkoukis/2016/11/17/obamas-new-regulations-n2247287

Leadership

The day after the most tumultuous presidential election in a lifetime, Americans and citizens of every country are redefining what leadership means.  It matters now more than ever who you have in your corner advising you.  It is easy to slip into the crowd, to go with the flow but that path rarely creates significant sustainable value in the long run.  In fact, it can be very detrimental to your enterprise.  Take a look at the screenshot below.  We hope that you were not one of the panicked hordes who drove the broad market indexes down substantially early this morning:

post-election-marketSource: Bloomberg

Because if you were, your panic was rewarded by missing the 1,000 point swing in the Dow from -800 at 2:00AM to +200 at 2:00PM.

If you have read more than one of our blog posts you know that we are focused on creating long-term sustainable value.  We acknowledge that there will be ups and downs – that is part of business life.  We will help you keep a firm hand on the wheel as you navigate the transformative events that lie ahead.  And there will be many more market gyrations in the immediate future and they probably will not be flash-crashes with immediate recoveries like the one today.

Be a leader.  Set the course for the long-term.  Don’t be distracted by temporary anomalies.  Now is a great time to be building capital reserves.  We can help you build the war chest so you can act decisively when opportunities arise – and they will arise.

 

 

_________________________

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