Jan 27, 2012

Journal Update 1-27-12

Today I met with a business owner for the second time in 2 months.  Though we've had several talks since our first meeting, nothing has come of our discussions except some rough draft ideas on how we might structure a deal.  We've discussed the possibility of buying out one or more of her company divisions.

With the debt against the company preventing her from filling new orders - a very large order just recently came in - I'm convinced a financial buyer like our group would be the best option for her.  We'd buy out all 5 companies, maintaining the culture and synergies she's built over the last 30+ years.

To date, she hasn't been successful in bringing any strategic buyers to the table to buy the individual companies.

Today's meeting I felt went exceptionally well as we met with her CPA/CFO and the CRO working with her on the restructuring.

Though not in bankruptcy, the company needs new capital to stay in business.  Unfortunately, most of the 20-plus talent-team has left or been laid off the past few years and the company is down to a headcount of 4.

My offer, informal as it was, was that we keep the letter of intent (LOI) open without nailing anyone's feet to the floor.

"You want to walk away from the deal after we've mapped out the framework of the LOI, that's fine by me."

"What about due diligence?"

"We'll tackle due diligence once we have a signed purchase agreement and we'll want breakup fees at that point should you decide to shop or walk on us.  But until we've defined, first whether we want to be doing business together, and second, how we want the business transaction to play out, there's no point splitting hairs in determining and defining the value of the company, or holding each other to anything binding just yet." 

So, I've left the ball in her court on this one.  I've already outlined 4 possible scenarios for how we might purchase the companies: straight cash offer for the assets, a  couple of earn-out plans, and a buyback option plan for her if she wants to eventually regain control of the businesses, etc.  My advise to her was to pick a plan, list her key measures / criteria for a successfully culminated deal, and then we can flesh it out after defining it more clearly in an LOI and eventually a purchase agreement.

Also met today with a good friend of mine who's a professor at one of the local Universities.  He teaches courses related to strategy, private equity, and M&A (mergers and acquisitions) - we've been talking more and more about forming a company together - a private equity & consulting group.  I think it could be a great marriage.  He has a lot more experience with mid-market deals and he knows a lot of people in high places.  I have the utmost respect for him and am optimistic about the prospects of working alongside a seasoned veteran. 

Talked to my attorney earlier.  Looks like our opponent's counsel is a complete idiot, which is always a bonus.  I believe I have the best attorney in my corner and have complete confidence in his and his partner's abilities.  I never actually thought I'd enjoy working with an attorney in a lawsuit situation, but I'm truly blessed to have Mark & Scott on my team.

New sales associate I hired this week has hit the ground running with very little, more like no training or input from me.  Already talked with two business owners looking to sell their companies in industries we're targeting heavily, so I'll be talking with them hopefully on Monday or Tuesday to find out more and to see if there's anything our company can do to help.  

On that note, I'll recommend a book I'm still reading but that has been a real eye opener here on the hiring process.  It's called "Who?" by Geoff Smart and Randy Street.  Check it out if you've ever made a bad hire (I've made plenty, but I've repented of my sins here and I think I'm getting better.)

Registered online with 2 sites: secondmarket.com and caplinked.com.  Too soon to tell if the sites are worth spending much time on, but they look awesome so far.  Perfect platform for dealmakers and private equity groups.  The concept is there and it looks like there's a few players too - we'll see if anything comes of it.

Do a Deal!



Jan 25, 2012

4 Major Trends Affecting the M&A and Distressed Business Markets in 2012

I believe 2012 will be a very good year.

It's the year of the dragon after all.  My kind of year.

Four trends  main reasons why I believe 2012 well prove a great year for M&A advisers and distressed business buyers like myself.

1) New Trend: According to Frank Mack, of Saybrook Capital, LLC, Private Equity Groups, (PEG's) entering 2012 have a lot of cash to deploy.  Estimates of funds committed but not yet deployed are about $477Billion.  Most of the over hang is held by mega-buyout funds (over $5 Billion) and this amount is unsustainable - that is, its way too large to be absorbed under the current M&A conditions.  In addition to the trends of too-much-money from the big PEG's in the market, we're seeing smaller PEG's with under $500MM emerging in greater number. 

2) Ongoing Trend: Lenders and debtors continue to kick the can down the road (amending extending, and pretending), restructuring debt outside of Chapter 11.  This of course allows stakeholders a better chance of maintaining control.  Whereas bankruptcy under a Chapter 11 filing used to have a higher probability of turning into an actual restructuring of the debt - the original intent of a Chapter 11 - for the past decade-plus, companies have had a harder time maintaining control of the outcome for a variety of reasons.

3) Short-term Trend: Bush-era tax cuts on capital gains are expiring.  Those looking to sell their businesses in the next 2-3 years, might be better off selling in 2012 rather than waiting.

4) Long-term Trend: Baby-boomers are retiring en-mass over the next 10-15  years, and many of these are business owners looking to exit before the market becomes too saturated with an over-supply of businesses.

Almost one month into the  new year, and for me, 2012 is proving to be a good year already.


Jan 24, 2012

Journal Updates

Hired a new sales associate today after a couple months of interviewing. 

Submitted a letter of intent to GE Capital and Wells Fargo to buy out their respective $5.7MM and $6.7MM equipment-based loans for a discount.

Under the new terms, the loans would be restructured into 5-year loans at 6-8%, and we'd be getting a 50%+ discount on the face value of the notes.  Best part: we'd be fully secured in the event we had to liquidate the equipment and obtained less than salvage values. 

We're of course trying to help turnaround a distressed industrial processes business whose loans are coming due in the next few months, whose current operations can no longer support the debt.

The consultant I'm working with has a history of navigating the maze with distressed companies and has succeeded in 100% of his cases to avoid filing for bankruptcy.  I told him that was pretty impressive, but unless the lenders are willing to take a serious haircut or restructuring of the debt here, they're going to have to file Chapter 11.

Sometimes you have to be the "3rd Alternative" for a 3rd Alternative solution to play out between 2 opposing parties.

Our proposal is contingent upon the debtor agreeing to enter into a new loan and turnaround program with us.

We'll see if they go for it.