We Play From The Blue Tees

Recently a group of Players Capital Group senior partners showed up at a golf course in North Carolina hoping to get in a round the day before some important meetings were to begin. The course was crowded, so the starter paired them with two other golfers at the first tee box. Introductions were made and the new foursome waited for the players in front of them to clear the fairway.

According to golf etiquette, a tee was tossed in the air and it pointed to PCG Managing Partner Howard Stevens, who was now designated to hit first. The process was repeated twice more to determine the order of play, with the two other fellows third and fourth.

Howard teed up from the blues and hit his usual 300 yarder right down the middle. The author of this article hit his maybe 220, but managed to land in the fairway.

Then a curious thing happened. One of the other gentlemen asked “How old are you guys?”

“Sixty-eight”…

“Sixty”…

The guy says “We’re in our sixties too! You guys can play from the senior tees! You’ve earned it!”

We were dumbfounded to watch them get in their cart and drive at least eighty yards ahead to tee up at the senior tees, which were only five yards behind the ladies tees.

At the next hole, there was an awkward moment when we teed up from the blues again, but they ignored the implicit challenge and continued to play from the senior tees. One of us whispered to the other “Maybe they should just play from the ladies tees”.

Later that evening we talked about what we had witnessed. Howard explained “I am a scratch golfer now because I have never played from anywhere but the blue tees. I took up the game after I retired from the NFL, and I wanted to be not just a good golfer but a great one. Playing from the tips forced me to develop accuracy I couldn’t have gotten any other way.

And a phrase was born into our company culture that remains today. “Come on man, play from the blue tees”

When you interview a dozen companies on behalf of a client instead of three or four, you are playing from the blue tees.

When you spend a day rather than an hour researching the effects of a recent court decision, you are playing from the blue tees.

When you go the extra mile, you are playing from the blue tees. And business is like golf in two important ways… when you play every hole from the blue tees it soon becomes a habit…and you get better!

 

We Don’t Accept Participation Trophies

When one of our competitors invited the CEO of a company we own to a seminar to explain their process for bringing a business to the market we were happy to attend the meeting if for no other reason than to see how our competitors operate. What we saw was a real eye opener.

Let’s back up a bit first. We got into this business many years ago when we cashed out and sold a company we had founded. Soon, we sold a few others and developed relationships with the people we had sold these companies to. They asked us to help them find other companies to invest in and voila! We were in the investment banking business.

Having been involved in several highly competitive industries, we took our experience and attacked the world of Mergers and Acquisitions and investment banking with the same intensity required of us in professional sports. We never even thought to look at what other people in the industry were doing. We just used our common sense and instincts.

One of our competitors hard at work

When we finally slowed down and took a look at how other M&A firms ran a deal we were shocked. The first thing we realized was how utterly passive they were. It was apparent that without the internet none of them would have ever been heard of. They all relied on search engine traffic to be found by prospective clients, and even moreso to reach prospective buyers. When we looked at a few of the websites that advertise the companies for sale we were even more surprised. These M&A advisors (who claimed to be the kings of discretion) would create  online web profiles to whet interest in their client’s offering. If you liked the general description of the company you could sign a non-disclosure agreement and receive a package of financial information and the name and location of the company. When we Googled the descriptive information in the teaser the client company would invariably come up on the first page, meaning that all they did to package the deal was to copy the website. Not exactly playing from the blue tees. So much for confidentiality.

Straight from our biggest competitor’s sales brochure…

We were even more surprised to learn that for them to even start this less than rigorous process on your behalf you would have to stroke them a check for somewhere between forty and seventy-five grand. That’s just to get out of bed. Fully earned upon receipt.

They also state that it takes a minimum of nine months to sell a company.  If you do business in such a passive manner, maybe. We feel differently.We’ve done plenty in 60-90 days. But if we approached you about a transaction it’s because we already know who wants to buy your company. If you are in an industry that is in demand, we can expedite the process.

We’re not interested in participation trophies. Our competitors make more money in engagement fees than they do in success fees. We invest time, money and energy in deals that we like. If we are offering to put a deal together to solve your capital needs, be it an exit, a majority or minority buyout or a debt raise we believe that you have a winner. We mobilize our considerable resources to get it done.

Although we don’t charge upfront fees, we do require you to put forth the effort to provide us the information we need. If you cannot or will not furnish us what we need in a timely manner, we’ll know you’re not that serious and we’ll remain friends and wait until you are ready.

Getting us what we need shouldn’t be a problem. If you’re a candidate for any kind of transaction, you probably have an excellent in house or outsourced accounting staff, and you can furnish summary information quickly.  Sometimes we do unusual and creative things to convey your value proposition to the market, and we’ll discuss that process. We operate under plain language agreements that don’t need heavy legal scrutiny. But keep in mind that if you haven’t paid us anything, we don’t owe you anything. We work hardest for the clients who work hard for us.

Working hard is great. Combine that with working smart and now you’ve got something. It’s a smart play for you to look at us as more of a partner and investor in you than just a vendor or contractor. Lopsided relationships never last long. Win-win relationships produce results and last a long time. And that is what we’re all about.

Are You in Our Strike Zone?

Hiring the right advisory firm is critical to your exit strategy.

There are many firms that would like the opportunity of selling your business. But a firm that is capable of valuing, packaging, marketing and financing a manufacturing company with $200,000,000 in revenue wouldn’t have much interest in doing the same for a company doing $200,000.

Which of these categories do you fit into?

Publicly Traded & Large Businesses

There are over thirteen million corporations in the United States, and less than one percent of them are publicly owned. These companies are traded on stock exchanges around the world The rules that govern the sale of public companies like Ford, Microsoft, or General Electric are radically different from the rules that control the sale of privately held enterprises. Their mergers and acquisitions are typically handled by large investment banking firms.

We’re happy to leave deals of this size to the wolves of Wall Street.

 

The Middle Market

These range from substantial privately held companies with earnings from several hundreds of thousands of dollars to earnings in the millions of dollars. By our definition, this usually implies value between $1 million to $25 million. Most of the mid-market is made up of businesses built around a single product area and are frequently developed from scratch by entrepreneurs that had a passion for their trade. Owners of a closely held mid-market company usually have invested completely in the business, both financially and emotionally, and feel that the sale of their company is a very significant event in their lives. Companies like these are usually not run by a board of directors whose only motivation is the bottom line, and the owners care greatly about the future of the people who helped them build the company.

These are folks who have worked hard and smart to build their empires. Invariably, they are straight shooters who understood that their success depended upon delivering value and doing honest business. This is our strike zone. These are the people we love to represent.

Small Businesses

Of the 13,000,000 or so American corporations, around 12,100,000 fit the definition of a small business, either due to the relatively small revenues generated, or the fact that a single person or small group of managers can run the operation. There are literally thousands of small business categories selling products and services from A to Z. Small businesses are the backbone of the American economy and the marketplace for their sale is active. We believe that the smaller a business from a revenue standpoint, the more effective the owner himself will be at effecting his own exit.

Have You Ever Sold a Company?

 

You may be the smartest guy in your industry, and you may have built a giant empire, but selling a business is not the same thing as building one. Watch what happens when Bill Gates, founder of the biggest software company in history, steps out of his area of expertise and takes on an expert in a different field…

When you are ready to exit the company that you built with years of hard work and sacrifice, you will be dealing with people who work in the corporate acquisition field every day. They are experts in gaining an advantage at the negotiating table and this is what they do every day.

Of course, this is also what we do every day. We are there not only to level the playing field, but to press any and every advantage you have, and to mitigate potential problems before the buyer pool becomes aware of them. Getting a premium price in today’s marketplace requires far more planning and preparation than you might think!

Understanding Liquidity and What it Means to You

As someone who has spent their working life creating and building a successful company, you have probably accumulated significant assets. Your portfolio could include any combination of cash, real estate, stocks, bonds, annuities, insurance policies and precious metals. Some investors trade more complicated instruments like commodity futures or options. Each of these investments are a separate asset class. To fully understand your portfolio, you must have a solid grasp of the concepts of liquidity, volatility, and diversity.

A wise investor usually seeks diversity in his portfolio, spreading out his wealth over several asset classes. Sometimes one class is an excellent hedge against another. For example, when cash loses its value gold usually gains. Most well managed portfolios are usually further diversified over industry sectors. And as always, a prudent investor balances his risk with the potential reward. Most business owners are too busy trying to run their businesses to trade securities and usually leave that to investment advisers.

Recently we asked a client to identify his personal assets and assign a value to them. He gave us this list:

What did this tell us? He had ignored his biggest asset, his business! The company was worth $6,000,000. About two thirds of his net wealth. We reminded him of that and he said “Oh, yes! That too!” When you are a successful business owner, your business is probably your biggest asset. Which means, by definition, you do not have a lot of diversity.

The reason he didn’t immediately think of his business as an asset is because it was more like a family member to him. He had nurtured the company from its infancy, just like he and wife had raised their kids. He had other people managing his cash and properties, so there was little emotion involved there other than some concern when the stock market got a little volatile from time to time. He had lived very well and made good investments with the income from the business. In fact, he had been in an extremely competitive business and had put several once formidable competitors on the ropes. When we asked him about his future plans, he told us that he and his wife had always planned to liquidate everything when he turned 65 and move to their condo in Florida.

Our client was in the printing business. With the tech boom of the nineties the demand for printed material plummeted. With the advent of personal computers, desktop publishing and laser printers, anyone could be in the printing business. Other traditional printing business disappeared thanks to the Internet. Online coupons and newsletters appeared almost overnight further reducing demand. Suddenly the printing business was a shark tank of epic magnitude. There was still demand for printed material of course, but very quickly the successful printers were those that could offer wide format and other options that could only be produced by the most modern equipment. The neighborhood printing shop went the way of the telephone booth.

Fortunately for our client, he had always modernized his operation regularly. He was one of the survivors. Many of his competitors watched their sizable operations quickly dwindle to a fraction of their former volume. We know this because we helped him buy several of his former rivals at bargain basement prices. To further compound the problems of the vanquished, their equipment had very little value due to its outmoded capabilities. There are thousands of old Heidelburg printing machines sitting around in warehouses waiting for a call that will never come.

The managers you hire to look after your securities and real estate portfolios examine the risks of holding them on a very regular basis. And when that manager gets a tiny whiff of trouble on the horizon for a company you own stock in, he can liquidate it in less than a minute. A stock has immediate liquidity. And in a volatile market, liquidity is crucial. If you owned Enron stock in 2001 and suspected that it was in trouble, you needed only call your stockbroker and tell him to dump it. Two minutes later, you’re out. No need to ride it from $100 down to five cents.

Enron’s stock tanked for one reason and one reason only. Nobody wanted to buy it. Supply outstripped demand gradually at first, but as suspicion of their accounting irregularities mounted, the stock gradually dropped to less than a tenth of its all-time high. When a last minute suitor backed out, the price went from five dollars to five cents in five minutes. And some people who had worked their whole lives at Enron saw their entire pension holdings disappear because they were locked into a managed fund that required them to maintain their investment in Enron. This is the worst possible situation for an investor to be in. The volatility of the stock market made it easy for their holdings to be decimated quickly, but lack of liquidity due to the restrictions of their own fund made it impossible for them to do anything but stand by and watch their portfolios disappear along with their retirement plans.

What could affect the volatility of the market for your business? Not the markets you serve, but the acquisitions climate for your the business you own? New technology that supplants yours? New public policy like Obamacare? Or just a new competitor on the block that is well capitalized, well organized, and wants to pick a fight with you. When you sense volatility that is going against you, and the asset in question is a stock, you liquidate quickly. But if the asset in question is your business, are you prepared to sell? Most are not.

If your biggest asset is your business, and you are not prepared to sell it if necessary you are just like those Enron investors. No liquidity in volatile market. You will never sell your business as dispassionately as you would a stock or an apartment building, but you need to understand that for there to be any demand for it you must be able to prove what you have. It can take weeks or months to sell a business at fair market value, and much longer if you are not prepared.

At any given time, you must balance the answers to these questions:

“If I sold now and locked in what I’ve built, what would the rest of my life be like?”

and…

“If the value of my business plummeted, what would the rest of my life be like?”

As long as you are experiencing growth and profitability, you should probably keep at it. Why not? The major determinants of your company’s value are profitability and growth trend. When you sell your business, you are selling a future income stream. Nothing will detract from your company’s value more than declining profitability.

There are no hard and fast rules that tell you when your business is worth as much as it ever will be. And But there are things that you can do to be prepared when you think the time has come that will give you a degree of liquidity that those Enron employees did not have. We can help you prepare now to be ready to put your business on the market when you want to, but even more importantly, we can help you be ready to sell quickly if you need to.

Time has a Completely Different Meaning to Us

Most of our deal makers and business development people have been professional athletes, coaches and general managers. In that arena, you are only as good as your last game. A bad week or even a bad night can cost you your job…

The pace of business accelerates exponentially. The slow footed get run over. When we encounter a difficult situation we deal with it immediately. In a hockey or football game, we make critical adjustments to our strategy on the spot. If you have a weakness you correct it immediately or continue to get beat. We’re used to finding solutions in a matter of hours or minutes, not months.

 The longer it takes to get a deal to the closing table, the more sure you can be that some of the initial paradigms have shifted. And time is a deal killer.We have a reputation with investors and they understand that they need to step up and act decisively or wait until next time…

Mergers and Acquisitions professionals, especially on the buy side, are notorious for dragging their feet while they shop your terms to sweeten some other pot. We try to be a little bit more diplomatic than our friend Sam here, but when we say “We need to hear from you soon”, people know we are really saying…

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