Private Capital Market Observations

Pareto’s power law no longer applies!

2008-06-24T08:37:00.000-05:00

Rob Slee, author of Private Capital Markets and Midas Managers, has penned an insightful and profound article. He titles the piece The 90/5 Rule. He was generous enough to allow this author to share the profound insights.

The readers of this web site are invited to share their opinions.

The 90/5 Rule

More than 100 years ago the Italian economist Pareto noticed that 20% of Italians owned 80% of that country’s wealth. Thus was borne the famous 80/20 rule, also known as a power law. Power laws now reign supreme. These are the laws that indicate precious few causes generate disproportionate results. But, as this article shows, the rate of change is so fast today, that now it takes only 5% of the cause to generate 90% of the effect in many important areas, especially productivity and income generation. To the 5%, go the spoils.

Why does it matter that so few inputs now generate such a large percentage of the outputs? Because power curves, not the more intuitive normal distributions (bell shaped curves) now explain the new reality: that unexpected events and unusually productive people shape the world. This totally overthrows Woody Allen’s previously accepted principle that 90% of life is just showing up.

Geometric Change and Leverage

For the prior five thousand years or so before the 1990s, humanity experienced arithmetic change (1 + 1+ 1, etc.). Humans were the agent for change then, and we change ever so slowly. Technology is now the agent for change, and the Internet enables geometric change (3 times 3 times 3, etc.). An increasing rate of change means that a very few people can have an overly dramatic impact on their surroundings.

How do these over-achievers do it? In short, they leverage their know-how, also known as intellectual capital. Most people only leverage their know-how on a 1:1 basis, which hopefully enables them to earn a living. Super achievers have learned to leverage their intellectual capital by upwards of 50:1, which means they produce 50 times the result of the 1:1 group. Every business vertical in the world is now being dominated by companies that have learned to leverage their collective know-how beyond their competitors. This explains why the future of business is not China or Europe versus the United States; rather, it’s a war won by company versus company. In other words, whoever leverages their intellectual capital the most wins.

A recent book, The Black Swan by Nicholas Taleb, sheds light on the importance on the role of unexpected events. The title is a reference to our historical notion that all swans are white. Of course, as is the case with many unexpected animal events, a flock of black swans were spotted in Australia. Taleb claims that rare events, such as 9/11, or the Bear Sterns meltdown, occur much more often than we expect. Our minds are programmed to deal with what we’ve seen before, to “expect the expected,” so to speak. However, all too often extreme events do indeed take place, and have large and long lasting effects.

Black Swan events come in both positive and negative forms. For instance, a break-through of an alternative energy source to oil would be a positive Black Swan. Such an innovation would represent a dramatic leveraging of intellectual capital, with game-changing results.

Examples of 90/5 Rule

The following are examples where 5% of the cause generates about 90% of the result:

• About 5% of American business owners are currently generating 90% of the value of private firms

• Only 5% of mortgages in the US defaulted to cause 90% of the write-offs in the financial system in 2007

• 5% of authors sell about 90% of all popular press books

• About 5% of venture capital investments generate around 90% of total portfolio returns

• Credit card delinquency rates are about 5% now, which may well cause 90% of the write-offs during the next year

In a 90/5 world, extreme events will shape the world. But humans use averages to guide our thoughts and actions. We create institutions that are built on averages. The current political discussion of possibly redistributing wealth is reflective of our penchant for averages. The same can be said about our educational system, where regression to the mean is goal of the system. But all of this is counter to the new reality: extreme events and exceptional people will in large part determine our future.

Deal Flow, Conflict of Interest, SPAC Challenge

2008-06-09T12:02:00.000-05:00

Deals must be done quietly, as secretively as possible and avoid, particularly with a SPAC transaction, any questions that raise conflict of interest issues.

According to CFO Magazine’s June 3, 2008 issue in an article titled, Loose Lips Sink Deals, Too, if deals are not done quietly and secretively they are less likely to happen. Not only do less deals get to closed transaction status when information is prematurely leaked to the marketplace (49% as opposed to 72%) but also the average time to close increases by 70 percent from 62 days to 105. These figures are the product of research done by the Cass Business School.

Professor Scott Moeller of the Cass Business School in London and a former managing director and senior investment banker at Deutsche Bank and Morgan Stanley managed the research.

The results of this study may help SPAC managers in their quest to find appropriate acquisitions. While SPACs and PEGs use an old model of slightly proactive and mostly reactive deal flow generation, the process, reliant on relationships and word of mouth advertising, creates a counter productive process for getting deals done. The Cass research supports the argument that new models for deal flow creation must be created.

In the case of a SPAC, where most of the associates and partners come out of the PEG world, two issues stand as obstacles to being successful and in compliance.

First, SPAC partners are forbidden by regulation to have any prior relationship with those companies they choose to acquire. Yet they use the aforementioned relationship based system of communication to foster deal flow. This is a dangerous practice and raises the question of conflict of interest.

Second, SPAC’s have a short time window in which to find and close on an appropriate acquisition. The old model, rife with conflict of interest possibilities, has as its foundation an antiquated system for deal flow generation. In the process of spreading the word on a deal with established relationships, necessary secrecy is dissolved. The very model used by SPAC’s and PEG’s to garner deal flow that will lead to an appropriate acquisition is self defeating. The old model creates a conundrum that both kills deals and those that do move forward take 70% longer to close.

In order to maintain secrecy as well as eliminate the conflict of interest question, the solution is to outsource the deal flow creation process. The old model does not serve either the SPAC’s or the PEG’s.

The means by which to advance expeditiously and in compliance is to contract intermediaries to find appropriate acquisition targets. While the SPAC’s and PEG’s are always open to fielding deals (reactive), a smart intermediary, who is also profit motivated, will not deliver choice targets. The good companies, once in the trusted embrace of an M & A intermediary, will lock them up in a sell side representation contract. Hence, the auction block is the only place a SPAC or PEG buyer will see these firms.

An intermediary who is contracted on the buy side of the transaction is the perfect means for satisfying both the SPAC and PEG need for: privacy, secrecy, no conflict of interest and an expeditious and efficient close.

Competition for the acquisition of profitable companies, thanks to globalization, is at a fevered pitch. Blank check companies and PEG’s must change their deal flow creation model and the sooner the better. Missed opportunity costs are quantifiable.

SPAC, Private Equity, New Paradigm for Deal Flow

2008-05-26T15:06:00.001-05:00

The Deal Magazine has a fine article on the the current status of SPACs in the market place. The article is insightful and clear.

This author supplied the following comment to the fine article.

Many complex challenges often have simple, although not easy, solutions.

Considering the SPAC’s plight of having only an eighteen month window to find a deal, having stockholder review of target acquisitions, having the limitations put on SPAC founder relationships to generate deal flow and a reliance on technically astute but non street wise financiers to find appropriate targets, the SPACS still looking for acquisitions may be on a deal flow merry-go-round.

That merry-go-round is made up of the same people trying to find or waiting for an appropriate deal to come through their door. Hence, it is a fallacy to believe that the relationships you have (current paradigm) will generate the path to the target you need.

The SPAC’s, those committed to an acquisition, must go beyond their present paradigm of contacts to be successful.

There are just over 8000 privately held firms in the United States with revenues between $200 MILL and $1 BILL. Twenty-eight percent of those firms (statistically) are owned by Baby Boomers who, if not now, will soon be committed to an exit.

The SPAC structure brings myriad benefits to those private owners. The SPAC folks need to readdress their deal flow generation process. They need a new means by which to garner quality deal flow.

Deal Flow competition is vigorous for Private Equity and Special Purpose Acquisition Companies (SPAC).

2008-05-23T16:23:00.001-05:00

It is time for private equity groups and SPACs, confronted with competition and resultant reduction in quality deal flow, to readdress some of the hallowed “Eight Pillars of Private Equity” that guide their business model.

THE EIGHT PILLARS

1 Capital Formation

2 Generation of Investment Opportunities

3 Investment Opportunity Processing

4 Transaction Processing

5 Portfolio Management

6 Portfolio Exits

7 Investor Relations

8 Firm Administration

The object of pillar two is the creation of consistent and quality deal flow. If there is no business to buy there are no efficiencies to implement, no profits to be made and without healthy returns there will be no future investment dollars.

In pillar three 90% of the opportunities found by the present system of deal flow creation are eliminated. Next, within pillar three, 70% of the 10% are eliminated. In this example, when 120 deals are found, only 3.6 good deals are realized. Creating quality, quantified deal flow is a weak spot in the model. What must the costs be in lost opportunity, time and labor?

Responsibility for deal flow is assigned to those within the firm who are characterized as finders. While there is an unspoken law that all staff is responsible for deal flow, usually the chore of “FINDING” is relegated to junior associates, new MBAs and interns.

The job of finding quantified deal flow is assigned to the level of staff least able to communicate the ideology of a potential deal to a seasoned business owner. Hence, it is no mystery why 90% of initial deal flow is discarded. This must change!

The industry operates similar to a scallop fisherman. The fellow seeking the succulent scallop drags a stiff and barred box net and when it is too heavy to drag further, separates the shell fish from the valueless ocean rocks. The process is primitive.

On the one hand there is a primitive process for creating deal flow within the private equity and SPAC domains and on the other, competition from global acquirers and increased numbers of both private equity groups and SPACS within the US are increasing competition to a fevered pitch.

Evidence of the heightened competition for quality and quantified deal flow can be found in “Pratt’s Guide to Private Equity Sources.” This publication provides details on 12,200 private equity firms, 7700 of them are US based. Yet with all this evidence of additional competition within the US and abroad the deal makers cling to the static pillars model for creating deal flow. What will it take to break this habit? The answer is pain!

The pain originates in lost opportunity that can logically be quantified into lost dollars. An adjustment to the “Pillars” model is needed.

Deal Flow competition is vigorous for Private Equity and Special Purpose Acquisition Companies (SPAC).

2008-05-23T16:19:00.000-05:00

WHAT IS NEXT

Change the first step of pillar two from not 10% quality deal flow but to 50%. Because the deal quality level is 400% better at the first tier, it follows that the second tier will also produce a higher positive result. For this example, the elimination in the new paradigm model is 50% and 50 % respectively. What kind of increased deal efficiency and profit would this alteration create?

The new paradigm result, using the 120 deal per year example, will be that the second elimination step at 50% produces 60 potential deals. Based on a second tier elimination review of 50%, there are 30 quality and quantified deals for the private equity or SPAC to seriously consider.

While the new results create a dramatic increase in quantified deal flow, that deal flow will generate revenues in management fees, carried interest rewards, more service fees from portfolio companies as well as more closing fees.

Private equity groups and SPACs must alter their eight pillar model in order to garner more and better deal flow. The competition at home and from abroad is vigorous!

The change in success levels within the screening process creates 30 potential deals as opposed to the old model that only produces 3.6. What would that mean in additional dollars and cents?

How’s your deal flow?

2008-05-23T13:23:00.000-05:00

Warren Buffet is the Oracle of Omaha, master of the public capital markets, and Chairman and CEO of Berkshire Hathaway. Rob Slee, Managing Partner of Robertson and Foley in Charlotte, North Carolina, is as much of an oracle in the lower middle market in the private capital domain. You must read his books: Midas Managers and Private Capital Markets. You can access Amazon and Mr. Slee’s book on this BLOG.

As one who has the privilege of speaking directly to Mr. Slee, this author can tap in to his analysis on a first hand basis. During a recent conversation, Mr. Slee shared observations on the lower middle market economy and provided supporting evidence that was astounding. Mr. Slee was kind enough to allow this author to share some of his deductions on this site.

PEG-Mania

There are roughly 8,000 private equity groups in the US. It seems that every MBA with a checkbook is now a PEG. No one knows exactly how much spending power this group possesses, but I think most would agree that it surpasses a couple of trillion dollars.

We believe PEG’s already own 35,000 or so middle market companies in the US. This represents about 12% of the 300,000 companies that comprise the US middle market (defines as firms with annual sales of $5-500 million). We suspect this PEG ownership represents a far greater percentage of the capitalization of the middle market – perhaps as high as 30%.

The math is not encouraging for PEG’s. Let’s assume that only 15% of the companies in the middle market are top performers. PEG’s already own 12% of the market. So 8,000 PEG’s are fighting over 9,000 companies in total (300,000 companies times 3%). These 9,000 potential PEG deals do not all hit the market in the same year. Plus there’s no guarantee that all 9,000 prospects are even amenable to dealing with private equity. Obviously PEG’s have a serious math problem.

This author believes that the evidence indicates that there is a deal flow shortage. That shortage exists for the PEG’s because of the PEG competition and that the marketplace is now global. It appears that new thinking is necessary within the realm of creating value and attracting quality deal flow. If you are a PEG or a SPAC, could your deal flow level be better?

More on SPAC activity

2008-05-07T08:15:00.004-05:00

2008 Pivotal Year for SPAC Market,
According to SPAC Research Partners '
State of the SPAC' Report

http://www.reuters.com/article/pressRelease/idUS114622+03-Apr-2008+PRN20080403

Fine insights on the status of the SPAC market

More to come!

The Reverse Merger & SPAC Blog

2008-05-06T13:43:00.001-05:00

What is a reverse merger?
A reverse merger is an alternative to a traditional initial public offering (IPO) for a company desiring to have its stock become publicly traded. In a reverse merger, the owners of a private company acquire control of a dormant public one, called a “shell,” and complete a business combination with it. When the merger is complete, the private company becomes public and its stock can be publicly traded in its own right.

What is a “public shell”?
A “public shell” or “shell company” is a public company that has no or nominal assets (other than cash) and minimal, if any, day-to-day business operations. It may be the remnant of a bankrupt or sold organization or specially formed for the purpose of combining with a private company.

The Reverse Merger & SPAC Blog: Frequently Asked Questions

More to come

Buyouts, M & A, SPAC, Special Purpose Acquisition Company, Private Equity, Strategic Buyers

2008-03-24T11:03:00.000-05:00

Buyouts, M & A, SPAC, Special Purpose Acquisition Company, Private Equity, Strategic Buyers and Management-led buyout firms are competing to find and acquire cash flow businesses. According to M.P. Dumon that competition is cutthroat.

While this web site has devoted much of its content to the plight of the private company owner who faces a buyers market over the next five to seven years, the competition among buyers of privately owned and profitable companies is fierce.

The dramatic difference between the buyers and sellers is that the buyers are proactive while the private company owners remain inactive, or better stated, reactive to the very sophisticated capital market of which they are apprehensive. This behavior gives the advantage to the proactive professional buyers.

As the professional seekers of cash flow turn over the rocks of the private capital markets, only 20% of private companies plan an exit that can take advantage of the buyer’s insatiable need for increasing returns on assets.

On both sides of the transaction, those seeking maximum cash for their assets and those buyers looking to buy cash flow as cheaply as possible, the players could be far more aggressive. That is to say that whether a buyer or a seller, the player must be proactive in seeking their desired end with diligence and specificity.

Once either player knows exactly what they want there is a good chance they will find it. The situation that exists is sellers are so unsophisticated in the realm of the capital market where the liquidity event lives they get frozen in the day to day status quo. On the buy side, while they are sophisticated and experienced, cutthroat competition for abundant cash flow companies is at such a high level new attitudes toward the creation of deal flow must be developed.

The buy side players must change their paradigm for creating deal flow. They cannot share their compelling stories to private company owners who will not listen. The challenge is for these professional buyers of cash flow to find efficiencies in creating quality deal flow. On both the buy and sell sides of an entity seeking a profitable transaction, new and more proactive behavior is needed. Whether you are on the buy or sell side, what can be done differently to create better results?

Wall Street, Main Street and the Privately held Middle Market Company: All transactions are ad hoc in private capital/company transactions!

2008-03-12T15:22:00.002-05:00

Wall Street, Main Street and the Privately held Middle Market Company: All transactions are ad hoc in private capital/company transactions!

While it is tempting, the application of public capital market practices, those one sees reported in the Wall Street Journal (WSJ), is the same as believing that a comparison between an apple and an orange is not a logical fallacy.

Each middle market privately held company that successfully manages to maximize their asset value and sell to a substantive buyer has created an individually attractive market opportunity for that buyer. That is to say, the seller, knowing that there is no standing and ready equitable market in the private capital domain, has determined what is attractive in the marketplace and has committedly recreated his/her company to mirror the buyers needs and desires. In fact, the seller has actually created a market for his or her company which will generate the highest asset value, terms and conditions for the liquidity event.

The aforementioned scenario presumes a proactive stance on the part of the private company owner. The truth of the private business domain is that only 20% of private company owners plan their way to a successful and fulfilling sale. Those that do sell or refinance and take on partners do so as a reaction to the marketplace knocking at their door.

The question is who has the advantage in the buy/sell plot that emerges? The answer is, as always, the one who is proactive, experienced and focused on a self serving maximization of assets, cash, terms and conditions. The advantage goes to the professional buyer.

The professional buyer of private businesses has an additional advantage to his/her expertise, finance creativity and acquisitions focus. That advantage is that twice as many companies, because of the Baby Boom cohort of private company owners, will be coming to the marketplace as is the norm. Yes, a buyers market, riding on the law of supply and demand, is and will continue to drive asset values down.

The only tool available to the private company owner to prevent being caught in the downward spiral of asset values is a strategic exit plan. That private company owner cannot rely on the WSJ for either insight or assistance. The private capital market works transactions one at a time.

Wall Street, Main Street and the Privately held Middle Market Company: All transactions are ad hoc in private capital/company transactions!

Mega Millions Winner? One does not need a lottery ticket! A Valuation and Exit Strategy Plan will bring a Jackpot to the private company owner!

2008-02-25T13:47:00.000-05:00

Mega Millions Winner? One does not need a lottery ticket! A Valuation and Exit Strategy Plan will bring a Jackpot to the private company owner! According to a survey, done by The Mass Mutual Financial Group and The Raymond Institute, only 19 percent of family/privately owned companies acknowledge doing any estate planning. Additionally, the report goes on to say that only 62% of the significant stockholders have any knowledge of the senior management/majority owners’ asset transfer or sale intentions. Another fact determined by the study is that 55 percent of private company owners do not acquire regular formal evaluations of the firm. The reader, connecting through the above link, can review the study in its entirety.

While the private company is the backbone of the American economy and the largest employer in the United States (US), only 20% plan their exit from the business. One might say, “so what?” What is the consequence of the absence of exit planning strategies within the private company/private capital segment of the US economy?

As with all circumstances where deductive reasoning can be applied, a clear conclusion can be garnered. When one applies logic to this large percentage of private companies that do not plan their exit and their economic future, their collective lack of action makes no sense, nothing adds up to support this behavior.

Inductive reasoning may hold the answer. That is to say, in the private company/capital domain, where the popular culture character of the rugged individualist lives, logic is not the guiding factor. One possibility may be that an owner believes that without his/her company their identity dissolves. They may subscribe to the emotional idea that without there hands on the helm of a company they will be minimized in some form or fashion. Further, while few in the rugged individualist culture of the US admit it, fear of the unknown may be consciously or subconsciously driving the lack of making the decision to plan an exit. While this author does not have the answer to the question of why so few private company owners strategically plan their exit, he can attest to the consequence of this illogical behavior.

The aftereffect of not planning an exit is that the private company owner will loose asset value. Pure and simple, the marketplace and those who know these statistics professionally prey on these very companies. The word professionally is used because there is a segment of brilliant practitioners whose job is to seek opportunities where the owner of a middle market company will surrender the helm at a reduced value.

The only safety a private company owner has is to accept the idea that exit planning strategies are the only path that will lead to appropriate asset values, terms and conditions when the decision has been made to sell or dramatically refinance.

This author also believes that the rugged individualist private company owner, unlike the Lone Ranger who had Tonto to do his bidding, does not have the professional network to assist in protecting the assets by means of an appropriate and strategic exit plan. The owner needs a Tonto because he/she will have to continue to apply their proven expertise in maintaining and growing the company.

While the question of why private company owners do not plan goes unanswered, one can be sure that as long as this illogical practice continues millions of dollars will be left on the table for both strategic and financial buyers to gouge themselves. The odds of realizing maximum price, terms and conditions in a liquidity event are reduced without the appropriate plan in place. If you have no exit plan, be prepared to forfeit millions of dollars in asset value.

Mega Millions Winner? One does not need a lottery ticket! A Valuation and Exit Strategy Plan will bring a Jackpot to the private company owner!

Obama reminds us of rich wisdom from the past, GOOD SHOW! Grow your business in order to exit with abundant and heretofore unanticipated riches!

2008-02-18T19:56:00.000-05:00

While Barack Obama is reminding us of pearls of wisdom spoken and written in the past, a company owner can increase the value of his/her business using tried and true acquisition practices in their exit planning process.

At first glance the aforementioned assertion may seem contradictory. That is to say, if a business owner is contemplating an exit why would they be pondering acquisition opportunities?

While mergers and acquisitions (M & A) in the Public Capital Markets, where billion dollar transactions take place and get Wall Street Journal headlines, often take years to consummate, M & A deals in the lower middle market can take just a few months.

With this short window of time, the possibility exists for the lower middle market company owner to change the total complexion of the business. Acquiring the right company with the right balance sheet can make the private company moving toward exit more profitable and more attractive to the financial or strategic buyer world.

The word “EXIT” is often synonymous with the word “END” in the mind of the private company owner. The exit planning process, while focused at producing an abundant liquidity event is by no means an end. The process of a proper planned exit could take a few months or a few years depending on the “Plan.”

As Obama reminds us of words of wisdom from the past, private company owners should begin thinking of how they would like the future and the value of their company to appear. Set a goal, plan your work and then work your plan. With no goal the private company owner puts control of his/her company valuation future in the hands of the marketplace. Remember, three times as many private companies will be for sale during 2008 as is the norm. The law of supply and demand is merciless!

David Letterman is not the only one with a TOP TEN LIST.

2008-02-18T18:11:00.000-05:00

David Letterman is not the only one with a top ten list. The following is the Hamilton Wright top ten list for starting your exit planning NOW:

Ten: Play more golf, tennis and spend more time on your boat and with family

Nine: Create what the market place wants to buy

Eight: Set time lines and transaction proceed ($$$) objectives

Seven: Accurate Valuation as seen through multiple value worlds (who will give you the best deal?)

Six: Business plan into the future

Five: Prepare for market variances so maximum asset value is realized

Four: Satisfy family responsibilities as minor stakeholder/stockholders

Three: Personal financial Goal and action plan (what is your money doing for you)

Two: Minimize tax exposure and take more of your money to YOUR bank and not the US Treasury

ONE: Increase the proceeds of your exit transaction by 2-5 million dollars

While David Letterman may have the most famous Top Ten List, this list, provided by Hamilton Wright, may have more impact on your life, REALLY!!!!

While Jane Fonda is using street talk and the Daytona 500 is getting Google attention, this author found pearls of wisdom

2008-02-14T22:47:00.001-05:00

While Jane Fonda is using street talk and the Daytona 500 is getting Google attention, this author found pearls of wisdom for the private company owner! In keeping with the promise and mission of this site to inform and educate the private business owner, the following was extracted from Alexis Martin Neely’s web site. Complete attribution and a way to contact her are at the bottom of this article.

Only 20% of private company owners have a business plan that includes an exit component. That being said, it is apparent that they have planned for little else. While it is wonderful to have an abundant lifestyle business, particularly in these times of uncertainty, unless you plan, the manic mercantile system, that includes voracious components like the law of supply and demand, could consume your assets.

Read on and take heed!

Estate Planning? But I’m only 35! Secrets of the Old Rich Guys Revealed

Unless you were born into an Über-rich family (and sometimes even then), your parents’ probably never discussed estate planning when you were growing up and didn’t have any kind of relationship with a personal lawyer (at least not one you remember discussed with fondness!)

It’s not a surprise. 70% of people die without even a Will. So, why would you need to take action now, when you are so young?

Because you are financially smarter than your parents and you care more about the people you’d leave behind than the 70% who die leaving their loved ones in the lurch.

You may be young (or young at heart), but you likely have more far more wealth than your folks already; you certainly have bigger dreams, and there’s a good chance you have kids.

It’s not your age that matters when it comes to planning. Your vision and your family circumstances determine whether you need to plan and when to start.

Regardless of how much money you have in the bank, if you have kids at home, you want to be the one who decides who would take care of your kids in the short-term and who would raise them for the long-term, if you were in an accident. You definitely don’t want to leave that up to a court to decide.

Choosing who will take care of your kids and legally documenting your decisions is estate planning … if you have kids, you need it.

If you do have money in the bank (here in California more than $100,000) or own any real property, you will want that money to get to your family as easily as possible if anything happens to you. The State has a plan for your money, but it’s one that will make life difficult for your loved ones. Under the State’s plan, your family will have to deal with the Court, not have complete control of your assets for 12-16 months and they’ll pay a load of unnecessary expenses that you could have avoided if you had planned ahead.

You definitely don’t want to leave the people you love with a mess because you didn’t take care of things.

Giving your loved ones easy access to your money if you are in an accident is estate planning … if you have money in the bank or own even one piece of real estate, you need it.

And, if you have a big vision for your future, you want to set up your business in such a way that it can never be taken from you if you get divorced or sued and so that when you die, your family won’t lose half of it to the government. Yes, there are ways to totally protect what you are building and they are a lot easier to put in place when your company isn’t worth much, like when you are just starting out in your 30s.

Showing the Universe you mean business about your business and setting it up so that it grows protected for your family is estate planning … if you have a big vision for your future, you need it.

Last, if you want to pass on much more than just your financial wealth and leave the world a better place, you need to set forth the intention to do that and then take action steps throughout your lifetime to capture the intangible assets that are most often lost when someone dies, like your intellectual, spiritual and human assets. It’s about who you are and what’s important to you.

Creating a structure and plan for passing on your values, insights, stories and experience is estate planning …. If you want to leave the world a better place, you need it.

So, what do the old rich guys know that you
should know too?

The most important thing to know is that estate planning is really NOT a do it yourself process.

Sure, you can prepare your own will, trust or health care directive, but real deal, make a difference for your loved ones estate planning (what I call Family Wealth Planning) is about far more than documents; it’s about making the very best decisions for yourself and the people you love most so you can leave the world a better place. And that kind of estate planning cannot be done without the guidance of a trusted personal lawyer to be there for you throughout your lifetime and for your loved ones after you are gone.

Think about the old rich guys …. the guys whose family wealth has grown at each generation –Rockefeller, Carnegie, and Ford to name a few – all had personal lawyers advising them and their family after they were gone and long before they amassed their wealth. Because of these relationships, they left long lasting legacies that improve the world. Contrast that with rich guys like Joe Robbie, Powel Crosley, Jr., and Cornelius Vanderbilt who were once the wealthiest men in America and whose fortunes have been almost entirely dissipated to estate taxes, lawsuits, divorces and general affluenza.

So, learn from the old rich guys who did it right. Show the Universe you are serious about your business by getting control of your financial future. Leave your family with a legacy of true family wealth. If you want to leave the world a better place, even on a small scale, now is the time for you to begin planning your estate.

WANT TO USE THIS ARTICLE IN YOUR E-ZINE OR WEB SITE? You can, as long as you include everything in quotes with it: “Written by Alexis Martin Neely, mom, writer, speaker and Personal Family Lawyer. Alexis makes it super easy for your family to talk about and plan for sticky subjects like money, death and taxes. Get Alexis’ humorous, enlightening, and often quite revealing “Family Wealth Secrets” at: www.FamilyWealthMatters.com.”

While Jane Fonda is using street talk and the Daytona 500 is getting Google attention, this author found pearls of wisdom for the private company owner!

While the world is being entertained by Uno the Beagle and Oprah Winfrey is number one on Google Trends, Private businesses are for sale

2008-02-13T22:55:00.000-05:00

While the world is being entertained by Uno the Beagle and Oprah Winfrey is number one on Google Trends, Private company owners are selling their businesses in high numbers-hopefully.

The following statistical data, published by David Kauppi of Mid-Market Capital, Inc. should send chills up the back of any private company owner who is not working on a business plan that incorporates a finite exit strategy. The law of supply and demand is at work. This author is grateful to Dave for supplying such succinct data.

According to Federal Reserve's Survey of Consumer Finances, in 2001, 50,000 businesses changed hands. That number rose to 350,000 in 2005 and is projected to increase to 750,000 by 2009. Price Waterhouse reported in a Trendsetter Barometer Survey of Business Owners that 51% were planning on selling their company to another company compared with 18% anticipating passing on the business to a family member and 14% planning a sale to the company's management.

The trends point to more than a doubling in the number of businesses that will hit the market looking for a buyer by 2009. Simple economics and supply and demand would suggest that unless the number of buyers increases significantly, there will be an erosion in valuations for business sellers during this rush to the exits. Compare that to the relatively robust environment business sellers have enjoyed over the past 3 years. This period was supported by unprecedented Private Equity investments in addition to the available cash from corporations with rising profits.

While the world is being entertained by Uno the Beagle and Oprah Winfrey is number one on Google Trends, Private company owners are selling their businesses in high numbers-hopefully.

While you may not be a GRAMMY winner, you can be a winner of the exit planning process. SBA states, “. . . plan your exit to maximize the value."

2008-02-11T14:21:00.000-05:00

Don’t be disappointed if you are not a GRAMMY WINNER, if you own a company with revenues between $15 and $65 million, you can be a winner in the value realization game with a finely tuned exit planning strategy.

As the readers of this blog and its associated web site www.hamiltonwright.com know, this organization is committed to assist those companies in the lower middle market garner optimum value for their company. That objective can only be achieved with the implementation of appropriate exit planning strategies.

This blog regularly offers links and reference to many substantive authorities beyond this author. Examples are: Richard Jackim at The Exit Planning Institute and Rob Slee at Robinson and Foley and a handful more of experts who know how to create value for the lower middle market owner.

Another voice is making noise about the need for the implementation of exit planning to maximize value. The Small Business Administration (SBA) has a whole web site devoted to the topic of the importance of exit planning. See what the SBA has to say on that site.

One will see from the myriad aspects to exit planning that no human being can effectively plan their exit and still efficiently run their company. Enjoy the article. If questions arise, feel free to call the author at 617-924-0074.

More to come!

101 Reasons why I love you and we must End the Relationship

2008-02-11T14:02:00.000-05:00

There are 101 reasons why I love you and we must End the Relationship. While the reader may think this article has its genesis in the upcoming Saint Valentine’s celebration, the truth is this article is about the love relationship many private company owners have with the bricks and mortar component of their business.

When an owner starts the exit planning process the paramount objective is to realize the highest possible cash /value transaction. As anyone savvy in the private capital markets domain knows, the more value established the more cash to be realized in some negotiated window of time, sooner rather than later.

One of the obstacles to some transactions is the real estate component of the business. While the private company owner remembers the day he/she was able to grow the business and accumulate appropriate cash to buy their own plant and office facilities, the exit plan, where a sale of the business for the highest value is the objective, must deal with the different real estate scenarios that could occur. One of those potentials is that the potential buyer who has offered the best price for the company does not want the real estate.

While this scenario adds a complexity to the exit/liquidity event planning it is not a deal killer. It is not a deal killer if you plan and know the right real estate people who specialize in this very scenario.

This bit of information is presented in keeping with the philosophy of Hamilton Wright and the blog to educate and inform. Additionally, this point is made because it is evidence that a private company owner must embrace assistance from those who know the private capital market so that he/she can continue to run a successful business and be confident that they will realize a maximum sum for the their company.

Although there are 101 reasons why you love your bricks and mortar, you may have to end the relationship.

More to come!

Ponder the Election Results and then ponder: retirement, asset values, family business transition, exit strategy planning

2008-02-06T10:44:00.000-05:00

One can ponder the results of the election results and only divine what it all means. Thank goodness that the issues of retirement, asset values, family business transition issues and exit strategy planning are so much more specific and scientific.

While one cannot quantify the results of the presidential primary at this time, though the network talking heads seem to drink some magical elixir that empowers them to see the future, the private company owner has tools to help him/her advance into the future with a much higher degree of certainty.

That certainty comes from the old adage, “Plan your work and then work your plan.” The complexity for the private company owner is that he/she must create a plan that moves them toward maximum asset value realization while at the same time continuing to run the company. While the “Rugged Individualist” ethos is an ingrained part of American popular culture, the process for exiting or, more softly stated, transitioning out of a business into the domain of abundant liquidity ($$$$) cannot be done by the owner alone. They must get assistance from those who do not look at the company as just a transaction possibility.

Over the next five years some high percentage of the 12 million companies that are owned by Baby Boomers will come up for sale. Another way of stating this fact is that the owners will want to retire and need to sell. This exit of so many Baby Boomers will make it a buyers market. This economic condition will drive prices down and down as more privately held firms come to the marketplace. While one understands that the law of supply and demand applies equally to all players in the private capital market, some folks think it does not apply to them.

It is suggested that each and every private company owner who is contemplating turning their assets into cash visit the pages of the Exit Planning Institute’s web site. Additionally, review the recent article published by CNN’s Money Magazine titled, “What’s next for Boomers” where the experts state, “In the years ahead, five key trends will dominate your financial life. So far you’ve been lucky, Baby Boomer. Now it is time to be smart.” Another resource that a private company owner will find helpful is a publication by the Family Firm Institute that looks at family owned private companies from a global perspective. Yes, Roger and Virginia, the private capital market is subject to the vagaries of the globalized marketplace.

Remember that the daring and resourceful Lone Ranger, without Tonto at his side, could not achieve his goals of law and order. If you do not have a Tonto, you will leave saddle bags full of dollars or Euros on the table.

The Baby Boom Exit Phenomenon is both real and much easier to understand and deal with then trying to ponder the results of yesterday’s primary elections. The sooner you start the inquiry into a strategic exit plan the more asset value you will realize.

More to come!

The Lone Ranger needed Tonto, so do YOU!

2008-01-27T10:20:00.000-05:00

While the Lone Ranger was a “Rugged Individualist” he would have been powerless to accomplish his good works and strategic objectives without the help of Tonto.

As Rob Slee, the profound and prolific author of “Private Capital Markets” recently stated in a news release, “Get strategic or get out!” Private company owners, particularly those of the Baby Boom generation, must begin addressing the asset value of their business in a formal and new fashion. Remember, the law of supply and demand applies to us all equally!

Although the phrase “exit planning” may have a connotation of some kind of an end, as in death, it is really a beginning of a new and, most likely, profitable paradigm of business existence. That is to say that once a private company owner begins to assimilate the realities of the private capital market, begins planning from this new level of awareness and embraces the fact that valuation is a fluid circumstance, asset values, profits and future opportunities may increase.

While the “Lone Ranger” is prancing around mounted on the back of his trusted steed “Silver” (metaphor for the private company owner and the business), Tonto, knowing the objectives of Kimo Sabe (bright scout in Indian lore), is gathering the intelligence to move the plan forward.

Unlike the public capital markets where there are thousands of analysts reviewing a codified system of valuation, the private capital market, into which a closely held company will be sold, is much more detailed and complex.

In order to traverse this complexity, detail and the added emotional component inherent in private company ownership/potential valuation and sale, an owner needs a TONTO.

The Lone Ranger needed Tonto and so do Y O U!

More to come!

Selling America, New York Times, Virtual Deal Room - Rugged Individualist Baby Boomer Business Owner: Plan to Sell your Business or Liquidate

2008-01-20T16:55:00.000-05:00

The purpose of this web site and the regular contributions of substantiated facts are delivered to inform and educate private company owners. The focus of the education is to eliminate the logical fallacies that both the market place and the owners themselves use as foundational thinking. That thinking, based in emotional and self-serving egocentric agendas, and maybe even fear, prevent actions that can maximize asset values.

While those Baby Boomers who own businesses contemplate retirement or some process to draw the assets from their company into a liquid form, globalization (see prior posts for definition) and the agenda of multinational corporations and Sovereign Wealth Funds (SWF) are buying up enterprises in the United States.

Attention is being brought to globalization because this process impacts the middle market baby boom private company owner. If he/she cannot connect the dots that demonstrate the negative impact of global business activities, he/she is moving toward liquidation as the only means to garner cash from their business assets. Yes, stand still and globalization will eat your assets. The only action appropriate today is planning an exit to garner maximum asset value.

In keeping with the promise of this web site to only offer substantiateable data, it is suggested that the reader look at The New York Times article by Maureen Dowd titled “Red, White and Blue Tag Sale.” One suggests that the idea of globalization and its impact on the lower middle market private capital domain is considerable. What do you think?

Whatever one thinks they best begin looking at their private business within the context of a global economy. If Mr. / Ms private company owner thinks the status quo will last indefinitely they are misinformed.

More evidence of how the world is shrinking around American business is the growing popularity of virtual “Deal Rooms.” These electronic repositories for relative data on a merger and/or acquisition allow companies at any location on the planet to review intimate financial and logistics information on companies in play. CFO Magazine has an insightful and informative article on the topic. This is further evidence of just how small the business world is getting.

If you own a private company and you cannot provide a succinct definition of the Private Capital Market and Globalization you are in for a surprise when you decide to sell your company to fund your retirement or the future of your family. You must start an exit plan strategy and the sooner you begin the more you are protecting your hard earned asset value.

Selling America, The New York Times, Virtual Deal Rooms and The Rugged Individualist Baby Boomer Business Owner: Plan to Sell your Business or Liquidate

More to come!

Job Cuts, Globalization, Baby Boomer Business Exit, Private Capital Markets

2008-01-14T12:06:00.000-05:00

Job cuts, globalization, baby boomer business exit and the private capital markets are complex issues. While they are complex and need to be investigated as individual studies, one must also begin to connect the dots of relationship that exist between them.

As the major news sources report on economic issues at the macro level, which are not directly applicable or understandable in perspective to the private company owner or their employees, more detailed reporting is going on in other areas.

One of those areas is the fine work of CFO Magazine. If you own or work for a privately held company it will be in your interest to read the following two articles. One of the pieces was published on 23 October 2007 and the other on 11 January 2008.

The article published in October reports that jobs are not only disappearing in the financial sector but job losses, in large chunks, are occurring in additional sectors as well. The piece in January, also written by the fine CFO writer, Stephen Taub, states, “Job cuts are surging, led by the mortgage lending industry.” The job losses are not just in the United States (US). As the latter article indicates and substantiates, large companies on a global scale are cutting workers. If large public companies, who operate in the US and around the globe, are reducing their workforce, should private company owners and those who work for them be concerned about their future?

Planning for the future requires globalized thinking and acting. The US, while certainly a super economic and military power, is impacted by the vagaries created by globalization. No longer can the US believe it is outside of the economic influence of the world markets. Keep in mind that while the US is a big guy on the block the US economy only makes up 25% of the global economy. A private company owner must be global in his/her analysis of the future. A helpful tool for analysis of the impact of globalization on private company owners, who only operate within the boundaries of the US, can be found at the Global Policy Forum web site. Keep in mind that only 4% of American companies export and that privately held corporations employ 60% of the US workforce. That scares this Baby Boomer!

There are 12,000,000 million Baby Boomer Business owners in the US. Many of those folks have begun taking their company to the market for sale in order to create a liquidity event and retire or go on to other endeavors. This asset transfer/exit tsunami of baby boomer businesses is creating a supply and demand scenario that is driving down asset values (see prior posts for substantiation).

With asset values reduced from the simple application of the law of supply and demand, one must then add the globalized component of the marketplace. Who Mr. /Ms private company owner will you sell your company to? As one tries to answer that question keep in mind that the private capital market is not restricted to the US shores. Further, because lower middle market firms do not have a concrete foundation in globalized trade, what does your business plan for the future and potential exit forecast?

This article is directed at those who work for or own private companies in the US. If you are not aware of the impact of sizeable global job cuts, globalization as a reality and its impact on your daily life, the Baby Boom Business Exit Phenomenon and how the private capital markets work, your economic/business future is in peril.

More to come!