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Home > Archives for orlando

What “Buy and Build” Strategies Mean for the Lower-Middle Market

June 30, 2018

Acquisitions by private equity companies of lower-middle-market businesses has become the main source of value creation for their portfolios. Buy-and-build refers to the buying of a platform company with a well-developed management team and infrastructure, and then using those capabilities to acquire one or more add on companies to build out and grow the platform. According to Boston Consulting Group*, buy-and-build activity has increased from 20% of all PE deals in 2000 to 53% in 2012. The reason for the surge is clear: buy-and-build deals generate an average internal rate of return (IRR) of 31.6% from entry to exit, compared with 23.1% for standalone deals.

PE firms look to buy-and-build strategies due to the traditionally short holding periods of private equity. The typical PE investment thesis requires its portfolio companies be bought and sold fairly quickly, usually within three to five years. PE firms structure their portfolios to invest for their limited partners and then return this investment with value appreciation within a fixed, relatively short time period.

To be successful in this strategy, PE firms work to rapidly increase revenue and profitability of their portfolio companies, in order to structure a quick exit (and high return on investment). The fastest way to drive revenue is through additional “add-on” acquisitions versus traditional organic growth. Hence, the “buy-and-build” strategy is put to work to deliver the needed rapid growth.

So what does this mean for lower-middle-market companies? It means there is allot of capital in the market ready to be put to work in consolidating highly profitable businesses in fragmented industries. According to the Private Equity Growth Capital Council, there are 2,797 private equity firms headquartered in the United States that collectively invest in 17,744 companies. With the baby boomer generation retiring at an increased pace, there will be more businesses available for purchase than ever before. It is reported that 70% of businesses in the lower middle market are projected to change hands in the next ten years. These two market dynamics colliding will likely result in continued high levels of deal flow and valuations.

Therefore, business owners seeking an exit should try to understand PE’s motivations and strategies prior to negotiating a potential transaction. Likewise, owners need to be ready to move and react to opportunities quickly. The financial rewards can be extremely high, but owners need to know what they’re getting into and be thoroughly prepared. There is more to the process than just finding the right buyer, and owners shouldn’t try to go it alone. Seek out a trusted adviser to guide you through the process – without one you’ll be at a significant disadvantage in negotiating and closing your deal.

At Align, we specialize in helping lower middle market businesses navigate the capital market landscape and execute successful transactions. We’ve facilitated hundreds of transactions totaling over $1B in value, so we’ve been where you’re going and can take you there. Going through a transaction without an adviser is like playing poker when you don’t know the rules – only to find that the other players at the table are experts. You’re at an immediate disadvantage. Let us help you level the game and ensure that all walk away from the closing table happy.

*References: Buy and Build Takes Private Equity Value Creation to the Next Level; February 19, 2016; https://www.bcg.com

Filed Under: Business, Mergers & Acquisitions, Technology Tagged With: acquisition, angel, funding, investment, M&A, M&A advisor, M&A intermediary, merger, orlando, seed, silicon valley, startuplife, startups, venture capital, winter park

Yes, You Need a CFO…

June 6, 2018

Last week I had practically the same conversation with two different startup-founder friends:

“We’re stretched really thin. Do you have any advice on hiring a VP of [X: marketing, people, product, operations, etc]?”

My response …

“You’ll think I’m crazy for saying this, but I think you need a CFO.”

Most startups and small businesses kick the can on hiring a CFO-level resource until they’ve hit major growth mode. Until then, the idea is that a bookkeeper or controller can handle the day-to-day until the company is large enough to be metrics-driven. The problem with this ideology is that the strategic finance – fundraising, strategic planning, budgeting/forecasting, investor relations, and so on – fall on the shoulders of the Founder and/or CEO. Likewise, the Accounting is often not at all connected to the strategy and plan the CEO designs, so tracking, measuring, and reporting success or failure is virtually impossible.

We advise clients that if you’re at a $1MM annual revenue run rate, adding a finance professional to your executive team will probably save you more money than you pay for that resource. And they’ll save you time, as well. Better yet, using a seasoned Fractional CFO service (yes, like ours), will save you even more – you get the seasoned expertise and resource for less than hiring a permanent resource in-house.

An experienced finance executive will:

  • Take the job of managing the accounting and/or bookkeeping staff off of your plate.
  • Ensure your accounting infrastructure is built around your operations and is up-to-date with the latest and greatest GAAP pronouncements. This is especially important if your organization is seeking funding from investors and/or lenders.
  • Build an operational model for you that is cash-flow based, up to date, detailed, and connected back to the GAAP accounting that you need to produce proper reporting on the results of your business. Your board of directors, especially, will require this as they want to be able to quickly assess the health and growth of the business beyond the traditional financial reports (i.e. P&L, Balance Sheet, Cash Flow Statement).
  • Improve your processes all around, and take off of your plate, negotiating with vendors and paying invoices.
  • Build a strategic model (connected back to your operational model & GAAP accounting) that will make investor and lender conversations a lot easier. These stakeholders will fund you faster at better valuations/rates if the financial performance of the company is truly transparent.
  • Help better manage treasury and liquidity. Having a detailed operational plan will help you have access to lines of credit versus having to equity fund-raise too early. This keeps you from being so cash constrained that you’re starving your growth just to run the place.

The above list isn’t all inclusive – there is certainly allot more to be gained. All these things are really, really valuable – they have a tangible cost to the business if left unaddressed. They’ll help you know where your money is really going, where you can save money, and where are the biggest drivers and drains on your cash-flow. Armed with this resource, CEOs can make informed, actionable decisions much more quickly and can take advantage of opportunities and address weaknesses much faster. This is the lighter-fluid that ignites the fire of growth even faster.

And one last thing…the above doesn’t mean you need fancy accounting software or an expensive BI database. Quickbooks and Excel will work just fine and get you the same data. It’s more about having the resource to manage it all for you, leaving you solely focused on continuing to grow the business.

So, where do you find this resource? Well, give us a call…we’ve been where you’re going and can put the above into place for you. Link: Align Finance Services

Filed Under: Business Tagged With: accounting, accounting outside services, accounting outsource companies, accounting outsourced, accounting outsourcing, cfo, cfo outsourcing, Finance, funding, investment, M&A, M&A advisor, M&A intermediary, merger, orlando, seed, silicon valley, startuplife, startups, venture capital, winter park

Why is my technology startup not getting funding from venture investors?

February 25, 2018

We get allot of requests from early stage startups for help with their business plans, pitch decks, and seed/angel funding. While we at Align have a pretty high batting average getting our clients the funding they need, not everyone gets funding.

 Even when fully prepared, 95% of angel venture investors pitched by startups will decline to commit an investment.

That seems really daunting, we know. But, it’s a numbers game. It means there are 5% of angel or seed investors that will be willing to invest. So, what do those investors want to see to get funding? That’s the million dollar (literally) question!

Can You Do It and How Will You Do It?

Every startup that pitches an investor has the “best” idea. It’s “disruptive” and “never been done before” among many other over-used descriptions. They don’t care. They just want to know the basics: who, what, where, when, and how. The most important being the HOW. They want to know WHAT you are developing (product or service or both), WHO your leadership is, WHERE is your target market and customer, HOW will you execute, and WHEN will they realize a return?  Oh, and they also want to know exactly how you are going to use the money they give you.

It’s a Partnership

Yes, you need the capital. But you also need to make sure you’re pitching to and partnering with the right investor for the stage you are in. If you are idea or early-stage, don’t waste your time going to late-stage investors or funds. Do your research and ensure your pool of target investors lines up with your current life cycle stage, your industry, and that they have resources and expertise to bring to your organization beyond just the capital. And if that seems daunting to try and research on your own, no worries, we can help you with that.

Overall Investment

We encounter many founders that have watched too many episodes of Shark Tank and Silicon Valley – and they don’t realistically evaluate the valuation of their company. Early-stage founders and investors are extremely sensitive to valuation as it significantly impacts returns for all involved.  And founders’ ego tend to not want to give up too much of their “ownership.” Valuation is based on value. What value have you created? Be able to outline in detail your value – based on market traction, momentum, IP, operating trends so far, financial metrics, etc.

Team

Early stage investors are backing the idea and the management team. They’re betting that the management team can execute. Leadership ability, technical aptitude, prior experience, salesmanship, ambition/passion, ability to be coached, and many other attributes are things that investors will evaluate in the management team. They look for A-players. If you don’t have them, get them before you start pitching. Or, at the very least, have them committed to join pending the funding (if budget is your issue). The management team is where most deals fall apart. Investors that don’t feel confident in and excited to work with the team, they won’t invest. No matter how good the idea is.

Market & Customer

Who is your customer? It is amazing how many startups can’t answer this question succinctly. (If you can’t, call us. We can help you). Clear definition of product/service-market fit is critical. Investors want to know who will consume your good or service, and how will you get the product/service in front of them to grow volume? Pricing and distribution are components of this strategy as well – make sure you know what you are selling, for how much, and how you’re going to sell it. This is paramount because it determines the trajectory of the hockey-stick. Investors are looking for the hockey-stick – when will the market adopt the product/service and when will revenue take off?

Infrastructure

Lastly, you need to articulate how you’re going to support this growing company. First, start off with explaining how your’re going to use the investment. People, IT, marketing, advertising, etc, etc. By line item – where will the funds go? Then illustrate how you will scale the infrastructure of the business in parallel with growth. They want to see the cash burn to break-even and beyond. HR, Finance, Technology (development and support), operations, customer service, and all other applicable support areas need to be defined. Here’s a free tip: try to make as much of those costs variable and in line with revenue as possible. Fixed costs = cash burn. Then you’ll be raising money again really quickly.

Summary

So, if your business plan, pitch deck, financial plan, etc all contain the above key items, you’re likelihood of receiving investment subscriptions is much higher. Nothing’s guaranteed, but you’re far more prepared than others who don’t put the time into those details before they start the roadshows. And again, if you need help, just call us. We’ve done LOTS and LOTS of pitch decks and facilitated many, many management presentations, so we know where you’re going and what you need.

Filed Under: Business, Mergers & Acquisitions, Technology Tagged With: acquisition, angel, funding, investment, M&A, M&A advisor, M&A intermediary, merger, orlando, seed, silicon valley, startuplife, startups, venture capital, winter park

Orlando Named a Tech “Hotbed” by Forbes

January 16, 2018

It appears that Silicon Valley is losing a bit of its luster when it comes to STEM-related jobs. That’s good news for the rest of America, and even the world. According to Forbes*, the most recent data on STEM jobs suggests that tech jobs, with some exceptions, are shifting to smaller, generally more affordable places.

 In the last two years, according to numbers for the country’s 53 largest metros, the STEM growth leader has been Orlando, at 8%, three times the national average.

Coming in behind Orlando are San Francisco and Charlotte (each at 7%); Grand Rapids, Michigan (6%); and then Salt Lake City, Tampa, Seattle, Raleigh, Miami and Las Vegas (5%).

Silicon Valley still remains the tech epicenter for the foreseeable future, especially as all or most of the capital resides in that area. Most VC’s hear your Company is in another market, let alone in Orlando, and they’re quick to tell you to get out and head west. But, maybe that freeze is starting to thaw?

Why the changes?

Housing costs are likely one factor. The cost of living is astronomically high in the valley, leaving the median wage to obtain affordable housing at more than $200,000?!? These costs, coupled with far less onerous state income tax structures, are making these millennials consider moving out of the area (or not moving into it at all) in the next 5 years. These growing STEM markets have also invested heavily into amenities to lure this STEM talent. Orlando is a great example – professional sports, beautiful weather, and a beautiful arts center make the area known for more than just Disney. Frankly, people that live in Orlando loathe their city for just being thought of as the hometown to Disney. Unless you have kids, it’s unlikely you even go there.

An interesting development also points to this shift – not just the tech companies and talent are coming to these markets, but the support vendors are also making the move. Recently Deloitte and ADP announced large shared services centers to be opened in Orlando – leveraging the tech talent to fill high-wage jobs in support of the industry and the area’s population growth.

It’s All About the Capital

Until the venture capital starts to flow out of the west coast, beyond middle-market investment, these areas are likely to see their growth stay in the single digits. Hopefully a few success stories will show that these zip codes should be taken more seriously, and we start to see more capital come in from the major west coast investment firms. But, in the meantime, it’s great to see this type of press from a major publication. Single digit growth is still forward progress – as they say, even slow progress is still progress.

 

*To read the full Forbes article: Forbes, “Tech’s New Hotbeds: Cities With Fastest Growth In STEM Jobs Are Far From Silicon Valley”

Filed Under: Business, Mergers & Acquisitions, Technology Tagged With: acquisition, investment, merger, orlando, silicon valley, venture capital

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