Financial Management Association of New Hampshire Preparing for a Successful Liquidity Event in Today’s Volatile Markets S...
Financial Management Association of New Hampshire  Today’s sponsors:
Our Panel Participants Today <ul><li>Bas van der Brugge, Principal,  Mirus Capital Advisors </li></ul><ul><li>Peter Altern...
Backdrop: One trillion in value destroyed in the financial sector Source: Wilshire Associates; New York Times
Backdrop: One trillion in value destroyed in the financial sector ~$1 trillion in value destroyed Source: Wilshire Associa...
Public company valuations are down, in line with overall stock markets <ul><li>Overall market multiples down about 20% fro...
IPO market has virtually shut down <ul><li>Window for initial public offerings is virtually shut right now </li></ul><ul><...
Venture investors are still very active <ul><li>Venture capital is not dependent on financial leverage to generate returns...
Shift towards internet software/services most significant trend in VC funding <ul><li>VC have been investing heavily in “W...
M&A market in a down-cycle since mid-2007 <ul><li>M&A deal volumes are at 2005 levels, still above their 2002 low </li></u...
No single industry sector is seeing disproportionately less M&A activity <ul><li>No industry sectors outperformed with res...
M&A valuation multiples are under pressure <ul><li>Declining multiples reflect tough economic climate and fewer active buy...
Financial buyer activity is down, mostly driven by high-end of market <ul><li>Lack of debt availability largely wiped out ...
International buyers continue to increase activity in the US <ul><li>European companies are hitting diminishing returns on...
Still about half of deals are all-cash, but earn-outs are on the rise <ul><li>Deal structuring is highly industry and situ...
Reading the tealeaves: not yet at the bottom <ul><li>IPO market “completely shut down” even for top-tier companies </li></...
So what does this mean if I want liquidity in this market? <ul><li>IPO market should not be a near-term focus </li></ul><u...
Pre-sale planning: fundamentals are unchanged, the bar is just higher <ul><li>Learn your key value drivers and manage the ...
Top deal execution drivers <ul><li>Establish strong credibility – under-promise and over-deliver </li></ul><ul><li>Know yo...
Questions??
Thank you for coming!! <ul><li>A special thank you again to our sponsors this evening: </li></ul><ul><li>KBW Financial Sta...
Financial Management Association of New Hampshire For more information and a schedule of future events, please visit our w...
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FMA of NH: Preparing for a Successful Liquidity Event

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FMA of NH: Preparing for a Successful Liquidity Event

  1. 1. Financial Management Association of New Hampshire Preparing for a Successful Liquidity Event in Today’s Volatile Markets September 23, 2008
  2. 2. Financial Management Association of New Hampshire Today’s sponsors:
  3. 3. Our Panel Participants Today <ul><li>Bas van der Brugge, Principal, Mirus Capital Advisors </li></ul><ul><li>Peter Alternative, Partner, Mirus Capital Advisors </li></ul><ul><li>Steve Bell, Senior Director of Finance, Vertica Systems </li></ul><ul><li>Moderated by: </li></ul><ul><li>Travis M. Drouin, CPA, Partner, Moody, Famiglietti & Andronico, LLP </li></ul>
  4. 4. Backdrop: One trillion in value destroyed in the financial sector Source: Wilshire Associates; New York Times
  5. 5. Backdrop: One trillion in value destroyed in the financial sector ~$1 trillion in value destroyed Source: Wilshire Associates; New York Times
  6. 6. Public company valuations are down, in line with overall stock markets <ul><li>Overall market multiples down about 20% from 2007 peak (S&P500) </li></ul><ul><li>Technology oriented companies hit harder, losing about 25% from peak (NASDAQ) </li></ul><ul><li>Public valuations directly impact IPO market, but also affect M&A market – buyers only do accretive deals </li></ul>Source: CapitalIQ, Mirus analysis
  7. 7. IPO market has virtually shut down <ul><li>Window for initial public offerings is virtually shut right now </li></ul><ul><li>No New-England IPOs in H1 of 2008 for the first time in five years </li></ul><ul><li>IPOs in 2006/2007 supported by Special Purpose Acquisition Company (SPAC) offerings (“blank check” public shells created to do acquisitions) </li></ul>Source: CapitalIQ, Mirus analysis
  8. 8. Venture investors are still very active <ul><li>Venture capital is not dependent on financial leverage to generate returns, and therefore less susceptible to lack of debt availability </li></ul><ul><li>VCs are upping reserves to extend exit horizons (inside rounds instead of new long-term bets) </li></ul>Source: CapitalIQ, Mirus analysis (3Q08 extrapolated from Jul/Aug)
  9. 9. Shift towards internet software/services most significant trend in VC funding <ul><li>VC have been investing heavily in “Web 2.0” companies and Software as a Services (SaaS), mostly at the expense of traditional enterprise software </li></ul><ul><li>Investments in some non-traditional VC categories (e.g. financial services, chemicals) rose through 2007, but VCs appear to be retrenching in traditional technology / life sciences segments </li></ul>Source: CapitalIQ, Mirus analysis
  10. 10. M&A market in a down-cycle since mid-2007 <ul><li>M&A deal volumes are at 2005 levels, still above their 2002 low </li></ul><ul><li>Deals are still getting done, particularly in the middle-market </li></ul><ul><li>However, recent developments are impacting M&A appetites, certainly in the short term </li></ul>Source: CapitalIQ, Mirus analysis (3Q08 extrapolated from Jul/Aug)
  11. 11. No single industry sector is seeing disproportionately less M&A activity <ul><li>No industry sectors outperformed with respect to M&A activity </li></ul><ul><li>Some sub-sectors are seeing particularly healthy activity levels e.g. clean tech, digital media, healthcare technology </li></ul><ul><li>Business model, track record, risk/return profile, and other characteristics are more important drivers of deal activity than industry </li></ul>Source: CapitalIQ, Mirus analysis
  12. 12. M&A valuation multiples are under pressure <ul><li>Declining multiples reflect tough economic climate and fewer active buyers </li></ul><ul><li>This trend also reflects some bias in the types of companies getting sold in the current market (i.e. stronger companies may be more likely to wait out the market) </li></ul><ul><li>Note that valuation is significantly correlated to size – sub-$100MM companies more typically sell for 5x – 8x EBITDA. </li></ul>Source: CapitalIQ, Mirus analysis
  13. 13. Financial buyer activity is down, mostly driven by high-end of market <ul><li>Lack of debt availability largely wiped out large LBO activity </li></ul><ul><li>In the middle market, debt is still fairly readily available (at least until recently), but terms have deteriorated (e.g. higher LIBOR spreads, higher required equity contribution) </li></ul><ul><li>Mirus is still receiving significant financial buyer interest for most deals </li></ul><ul><li>Some strategic buyers are stepping up acquisitions to benefit from improved pricing of targets </li></ul>Source: CapitalIQ, Mirus analysis
  14. 14. International buyers continue to increase activity in the US <ul><li>European companies are hitting diminishing returns on local consolidation and are looking globally </li></ul><ul><li>Asian companies are looking to build out their presence in key US market </li></ul><ul><li>Exchange rate differentials probably more myth than fact as a driver (both price and earnings are affected) </li></ul>Source: CapitalIQ, Mirus analysis
  15. 15. Still about half of deals are all-cash, but earn-outs are on the rise <ul><li>Deal structuring is highly industry and situation specific. In some segments all-cash is the norm, while in others it is the exception. </li></ul><ul><li>Increase in earn-outs reflects a widening expectations gap between buyers and sellers </li></ul>Source: CapitalIQ, Mirus analysis
  16. 16. Reading the tealeaves: not yet at the bottom <ul><li>IPO market “completely shut down” even for top-tier companies </li></ul><ul><li>M&A activity is not yet at cycle low </li></ul><ul><li>Valuations not yet through full cycle </li></ul><ul><li>Uncertainty/perceived risk is impacting buyers’ willingness to do deals </li></ul><ul><li>Debt availability significantly impacted by financial meltdown </li></ul><ul><ul><li>LBOs will be hard to finance </li></ul></ul><ul><ul><li>Operating financing may prove challenging for some businesses </li></ul></ul><ul><li>VCs are still active, but upping reserves to extend exit horizons </li></ul><ul><li>More companies looking for sale due to distressed circumstances </li></ul><ul><li>Everybody hunkering down becomes a self-fulfilling prophecy </li></ul>
  17. 17. So what does this mean if I want liquidity in this market? <ul><li>IPO market should not be a near-term focus </li></ul><ul><li>Buyers market, but good companies can still get good M&A outcomes </li></ul><ul><li>Be realistic about value expectations in current market, or be willing to wait </li></ul><ul><li>Be flexible with respect to consideration (e.g. earn-out, notes, stock, etc.) </li></ul><ul><li>Expect all deals to take longer, particularly deals that require financing </li></ul><ul><li>Think expansively about buyers (international, outside-looking-in, etc.) </li></ul><ul><li>Deals are on a “narrower path” – more likely to change/fall apart after LOI </li></ul><ul><li>Keep your eyes open for opportunistic acquisitions </li></ul>
  18. 18. Pre-sale planning: fundamentals are unchanged, the bar is just higher <ul><li>Learn your key value drivers and manage the business to optimize them </li></ul><ul><li>Find the right inflection point – past performance vs. future potential </li></ul><ul><li>Build a relationships with right advisors early (lawyers, auditors, bankers) </li></ul><ul><li>Get your financial ship in shape – get audited </li></ul><ul><li>Clean up your administration (e.g. customer contracts) </li></ul><ul><li>Develop robust financial forecasting capabilities (not: “revenues grow at 15%”) </li></ul><ul><li>Put in place scalable operational infrastructure (e.g. business processes, IT) </li></ul><ul><li>Review and solidify your IP portfolio </li></ul><ul><li>Put in place the right incentive plans </li></ul><ul><li>Map out succession planning </li></ul><ul><li>Start estate planning early to avoid significant potential tax hits </li></ul>
  19. 19. Top deal execution drivers <ul><li>Establish strong credibility – under-promise and over-deliver </li></ul><ul><li>Know your buyer and their culture – and cater to it </li></ul><ul><li>Build rapport between seller and buyer principals </li></ul><ul><li>Be ready and able to move very fast – deal momentum is key </li></ul><ul><li>Make sure the real decision makers are at the table </li></ul><ul><li>Have the right people on your side involved and properly incented </li></ul><ul><li>Get help when you need it </li></ul><ul><li>Brace yourself for the rollercoaster ride </li></ul>
  20. 20. Questions??
  21. 21. Thank you for coming!! <ul><li>A special thank you again to our sponsors this evening: </li></ul><ul><li>KBW Financial Staffing and Recruiting www.kbwfinancial.com </li></ul><ul><li>MFA – Moody, Famiglietti & Andronico, LLP www.mfa-cpa.com </li></ul><ul><li>Tatum, LLC www.tatumllc.com </li></ul><ul><li>Telos Communications www.thinktelos.com </li></ul>
  22. 22. Financial Management Association of New Hampshire For more information and a schedule of future events, please visit our website at: http://www.fmanh.com

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