Category: Articles
How Private Markets Help Business Owners Fund Their Growth Ambitions
Alternatives to Traditional Equity Financing When Raising Capital
While publicly-traded equity makes up the lion’s share in the financial landscape, most mid-sized companies don’t rely on IPOs or other public offerings to raise capital. For decades and beyond, business owners have been taking advantage of private capital sources in order to grow.
If you’re a business owner considering raising funds, private investment can offer a variety of financing solutions for your company. Family offices in particular have become more significant players in this investment field, and form attractive financial partners for many businesses.
With private markets evolving at a rapid pace, let’s take a look at what this means for business owners and how this affects their prospects.
A Brief History of the Private Equity Market
Private investment arguably became all the rage with leveraged buy-out (LBO) transactions in the 1980s. A mainstay of Hollywood thrillers set on Wall Street, an LBO simply meant buying a company with mostly borrowed money — maybe 80-90% bank financing. The goal was to acquire companies at a discount, and flip them for a quick profit fueled by high leverage.
If that sounds unappealing to you as a business owner proud of what you created, we don’t blame you. It rightfully earned a reputation as a predatory practice. It didn’t have to be, but it often was.
According to Pantheon, the number of private-equity backed companies in the US and Europe has grown by 5% over the past decade, while public ones declined 2%. Fortunately, LBO funds maximizing returns solely through “financial engineering” declined in popularity since then.
LBOs are also still around, but we see more reasonable leverage levels. The focus is not on stripping companies for parts, but on committing for the long haul to add value to the marketplace — in other words, making structural business improvements.
Globally, unallocated capital (“dry powder”) in private equity has grown nearly 17% annually since 2015, reaching a new record of $1.8 trillion in 2022. That’s a lot of money looking for homes. As a business owner though, adding other sources to your capital raise could open the door to more opportunities faster, with more fulfilling outcomes.
Beyond Private Equity Funding
Sometimes referred to interchangeably as the “alternative” investment space, private investment essentially involves securities or ownership interests which are not publicly traded — an alternative to typical listed stocks and bonds. If it’s on a public exchange, by definition it is not private.
While its total size is hard to ascertain due to the assets being, well, private, Goldman Sachs’ co-president of Asset Management Alternatives Mike Koester estimates that the value of the private market has doubled from $5 trillion to $10 trillion in the last five years — still limited compared to the public equity market cap of $60 trillion with another $60 trillion in public credit, but increasing significantly nonetheless.
The public markets have been a traditional place to invest or grow your business, but this may not be true for all anymore. Private markets offer an opportunity for investors who want to diversify their portfolios or have access into exciting new growth industries. It’s no surprise that they continue to attract capital.
As companies turn away from traditional funding methods and toward private investment, the number of listed companies has been declining. Ironically, more money is being invested into the public markets which are now far less populated than they used to be. This has important implications for the growth profile of public investments.
According to Pantheon, companies that remain on stock markets are typically older and larger with slower growth rates than private companies. They also suggest the potential for increased volatility, making the prospect of going public even less appealing in favor of private funding.
When we look at the entire alternative investment space, private equity dominates by holding roughly two-thirds of the market. This includes LBO funds, venture capital, and growth equity. Behind private equity are real assets. Real estate forms a substantial piece of the pie including its development and / or long-term ownership. Infrastructure (e.g. roads, ports, airports, toll roads, etc.) and natural resources also fall into this category.
The smallest yet fastest growing segment is private credit or debt. This space originally emerged as a new frontier for investors in their search for yield, and has increased tenfold in the past decade. With a value of $1.2 trillion, the private debt market continues its growth in the US and has gained momentum across Europe.
Alternative debt providers have been shown to be more accessible and flexible than traditional banks. Although they typically charge higher interest rates, they can provide financial resources with minimal share dilution and limited valuation discussions. Term loans, business lines of credit and invoice financing are just some examples that alternative debt providers offer businesses. Other financial products have debt obligations combined with equity characteristics such as mezzanine or convertible debt.
Private markets have a proven track record of outperforming their listed counterparts, even when measured on a risk-adjusted basis. Despite economic headwinds and geopolitical uncertainty, this sector continues to grow in business finance.
The Democratization of the Private Markets
The private financial markets used to comprise primarily of institutional investors. Nowadays, you don’t have to be an institution anymore to pursue the outsized gains available in this sector.
Private individuals and investment groups play an increasing role due to easing of regulations which started in Europe, followed by the US, and elsewhere. Analysts estimate that 20-30% of private funds originates from retail investors, compared to 5-10% in the past. According to Koester from Goldman Sachs, going forward this group will overtake institutional investors.
High-net-worth investors could simply be one person (or team) with deep pockets, who has a skill set, network, or significant distribution platform. By contrast, family offices are independent companies that high-net-worth families use to outsource their financial growth.
More than one family may own one family office, but they can’t solicit new investors like a fund can. Because they represent the financial interests of a small and limited number of people, family offices face a lower regulatory burden compared to funds (see our article on the subject for in-depth reading on family offices).
The private space has seen increasing involvement from family offices, an investor class with anywhere from tens of millions to tens of billions of dollars in capital to deploy. According to some estimates, there are ten times as many family offices in the game now compared to ten years ago.
The Benefits of Family Offices for Business Owners
Not only are we seeing the scale tip from public to private financial markets, and institutional to non-institutional investors, but also from traditional investment vehicles to direct investments. For business owners looking to raise capital, these are just some of the dynamics that should be taken into account.
Family offices have many advantages as investment partners for businesses because they don’t have the same exit pressure that fund managers have. They are in a position to be patient and flexible with the ability to offer alternative financing solutions (equity and / or debt).
Family offices increasingly prefer direct investment over placing capital in a private equity fund to avoid paying fees. This also carries potential benefits for business owners, especially those who have shied away from private equity investors, perceiving them as beholden to profit and unsympathetic to the company’s original purpose.
These investor groups tend to be more personally engaged in their investments. They may also be as interested in the value they can add to the company as the impact they can make — not just yield for the sake of yield. High-net-worth families have often built businesses of their own. They may have unique skill sets to contribute to the companies they invest in — the ability to serve as an asset to the company other than just a source of capital.
Likewise, independent sponsors are a natural evolution of the direct investment space. They act like private equity funds, except they source deals before the capital is raised, relying on a network of family offices (and an increasing number of private equity firms) to fund the deal. They provide capital to businesses that might not otherwise be available, and generate value through their involvement and expertise (see our article for a deep dive on independent sponsors).
Key Considerations When Selecting a Financing Partner
As a business owner it may be tempting to accept much-needed capital from whatever available source … but be careful: a misalignment can have disastrous consequences.. The money isn’t enough — the strategic contribution and the intention matters just as much, if not more.
Before you pick your funding source, consider:
- Where are you in the life cycle? Are you in the ideation phase, launch and traction, scaling and growing, the breakout phase, or the “established” phase? Different funding sources are better for different phases.
- What’s your endgame? Are you looking for disruptor status and a billion-dollar valuation at exit? Self-sustaining middle-market status? A valuation boost? Different funding sources and structures are better suited for different outcomes as well.
- How much control are you willing to give up? How much equity are you offering, or do you prefer not to dilute? Different investors and structures leave you, the owner, with more control. Others will allow the investor broad decision-making power, whichisn’t necessarily a bad thing.
- What’s your time horizon? Are you too young to retire and looking to cash in some of your chips while remaining on board? Do you anticipate a quick boost and cash-out, or does your private investment partner have to sit tight for a three-year plan to play out? Or five years? Or ten years? Different investors have different capacities for patience.
Cap Expand Partners helps match promising companies with the right sources of capital and financing structures. If it’s time for funding and you need guidance, don’t hesitate to reach out to us. You have nothing to lose by having the conversation. Let’s get the ball rolling on the next phase … or your exit strategy.
How to Scale and Accelerate Your Proprietary M&A Deal Flow
Next-generation dealmaking for private investors.
No private equity investor ever changed the world — or amassed a fortune — by being one shark in a feeding frenzy. Where do you think the term “red ocean” came from?
Yet that’s what so many private equity deals are, especially in the mid-sized M&A space. Deals are shopped by investment banks to multiple investor groups. Competition is fierce, and whoever limps across the finish line is rewarded with a deal that has had all the meat picked off the bone.
Worse still, the last man standing tends to suffer from “Winner’s Curse” — paying more for the company than its intrinsic value.
No, true private equity Nirvana lies in proprietary deals — deals outside of the feeding frenzy. With proprietary or “off-market” deals, a private equity firm is often the only investor in contention for the deal. Why? Because proprietary deals evolve from relationships with the founders as well as your brand.
Maybe the owner had no intention to sell but sees a fruitful opportunity in partnering with a particular investor. This not only allows the investor group to get a better price; it also fosters a stronger relationship of mutual benefit between the founder and the investor.
But these kinds of founder relationships don’t grow on trees. It takes a proactive origination strategy that generates better deal flow — a consistent and significant influx of relevant investment opportunities that will perform throughout the cycle. Firms that do this successfully will benefit from consistently higher returns. They can identify the best option, rather than let scarcity or lack of comparison lead them to invest in a dud.
So how does a private equity firm, family office, corporate development/M&A group or direct lender create proprietary deal flow, especially if they don’t have the network and resources of one of the big players?
We live in exciting times — deal origination has never been easier. Even non-institutional private investors can create significant proprietary deal flow. For investors serious about expanding their proprietary deal flow, Cap Expand Partners has prepared a 3-part video series. Let’s explore some of the topics covered.
Referrals — The Art of Visible Expertise
Building your referral network is a form of inbound marketing — getting leads to come to you rather than going out and chasing them down. Establishing deal flow through referrals means building a differentiated brand and reputation, which includes specializing in a certain industry or investment strategy. If entrepreneurs know that you have money to invest and expertise to contribute, they will come knocking.
Easier said than done, of course. Is it possible to directly influence the number of referrals, and how does one create a relevant referral pipeline of proprietary deals? A study by the Hinge Research Institute discovered that “traditional” referral sources — networking events, sponsorships, and direct requests — are in fact the weakest drivers of referral business.
Instead, the study identified and prioritized the following key factors in an effective referral pipeline:
- Visible Expertise. Approximately 40% of referrals studied owed their source to visible demonstrations of expertise — keynote addresses at conferences, publication of valuable content, demonstrations of track record, etc.
- Professional and Social Relationships. Another source of referrals came from the subjects’ relationships with other professionals, including social connections — that is, outside the workplace.
- Companies who liberally give referrals tend to get more referrals, with the top 20% of referral-giving subjects receiving 3x as many referrals as the other subjects.
While not a significant source of referrals in and of itself, referrals tend to check the website before reaching out. Since half of the referrals reviewed by the study ruled out the referred company before even reaching out to them, a quality website is an essential supporting asset to the referral pipeline.
The bottom line is this — “old-school” doesn’t mean “obsolete.” Proprietary deals are built on strong relationships, a strong reputation, and visibility. That’s what it takes to build a strong referral network.
Relationships are important, but in volatile markets like the one we find ourselves in now, staying afloat requires strong branding and positioning, industry specialization, and — most of all — a robust pipeline of deal prospects.
But how do you know which initiative is producing which deal flow? That’s where technology comes in.
Technology – Take Control of Your Deal Flow
Finance is notoriously tech-resistant. The majority of dealmakers are not taking advantage of the latest data and technology developments. People become very conservative when money is on the line, especially larger sums of money. They prefer the comfort of the tried-and-true over than the thrill of being a first adopter.
Nevertheless, the digital information revolution has put within reach of even smaller organizations the ability to generate and convert leads at a scale that firms and organizations of old could have barely dreamed of.
Private equity investors who do not leverage digital automation and operational tools to generate deal flow are stepping into a boxing ring with one hand tied behind their backs. The kind of relationships that lead to proprietary deals may take three years or longer to nurture. Without careful cultivation of a large list of leads, it’s nearly impossible to manually create and manage a robust pipeline of proprietary deals.
This brings us to customer relationship management (CRM). CRM software goes hand-in-hand with referral marketing as well as outbound digital marketing — every new lead comes into the CRM.
But that’s just the beginning … the star of the CRM show is integrations — API pathways you can use to customize your CRM with outside apps, like adding custom mods to a car.
You can integrate your CRM with every referral or inbound and outbound lead source — email, WhatsApp, social media, automated transcripts, data-scraping apps, and much more — so that all your leads land in one centralized place.
You can then use other integrations to leverage the most powerful resource a 21st-century company can access — data. Successful companies, including big players in private equity, use data-driven decision making to stay ahead of the pack. With the right tech stack, smaller firms can easily evaluate where there deal flow is coming from, what sources to double down on.
If this all sounds like a lot, here is just a brief selection of things a well-integrated CRM can do for a private company investor …
- Integrate with data-scrapers to pull targeted leads into your CRM directly from LinkedIn — all with the press of a button.
- Target decision makers by geography, industry, and company size, as well as monitor liquidity indicators like acceleration in an organization’s size.
- Track each lead’s interaction — which of your web pages and profiles they have visited, for how long, and how many “touches” they have received — and automatically assign them a “temperature” or “lead” score, so you know who is primed for the close.
- Execute “workflows” — every new lead that enters the CRM gets an automated sequence of interactions (email, text, etc.) to nurture the relationship and keep your firm “top-of-mind.”
None of this is a substitute for direct relationships. Eventually, you will have to reach out to your contacts to nurture the relationship in person.
But a well-integrated CRM ensures that fewer leads fall through the cracks. It also enables you to accelerate the nurturing of those relationships and focus your time on the most likely prospects for proprietary deals.
Independent Sponsors – Shorten Your Sales Cycle
Independent sponsors are a relatively new quantity in the private equity space, but their footprint is growing. Formerly referred to as “fundless sponsors”, they are deal sponsors unaffiliated with a set fund. Instead, they identify opportunities — usually middle- or lower-middle-market opportunities — and then raise capital to fund those opportunities from their network of private investors.
The abundance of capital has pushed funds down-market, a phenomenon that has opened the door for independent sponsors to bring creatively-sourced proprietary deals to traditional investors. Basically, the independent sponsor finds the proprietary deal for you.
Independent sponsors raise capital on a deal-by-deal basis to acquire businesses. They help coffers of dry powder find homes, while simultaneously diffusing the risk of having to find equity for transactions.
Independent sponsors can be nimble, courting different pockets of capital to fund deals. They also are becoming more refined and seasoned, many having cut their teeth in traditional private equity firms, investment banks, and ex-operators.
Any independent sponsor puts the deal under contract and assumes the risk of raising the funds to close the deal. Raise the funds from whom? From the private investors within the independent sponsor’s network. Ergo — networking with independent sponsors can afford private company investors access to deals that would otherwise be off-limits to them.
The more independent sponsors know you and know you are looking for deals, the more proprietary deals they may present to you. The capital provider only invests if they like what they bring.
Cap Expand Partners assists organizations in rapidly expanding their horizons through increased access to off-market deals. If you are an investor, fund manager, or family office representative serious about expanding your proprietary deal flow, schedule an exploratory call to discuss your strategic options.
Family Offices: What They Mean for Businesses & Independent Sponsors
Why entrepreneurs should look closely at family offices
Entrepreneurs and family offices have never needed each other more. But raising capital on a deal-by-deal basis can introduce additional risks. Some entrepreneurs, including those in the US and Europe, find it difficult to tell which family offices are prepared to commit to a deal and which may just be learning about direct investing.
At the end of the day, what do family offices invest in? And how do their priorities match up with those of business owners and independent sponsors? For a fuller discussion on the independent (or fundless) sponsor model, please see our article.
Here, we’ll look at direct investing from the family office’s point of view, with an eye toward helping entrepreneurs choose the ones that offer the best prospects for sustained partnership.
What should entrepreneurs know about family offices?
In recent years, the number of family offices has grown to more than 3,100 in the US alone, according to Mordor Intelligence and Campden. This growth reflects a worldwide trend. Europe supports an estimated 2,300 family offices; Asia is home to an estimated 1,300 family offices, but that figure is projected to grow more rapidly than in any other part of the world.
Increasing returns to capital as compared to labor, in addition to reduced operating costs, have contributed to large multi-generational-type fortunes. Family offices oversee roughly $6 trillion in assets worldwide, according to Bloomberg Wealth. Some are huge—Bill and Melinda Gates’ Cascade Investment holds more than $170 billion in total assets—but most are much smaller. Modest-sized family offices may manage closer to $100 million in assets, with a staff of five or six.
The amount that family offices invest is correlated to the family’s total asset value. Family offices usually start by investing smaller amounts to “test the waters” before increasing their allocation to a single investment manager or independent sponsor.
Depending on the asset class, some family offices may start with an investment of $200k, whereas larger ones may have minimum ticket sizes of $2 million. Substantial, and usually more institutionalized, family offices are known to commit up to $20 million per investment. In the case of direct deals, most family offices invest between $2.5-$10 million, and some may even go up to $20 million.
Why do family offices seek entrepreneurs, and vice versa?
Unlike wealth managers, family offices are freestanding investment operations that outsource a family’s investments and finances. They may serve one family or several, but are not constituted (or authorized) to solicit investments from others. Largely because they are responsible for a limited number of people, family offices are subject to fewer regulations than other investment advisors.
That freedom allows family offices to take on more risk than similar investment firms. Hedge fund titan Bill Hwang, for example, was penalized several times while managing the Tiger Asia hedge fund, and was eventually barred from the hedge fund industry altogether. But it was his family office, Archegos Capital Management, that ruined him, losing $20 billion in just two days before being liquidated.
Few family offices are valued as highly as Archegos was at its height, but most of them are free to take the kinds of risks that Hwang did. That’s good news for entrepreneurs, but it can come with some strings attached.
Why do family offices seek direct deals?
Family offices are attractive financial partners for many owner-managed businesses. As investors, they do not face the same exit pressure as traditional private equity (PE) funds, and can provide patient capital with more flexibility. With so much leeway and fewer and less restrictive mandates, family offices are natural players in the PE sphere.
As family offices become more significant players in the investment field, they have naturally come to assert their interests more forcefully. Among the consequences of their growing stature is the increased desire of family offices to avoid paying the fees that accompany limited partnership in traditional PE funds. Direct investments offer investment opportunities that address this need.
Fueled by increased inflation in the (post-)pandemic economy, unstable geopolitical conditions, and unpredictable financial markets, family offices are looking to increase their chances of producing healthy returns through direct deals. Approximately six out of ten single-family offices currently invest in private equity, and of those that invest, one in four does so on a direct basis.
Many families see going direct as a way to exercise more control over their investments and the opportunity to better align their objectives and interests with their investment strategies. These types of investments can be especially intriguing given the higher overhead associated with traditional PE funds. For many family offices, then, PE represents a valuable element of a much broader portfolio, and that element must be mediated.
To keep up with market trends and source proprietary deal flow, family offices are broadening their networks, just as their PE peers have done. This requires them to build out their platforms and budgets, including an in-house team to provide operational support for their investments. However, the cost of this effort cannot be spread across multiple investors, which puts added pressure on family offices to generate high returns.
Building relationships with external parties, including independent sponsors, forms an increasingly important part of their strategy, and creates new opportunities to strike mutually beneficial agreements.
What do family offices look for when investing in direct deals?
Each family office is different, but as an investor class, family offices do tend to share some common characteristics. Entrepreneurs looking to work with family offices should understand clearly what the typical family office seeks in an investment opportunity.
Family offices prefer to invest in companies whose internal operations and leadership are prepared for significant organic growth following the introduction of new sources of capital. The company’s growth plan, in other words, should be largely coherent by the time a business owner seeks the inclusion of a family office.
For independent sponsors, the key takeaway is to focus on direct opportunities or situations that have not been widely auctioned, articulating the specific strategies that might be implemented to create value and the experience they have in realizing this outcome.
At the same time, any family office wishing to pursue direct investing will ask about more than the specific company in which they hope to invest. This observation is useful to entrepreneurs as well. When a family office asks pointed questions about the growth strategy behind an investment opportunity, entrepreneurs can take heart, knowing that their prospective partners are prepared to make a serious commitment, or to walk away from a deal early in the negotiation process without wasting either party’s time.
What are the risks for entrepreneurs of dealing with a family office?
Family offices offer ready capital and few regulatory restrictions. For entrepreneurs, that’s both a blessing and a curse. In exchange for a valuable source of new capital, independent sponsors in particular shoulder a significantly higher burden of due diligence. Simply put, family offices are as diverse as the families behind them, and not every family office with ready money is a good fit for every direct investing plan.
Remember that many family offices are intrigued by direct investing because it allows them to exercise more control over their investments. Entrepreneurs should anticipate this tendency from the very start, and should take pains to work only with family offices whose growth philosophy matches their own.
Although financial considerations are important, they should not be the only factors guiding an entrepreneur seeking partnership with family offices. A long-term relationship guided by shared principles will benefit all parties more richly in the long run than a short-sighted, hastily negotiated partnership.
Entrepreneurs must understand both their own investment strategy and that of any family office with which they deal. This includes gaining an appreciation of how involved the family office intends to be in the long run, and how prepared they are to make their involvement serious, sustained, and successful. The wrong match can lead to a once-eager family office to withdraw its support for a deal—on its timeline, not the business’—which can throw an entire investment decision into doubt.
Entrepreneurs should be ready to do a little extra research and have a few extra conversations early on in the process, rather than hoping that things will go smoothly after the investment is formalized. At a minimum, they should be prepared to answer the following questions before committing to any relationship with a family office:
- What steps has the family office taken to identify investment opportunities? What role do such deals play in the office’s broader investment strategy?
- How are investment decisions made by the family office? Is decision-making authority well documented?
- What investment horizon does the family office expect? What does it seek by way of immediate returns? Long-term returns?
- How actively does the family office expect to manage its investments? Is its interest primarily financial, operational, or a combination of both?
How can entrepreneurs find the right family office?
Along with plenty of research and conversation, business owners and independent sponsors often benefit from the advice of firms that specialize in finding the right family office for each investment opportunity. To learn about how Cap Expand Partners introduces the likeliest family offices from its international network, please contact Sergio van Luijk at info@cap-expand.com or +3212260113.
Sell Your Business Now, or When You Retire? The Answer Might be Yes
Exit planning is part of owning a business. But when should you begin to think about moving on? Too many founders think of exit planning as an element of their retirement: something to think about as they enter their mid-60s, but not before then.
Understandable though it may be, this can be a limiting view of things—for a founder’s personal finances and for the company’s fortunes as well. The best approach and one considered by too few business owners is to exit in stages: first by exchanging some equity in the company for additional capital, and then a more traditional, largely complete exit when the founder is ready to retire.
This approach can inject capital for expansion at critical stages of a business’ life, and it can help resolve some managerial issues that affect many founders once their companies have established themselves. As always, timing is critical for any major business move, and finding the right source of new capital can make a world of difference as well.
Companies Have Midlife Crises, Too
Businesses tend to thrive on strong organic growth. But as a company establishes itself, organic growth can naturally slow down, even when things are otherwise going well. It may struggle to increase its market share in a field it helped to crowd. It may already run so smoothly that further operational efficiencies are hard to come by. Those things may make it a healthy company, but they may also prevent it from generating the capital necessary to fuel further growth.
It all amounts to a sort of mid-life crisis for many companies. The days of explosive organic growth, massive reinvestment of cash, and rapidly climbing market share are over, and expanding operations requires more capital and capacity than the company can muster on its own. This dilemma is often reflected in the founder’s own situation.
The Mid-Career Plateau
Great founders and business owners don’t necessarily make good managers. As your company grows, this distinction may become all the more apparent. Your company still relies on you for strategic guidance, but doing all the little things necessary to execute that strategy can easily become too much for any one person to handle, especially one who’s also captain of the ship. Eventually, most founders reach a plateau: having done a great job directing the company’s early stages, they find it increasingly difficult to sustain this growth going forward.
A strategic capital provider can get you break through the plateau both by bringing in the funding necessary to expand into new markets and by adding experienced voices to the company’s executive circle just when the founder needs them most. But it all depends on choosing the right time and the right partner.
Raise Capital When You Can Use It. Not When You Need It.
Before you sell part of your ownership stake in the business you founded, you should have a clear plan as to how you will use the resulting capital. And that plan should be linked directly to your growth strategy. There are other ways to cover short-term cash flow issues: equity financing must expand your company’s reach, not help it make ends meet.
For a fuller discussion of this topic, please see our article on when to raise capital.
Find the Right Financial Partner
Bringing an external financial partner on board will alter your capital structure. This may well be for the best: you might be well poised for the present, but ill-prepared for the growth on which your company’s future depends.
Working with an external financial partner is a terrific opportunity to accelerate your business plan, and it opens up a wide variety of considerations that a bank loan may not. You’ll be able to negotiate many of the deal’s terms, so be prepared to be just as choosy about your new partners as prospective investors are about your company.
Do you want to bring in someone with managerial experience, to help lighten your load in that area? If your growth strategy calls for entering new markets or territories, would you benefit from the expertise of someone who knows them well? If you plan to enter an overseas market, what restrictions apply, and what freedoms might you have to craft a beneficial deal that you would not have domestically?
The Bottom Line
In a time of increasing market uncertainty, cashing in part of the equity you have built in your company can be more than just a way to get a start on your retirement. It can also be an important way to balance your personal financial portfolio. And the extra capital and executive insight your financial partner brings to the table can help your business grow, letting you generate a stable income even when sharing equity in your company.
A seasoned expert can guide you through your options and help you arrange the staggered exit that works best for you. The first step is to maximize your company’s value, typically by streamlining operations and processes. Next, you should decide how close you’d like to remain to your company’s day-to-day operations and strategic decision-making. Do you want final say on all matters, with a clear majority equity stake in the company? Or can you use an executive partner to share the load?
The answers to those questions will help your advisor develop a plan to cash out some of your equity while staying as closely tied to your company’s operations as you choose. When it all comes together, you’ll enjoy the benefits of an even stronger leadership team–some companies bring their best existing managers on board as equity partners–and create strong working relationships with international business and financial experts. Your company will be ready for its next major phase of growth, and you’ll reap the rewards of all your hard work while still profiting from your company’s renewed strength.
Selling some of your equity in the company you founded is a huge step, and for most founders a highly emotional one. It is also completely normal, especially for companies and founders who find themselves without a clear plan for sustained organic growth. The right advisory partner for a partial exit will help you accomplish things that you wouldn’t be able to achieve on your own. Cap Expand Partners assist companies and independent (or fundless) sponsors through a network of associate partners with cross-border expertise, using modern methodologies to provide M&A and financing solutions in a structured manner.
This was also published by Coruzant on Dec 31, 2021
Raising Capital: Before You Ask How, Consider When
Startups know all too well how closely growth can be tied to rounds of capital funding. Established companies face their own questions on the matter. Not just how to find external sources of capital, but when to consider such a move.
Every company has an idea or twelve as to how it would use an injection of cash. Some of them may be good enough on their own merits, but none in and of itself is a good reason to seek external sources of capital.
Raising capital at the right time can help a company fulfil important strategic goals. Raising it at the wrong time can tie it to increasingly onerous debt-servicing requirements, or muddy the leadership waters when times get tough. Here are two crucial factors to bear in mind when you consider raising capital for your business.
When your company’s strategic plan calls for it
Capital investment should feed your strategic plan. Specifically, it should support phases of your strategic plan that specifically depend on significant capital investment.
Not all phases meet that standard. For example, if sales are steady and growing quickly enough to outpace production, you will need to take action. That does not necessarily imply the kinds of capital investment successful companies secure from external sources. Some responses require no capital investment at all. You might, for instance, look at your pricing structure as a way to moderate sales volume while increasing revenue.
Other responses to success do require some investment: increasing production and warehouse capacity will require some outlay. But those expenses should be readily offset by continued increases in sales revenue. The wiser move in a case like this may be to draw against current cash flow to pay for the new investments, borrowing only the minimum amount necessary to make up the difference.
Some phases of your strategic plan, though, all but call for you to raise capital. When you enter a new market altogether, you will need more than a one-time loan to fund a new production line. The new employees, new facilities, and new customers that come with such a move will change your company. Issuing a bit of debt or tweaking your company’s ownership structure by offering some equity may be entirely appropriate.
This goes double for companies expanding into new geographic markets. Such moves often incur unforeseen expenses and early inefficiencies. It may be wiser to treat those costs as part of the broader capital expense of expansion than to draw entirely on cash reserves and anticipated cash flows. If you raise capital through equity, you may find a partner who is both willing and motivated to lend an expert eye to your new operation.
When your company is on sound financial footing
This might seem counterintuitive, but the best time to consider raising capital is when your cash flow is steady and your finances are stable. There are two good reasons for this.
First, raising capital from “external” sources always involves an exchange of some sort. You will surrender equity or issue debt. Neither is a healthy trade simply to improve cash flow for current operations.
If you raise capital by offering equity in your company, you dilute your own share of the company’s profits. You also restrict your company’s flexibility when addressing challenges or exploiting opportunities in the future. The same goes for issuing debt, though you may preserve some operational flexibility while incurring greater risk.
In either case, raising external capital only makes good business sense if your business is stable and growing. Otherwise, it amounts to raising money against unfavorable terms just to right the ship. The better approach is to perform some triage if necessary and focus on optimizing your operations.
Second, external investors will naturally want to hedge their bets if your company appears to have significant financial weaknesses. If your debt profile and cash flow aren’t what they could be, investors will likely see this as well.
The good ones—the ones you’ll want to partner with—might avoid your company altogether, or ask for terms that are better for them. That leaves a relatively large pool of less-desirable investors offering more onerous terms. Again, it’s better to improve your bottom line through internal action than to make your company beholden to an investor who doesn’t share your vision. Grasping this logic though, doesn’t entirely clarify the decision to take on an external partner when you’re performing well.
Understanding your financing options
Raising capital of any type can lead to undesirable situations for your company. To mitigate this risk, ensure that you are familiar with the different types of financing available to you, as well as their impact on your business. If you do not have sufficient expertise in-house, seeking help from a firm that specializes in this area can go a long way. At Cap Expand Partners, we assist companies and independent sponsors through a network of associate partners with cross-border expertise, using modern methodologies to raise capital in a structured and reliable manner.
In business, timing is everything. That extends to the timing of your capital-raising efforts. Knowing your financing options prepares you to make the right moves at the right time.
This was also published by Coruzant on Nov 12, 2021
ServiceNow partner Thirdera buys 5th company, UX/UI skills (source: TechTarget, 24/09/2021)
Thirdera, a ServiceNow partner based in Leesburg, Va., has acquired a UX/UI design agency and launched a digital consulting business unit.
The purchase of Appoxio, a UX/UI design agency focused on ServiceNow, marks Thirdera’s fifth purchase since its founding in February 2021. At that time, Thirdera merged regional ServiceNow partners Evergreen Systems, Cerna Solutions and Novo/Scale into a single company. In May, Thirdera acquired Service Line Solutions, a ServiceNow partner in Australia.
The addition of Appoxio, which is based in Calgary, Alberta, will help customers improve workflows, said Thirdera CEO Jason Wojahn.
In the ServiceNow environment, a workflow automates a multistep business process. ServiceNow’s Quebec release earlier this year added a Process Optimization feature that lets partners analyze the processes underneath business workflows.
An improved workflow starts with designing an intuitive and efficient experience for customers, Wojahn noted. That’s where Thirdera Digital comes in. The business unit will house Appoxio’s 40 UX/UI employees as well as about 30 to 40 Thirdera employees who focus on UX/UI or have skills in that area.
Boosting customer experience drives greater adoption and engagement among ServiceNow customers, which leads to better ROI for the workflows that organizations build with the SaaS offering, Wojahn said.
Thirdera plans to extend its digital design skills from North America into the Asia Pacific region and Europe. “We are going to expand those digital capabilities to be in every geography we are in,” Wojahn said.
Thirdera, while continuing its acquisition strategy, is also growing organically. The company has hired more than 150 people in the last 100 days, increasing its employee count to more than 465 people, Wojahn said. The consultancy employed 120 people when it launched.
Buyers have been keen to purchase cloud professional services firms in 2021, with ServiceNow specialists and Salesforce ecosystem partners seeing particularly strong demand.
Dell channel sales sees second-quarter spike
Dell Technologies cited 45% year-over-year channel revenue growth for its fiscal second quarter, which ended July 2021 — a jump from a 14% uptick in Q1.
Dell’s client technologies line of business, which includes PCs, notebooks and peripherals, contributed to the channel expansion, growing 84% year over year. What Dell calls the do-anything-from-anywhere economy generates a large opportunity in the client business, said Cheryl Cook, senior vice president of global channel marketing at Dell Technologies.
Cook also pointed to cross-selling as an ongoing opportunity for Dell channel partners. Dell has encouraged partners to take advantage of its broader product portfolio since its combination with EMC in 2016.
Partners that cross-sell Dell’s offerings typically benefit from higher revenue expansion, Cook said. Channel companies that sell products from Dell’s client, server and storage lines of business experience eight times the revenue growth of partners that sell two lines of business and 39 times the growth of those that sell a single line of business, Cook noted.
People Tech Group launches UiPath RPA practice
People Tech Group, an IT services provider based in Redmond, Wash., partnered with software vendor UiPath to roll out a robotic process automation (RPA) business.
The organization, dubbed the UiPath Automation Practice, plans to add as many as 1,000 RPA specialists over the next three years. The practice will focus on vertical markets such as automotive, higher education, healthcare and life sciences, and government.
“We are making a big bet that UiPath’s … platform will drive managed services and solutions that fast-track our customer’s digital transformation initiatives,” People Tech Group said in statement. People Tech Group provides digital transformation, enterprise application and cloud services among other offerings.
UiPath works with more than 4,700 partners, including global systems integrators such as Accenture and EY, and national partners such as People Tech Group. Alliances between RPA software vendors and channel partners have grown rapidly in recent years.
Benelux emerges as M&A gateway for U.S. IT services firms
The United Kingdom has traditionally provided a M&A gateway for U.S.-based IT services firms that pursue European expansion.
Research from Cap Expand Partners, a financial consultancy based in Belgium, suggests some of that acquistion activity is shifting to the Benelux countries, which are Belgium, the Netherlands and Luxembourg. The number of U.S.-to-Benelux IT services transactions doubled in the first half of 2021 compared with the first half of 2020, according to Cap Expand Partners.
During that same period, the number of U.S.-to-U.K. transactions declined by a third, the company reported. That pattern has continued into the second half of 2021, according to Sergio van Luijk, managing director at Cap Expand Partners.
The shift in cross-border transactions likely stems from Brexit, van Luijk said. The U.K. left the European Union trading bloc on Jan. 31, 2020. The Benelux countries are EU members.
Channel program launches and updates
- Nutanix unveiled a distribution program within its broader Elevate Partner Program, which debuted a year ago. The distribution program’s tiered structure accommodates different types of distributors, said Christian Alvarez, senior vice president of worldwide channel sales at Nutanix. Those categories include tier-one distributors, tier-two distributors, multinational distributors, and distributors that provide training or help partners with quoting and business development, Alvarez said. Nutanix’s North American distributors include Arrow, Ingram Micro and TD Synnex. North American public sector distributors include Carahsoft and ImmixGroup.
- Cockroach Labs, a SQL database company based in New York, will add VARs and systems integrators to its partner ecosystem program. The company already executed a soft launch of the reseller portion of the program and plans to roll out the entire program in early 2022, said Jen Murphy, head of channel at Cockroach Labs. At launch, Cockroach Labs plans to offer marketing materials for resellers and systems integrators, as well as a structure to facilitate collaboration between the company’s field salespeople with partners. The company makes CockroachDB, a cloud-native distributed SQL database.
- Nobl9, a Waltham, Mass., a provider of a service-level objectives platform, introduced a channel program for systems integrators and solution providers. The company’s initial group of partners includes Accenture and Isos Technology.
Customer projects
- NWN Carousel and Cisco are providing the cloud communications infrastructure for the Laver Cup, a tennis tournament that runs Sept. 24-26 in Boston. The project involves shifting live press coverage to a remote media event, which uses Cisco Webex for unified communications. NWN Carousel is a cloud communications service provider based in Waltham, Mass.
- SADA, a business and technology consultancy based in Los Angeles, expanded online event planning company Evite’s use of Google Cloud. Evite uses Google Analytics, Google Optimize and Google Workspace in addition to Google Cloud Platform. In addition, the company has started using Google Cloud’s machine learning capabilities, according to SADA.
- Upp, a fibre-to-the-home provider in the U.K., tapped Enxoo, a Salesforce partner based in Poland, to deliver a cloud-based business support system. Enxoo focuses on digital transformation offerings for the telecommunications industry.
Other news
- West Monroe, a digital consulting firm based in Chicago, acquired Verys, a product engineering services firm. Verys specializes in building software, employing engineers, UX designers, DevOps specialists and project managers. The transaction will be the first in a series of acquisitions planned in the product engineering area, according to West Monroe.
- Upstack, a web platform that sells cloud services through sales agents, acquired two consultancies. Idea Communications Group Inc., based in Colorado, offers network and IT consulting services, focusing on medium and large enterprises. MOC4 Consulting LLC, based in California, is a technology advisory firm that specializes in secure networking.
- Most AWS partners view the cloud provider’s certification programs as a source of competitive advantage, according to a survey by Enterprise Strategy Group (ESG), a division of TechTarget. More than 90% of the partner organizations polled said their staff’s participation in AWS Training and Certification “puts their company in a better competitive position to succeed over the next three to five years,” the study AWS commissioned ESG to conduct the study. ESG surveyed more than 750 AWS partners.
- Lemongrass, an MSP that specializes in migrating SAP customers to the cloud, obtained Microsoft’s Gold competency. The Atlanta company said it extended its services to Microsoft’s cloud based on customer demand and the software vendor’s investment in SAP customers.
- Codeless Platforms, a business process automation vendor based in Poole, U.K., partnered with VIS Consulting AG, a Swiss company that offers consulting, implementation and support services.
- KnowledgeLake, a St. Louis company that focuses on document processing, added DataBank to its partner program roster. DataBank, a Kyocera Group Company, offers process improvement services.
- NinjaRMM, a remote monitoring and management software vendor, introduced Ninja Ticketing, a ticketing system that integrates with the company’s RMM platform.
Executive appointments
- Science Applications International Corp., a technology integrator based in Reston, Va., hired Kevin Brown as CISO. Brown was previously vice president and CISO at Boston Scientific, a medical device manufacturer.
- Anexinet Corp, a digital business solutions provider based in Philadelphia, named Steve Johnson as president and Matt Merriman as executive vice president of services and delivery. Johnson was previously executive partner at Mill Point Capital, which owns Anexinet. Merriman joins the company through Anexient’s acquisition of Light Networks, where he was vice president of operations.
Market Share is a news roundup published every Friday.
Originally posted at TechTarget on 29/09/2021.
The Benelux Has Become A Preferred Entry Point For Companies Looking To Expand To Europe (source: IPS News, 29/09/2021)
Mergers and acquisitions (M&A) are a great opportunity for companies whose growth potential exceeds their ability to acquire more market share organically. However, M&A is a complicated process and should not be undertaken lightly.
In 2020, M&A activity slowed down around the world, primarily due to the COVID-19 pandemic. As companies regain their footing, M&A activity is picking back up. This is especially true of cross-border M&A in Europe.
What Are Cross-Border M&A?
Cross-border M&A are similar to domestic M&A, but can be far more complicated. In most countries, a foreign company cannot directly acquire a local business. Instead, it must first establish a legal entity in the target country in order to consummate the transaction.
Cross-border M&A are the boldest of many ways to expand business internationally. Although these transactions carry additional risk, they can yield rewarding results if managed correctly.
Cross-border M&A are a global phenomenon, but it is extremely popular in countries with a history of economic liberality. This is why Europe is ideal for cross-border M&A.
The Impact of Covid-19 and Brexit on Inbound M&A Activity in the Benelux
After Brexit, companies whose European operations were weighted heavily toward the UK are naturally looking to expand their operations beyond the borders of Britain. Increasingly, companies in this situation are focusing their attention on the Benelux region (Belgium, the Netherlands, and Luxemburg). This region’s promising investment climate has established it as an exceptional point of entry for businesses wishing to expand into Europe.
The Benelux‘ strategic location enables businesses to thrive. It is a vibrant and forward-thinking market that has shown resilience even during the pandemic. The numbers speak for themselves: based on research conducted by Cap Expand Partners, in the first half of 2021, strategic acquirers based outside the UK and Europe targeted 42% more Benelux companies for their M&A transactions than in the previous year.
Apart from showing resilience and potential for growth, the Benelux offers some of the world’s best railways, airports, commercial ports, and road networks, providing efficient access to the rest of Europe. The region’s political environment is business-friendly, and actively promotes entrepreneurship and innovation. This infrastructure is further supported by prestigious universities and educational institutions that result in a highly skilled, English-speaking workforce. Additionally, the Benelux offers favorable tax regulations to non-EU countries.
The Benelux has established itself as an attractive foothold for a growing list of global companies seeking to expand into Europe. This is especially true in the aftermath of Brexit, with the UK removed from its traditional role as an entryway to Europe and economic uncertainty still looming over much of the continent. Its stability and commitment to international trade lead us to believe that the Benelux region will remain attractive for M&A activity, and we expect to see current M&A trends continue over the coming years.
The global market is full of opportunities, but the process of expanding outside your home country can be daunting. Cap Expand Partners have the experience and expertise in navigating international M&A transactions from start to finish to help you capitalize on new markets.
This post was also published by IPS News on 29/09/2021.
The Quest for Growth – Cross-border M&A and Financing in Europe
Economic protectionism and national security are the result of the rise of populist governments as well as geopolitical tensions. The digital sector has observed an unprecedented expansion. However, concerns over personal data have also increased. Market experts expect that increasing numbers of transactions are being put under vigilant scrutiny in different countries. This can lead to a longer deal closure loop. Under some circumstances, it can even result in the blockage of deals. Cap Expand Partners have identified several geopolitical trends in the markets which are impacting cross-border M&A and financing in Europe.
Cross-border M&A trends
Many cross-border M&A and financing deals await to flourish as vaccination programs roll out and economic recovery resumes in the post-COVID-19 scenario. Interest rates continue to be low and in combination with the large amounts of dry powder, private equity is playing a key role in M&A and financing in Europe. Although large corporations have significant cash reserves, many smaller business owners considering expanding to new markets lack adequate (financial) resources.
The expectation is that the US will lead cross-border M&A activity as usual. However, there is some uncertainty on the impact of the new administration’s policies in the coming months and years. As a result of Brexit, US companies considering expanding to Europe are acquiring companies in the Benelux (see earlier article published on this topic). Europe expects to host most of the inbound M&A activity from China. Many believe that China will remain the dominant player of the investment landscape in the Asia Pacific.
COVID-19 played a massive role in the growth of the technology sector. The growth in this sector is expected to trigger M&A activity in the Asia Pacific. Bankers and lawyers foresee an advantageous environment for cross-border M&A in 2021. The reason for this is the possible easing of Sino-U.S. tensions. Experts expect Chinese outbound investment to revive. The COVID-19 pandemic has profoundly increased the growth in sectors such as digitalization, e-commerce, and fintech. China and Japan led the growth in the M&A sector in Asia in 2020. As cautioned by dealmakers, China’s latest anti-trust crackdown on its tech companies could hamper future M&A.
Various economies in South Asia and South-East Asia provide another growth opportunity in cross-border M&A. Emerging economies privatize their state-owned national assets. Furthermore, new opportunities arise for investments in these countries for public-private partnerships. Some of these ventures might involve mega-transactions.
Companies continue to be subsidized by governments. This subsidy keeps companies afloat. At some point, this government support will end. This may lead to severe liquidity shortages in certain sectors, which will need to be financed.
Cap Expand Partners helps businesses expand to new geographies and markets
Companies venturing into cross-border M&A and financing in Europe can take advantage of our expertise. Our services help clients to strengthen their competitive position across geographies and market segments. We help new companies in their market entry strategies, provide them with financing options, create liquidity and optimize their financing costs. Cap Expand Partners has the expertise and resources to help find the right solution for your corporate development strategy. We assist companies by capturing value opportunities and accelerating growth through cross-border M&A transactions.
The Logic of Business Valuation
Business owners sometimes wonder why they should be interested in their companies’ valuation when they have no intention of selling the business. Exiting is hardly the only reason for learning your company’s market value. As a business owner, you need to know the baseline value of your company if you want to successfully build a business with transferable value. Valuations can play a pivotal role in the achievement of your growth objectives. The right assessment of your business value at different stages of its life cycle helps you steer its strategy in the right direction. It also enables you to track your business’s key performance indicators (KPIs).
Let’s take a closer look at some of the most significant reasons why business valuations are key to your company’s growth.
An insightful management tool
Valuation measures the efficacy of your strategic decision-making process and helps estimate changes in its overall value, not solely its revenue. In this way, it can be a powerful business-management tool, providing a comprehensive overview of your business and helping you make sound, informed business decisions. Valuation helps you identify indirect forces affecting your company and circumvent the unexpected consequences of apparently minor decisions.
A versatile navigation instrument
Valuation determines where you are and – by serving as a compass – in which directions you can readily go. The valuation process itself casts a stark light on considerations you may have missed and helps business owners make critical decisions they may have deferred. It can indicate necessary structural changes, suggest strategic reshuffling, underscore the potential return on investments in technology or human capital, and highlight opportunities to expand business through mergers, acquisitions, or joint ventures. On the other hand, it may also prompt owners to scale down their business operations.
Valuations might be the best tool for measuring growth and progress toward broad strategic goals. Businesses that perform valuations at regular intervals are able to track their performance against pre-established goals, using valuation as a powerful measure of the success of their business plans.
A report on the pulse of your business
Like a check on your heart rate, valuations put a finger on the pulse of your business. They function as an appraisal of best practices and a diagnosis of areas that require improvement. Revenues and profit may go up in some years and down in others, both for reasons that have more to do with market forces than with your company’s intrinsic efficiency and productivity. Without going through a proper valuation process, you may never know the actual condition of your business.
A guide to weak spots
A holistic valuation process also accounts for non-financial aspects. They may include organizational infrastructure, the level of technology used by the company, client demographics, and the corporate structure of the company itself. KPIs can pinpoint areas for improvement, helping you enhance your company’s value.
A guarantor of accountability
Once performance gaps are identified and a course of remediation chosen, the onus rests on the business owner to follow through. This requires owners to institute responsibility within the organization at every level, including the owners themselves. Accountability is a functional element of a strategic business plan: if you can measure it, you can manage it.
A means of predictive analysis
Valuation is an ongoing process, and wise business owners get their business re-valued regularly to gain a perspective on its worth. As the time for transition approaches, which it does for every business, historic valuations provide a preliminary point toward setting a price. Knowing your company’s worth is invaluable both for generational transfers and external sales. Business owners who do not have a firm sense of their valuation histories may be in for a shock when the time comes.
An important component of your net worth
A business’s value typically represents most of the owner’s net worth. Business owners seldom diversify far beyond the position they hold in their own business. If you know the effect of your company’s value on your personal finances, you can plan more assuredly for your own future.
Finally, the detailed examinations necessary for a proper valuation reveal the inner financial workings of your company like no other exercise can. Valuation helps you understand what is going on in your business, make more informed strategic decisions, and channel resources properly.
Cap Expand Partners’ valuation services
Cap Expand Partners assesses the value of your business or that of potential acquisition targets, including cross-border companies. Whether you are buying or selling a business or planning to expand your operations overseas, valuation is a fundamental and enlightening step.