What is new with valuations and structuring of transactions?

I have more from Shailen Chande who attended the CVCA conference. Here is what Shailen has to say about Valuation & Structuring transactions:
- Valuation of Canadian PE deals never reached the heights of their US counterparts - many Canadian sponsors sat on the bench and leverage levels were relatively prudent.
- For the most part, there is not widespread acceptance of the "new world" amongst sellers - deals getting done are when sellers are distressed.
- Lack of transaction comps post Fall 2007, significantly deteriorating current trading and lack of visibility through 2009 make valuation incredibly difficult - greater emphasis on diligence.
- To mitigate valuation concerns, recent transactions have seen a greater emphasis on earn outs and vendor take backs - trend will likely continue.
- Most interesting opportunities have a restructuring angle - need to structure for the downside case.

By the way, you can reach Shailen at Shailen Chande at hotmail.com.

Two ways of looking at things

There are always two ways to see a situation.
Take this economy, for example.

My friend Andy Fireman, an Angel investor involved in interesting companies, picked up my day with this comment:

"We need to think of this economy as perhaps the best opportunity we will ever see in our lives. The question is: how do we capitalize on this. Interesting story I heard ... Joe Kennedy Sr was worth only $4 mil in 1929 ... But by 1933 he was worth $180 mil. For him, the Great Depression was a golden opportunity.
So, how do we turn this economy into an opportunity?"

Thanks, Andy. I love positive people.

How do you know who can help you to raise capital?

If an investment banker can't provide the following, DON'T HIRE THEM:
1. Experience and knowledge of innovative financing structures to maximize client value (by proof of past clients)
2. Direct relationships and established contacts with a breadth of private equity funds - ability to present a deal and know the funds will listen.
3. Produce an extremely high quality financial model and written report in a manner that will attract fund managers.
4. Prepare some 75% of the due diligence material material required by a fund - save the client the time and effort
And most importantly:
5. Be capable and experienced enough to negotiate the best terms for the client with the fund. Fund managers negotiate financing deals for a living, whereas most entrepreneurs negotiate a major financing once or twice in a lifetime. A good I-banker evens the scales.


Hope that helps!

CVCA's PD session on Deal and Valuation trends

I received a summary of the latest CVCA event from Shailen Chande. It's worth a peak:
Market overview:
- PE deal activity has been crippled by significant expectation gaps between buyers and sellers and a lack of financing
- Current baseline LBO structure for a "middle of the fairway" business - EV: 5.0-6.0x EBITDA; Total debt: 2.0-2.5x EBITDA
- Shift towards smaller deals - Larger US sponsors are looking at equity tickets in the region of US$200m
- 2009 has seen positive inflows into leveraged loan and high yield funds marking a potential return to mainstream lending
- Increasing number of GP's are returning LP commitments and/or reworking terms - fundraising market is limited, although there is demand for distressed/turnaround funds
- Increasing number of mid market US sponsors looking North to Canadian carve outs and/or distressed situations
- 2007/2008 funds will make for some of the best vintages given unprecedented buying opportunities

Is anyone getting any money?

I see Jeff Frost is asking on the Venture Capital forum on Linkedin if there is any money being loaned or invested. Here in Canada, our banks have moved onto the list of top largest banks in the world which really is quite remarkable. When you fly across the country, most of it seems unoccupied! Also, we only have six cities with a population over a million while China has 100 cities with 1 million plus people.
So to get back to the question -is anyone putting money into companies?
Yes.
First up the government is handing out sugar plums to early stage companies. But since our banks are very conservative - as they should be we have come to appreciate - it has made room for a very healthy private equity fund industry.
If you have a business generating over $10M in revenues, you are of interest to a private equity fund in your field of expertise. Old style manufacturers, do not despair, as you are of interest too.
Last night, Loewen & Partners had a board meeting with one of our clients who is doing very well with global clients. Two years ago, when we first met, it was not a pretty picture. What happened? We matched the owner with a private equity fund who bought a 35% stake in the business. They also pushed him to do the strategic changes he had always meant to do. We raised capital - over $15M for the company and they had revenues of $35M and a downward trend. So you can see that there are possibilities where your Canadian banker may not wish to go.
The smiles around the table make private equity a great business.