Bear Market Bounce?

The concern is that this bear rally is just around optimism and wishful thinking rather than reality. Also, the blogs are full of worries that no one will invest in the public market ever again.

In the long overview of public markets, there is a small window where they make a strong profit before they do self correct.

There are cycles.

Private equity investors are also impacted as the market affects their company revenues too. We are all connected in this complex financial system.

Technically, it is yet too early to call out a bottom formation since the intermediate trendline is still downward sloping and must be broken to move higher. Until we see a clear reversal of this trend, the charts suggest a bear market rally that needs additional momentum to break the bearish trendline and form a true reversal. A break above 850 on the S&P500 and a subsequent re-attempt of the previous double top around 877 should give impetus to such a trend reversal.

In the meantime, call a client and keep moving forward.

Managing private equity portfolios in the downturn

I am posting notes taken by Shailen Chande at the last CVCA conference. This is the up date on managing private equity portfolios.

Portfolio company management:
- Critical to proactively manage portfolio company performance through a downturn - increased focus on dashboard reporting and managing expectations
- Cash flow "Quick Hits": Dial back growth; Focus on streamlining direct costs as opposed to SG&A; Aggressively manage working capital
- Very rarely are cuts too deep - need to react to current environment quickly and prepare for the worst - revisit downside case

There you have it and Shailen Chande can be reached at Shailen Chande at hotmail.com

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!