After beginning his professional service career at Price Waterhouse, Bob became the first professional employee of Frazier & Deeter, a nationally ranked CPA and advisory firm, shortly after the company was founded in 1981. In 1985, Bob became a partner and over the next 18 years he served the firm as head of the Audit and Strategic Consulting services departments. In 2000 Bob founded iLumen, Inc., the CPA profession’s leading business intelligence and analytical platform that today is used by leading CPA firms and financial institutions across the country. Bob served as CEO of iLumen through 2010 and is currently an active board member and advisor to the company. In 2011, Bob returned to Frazier & Deeter where he served as the leader of the firm’s entrepreneurial consulting practice and directs the firm’s strategic growth initiatives on both a national and local level. He is now the firm’s national practice leader in private equity.
The private equity market in the Southeast has accelerated in recent years, with a lot of money chasing a limited number of quality deals.
A good deal of private equity firms are eager to invest in traditional, family-owned manufacturing and distribution companies.
Attention is shifting toward growth equity, which is more about making a minority investment in a company and betting on the existing management team.
The technology industry is driven more by revenue than the traditional Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)-based valuation model.
The Southeast is a great place to do business because of its business-friendly environment and growing entrepreneurial infrastructure.
Dr. Ken Cyree is the Dean of the School of Business and the Director of the Mississippi School of Banking at the University of Mississippi. He is also the Frank R. Day/Mississippi Bankers Association Chair of Banking, and a Professor of Finance at the University. He holds a Ph.D. in finance from the University of Tennessee at Knoxville. His research interests include banking and financial markets, and his papers have been published in the Journal of Business, Financial Management and Journal of Banking and Finance, among other academic journals.
The culture of debt financing in the Southeast has typically been risk-averse and remains that way today.
Because traditional banks remain risk-averse in debt financing, there are more investment opportunities in the Southeast for private equity firms, venture capital firms and angel investors.
To best fuel middle market growth and activity in the Southeast, create partnerships between venture capitalism, private equity, traditional banking and hedge funds to support companies from inception to the middle market stage and beyond.
The intellectual capital found in the South’s college towns and cities have the resources to spur entrepreneurial growth.
Bill Bynum is the founder and CEO of HOPE (Hope Enterprise Corporation and Hope Credit Union), a community development financial institution established in 1994. He has advised Presidents Clinton, Bush and Obama on community development while serving as a Chairman for the U.S. Treasury Department’s Community Development Advisory Board. He currently serves as Chairperson of the Consumer Financial Protection Bureau’s Consumer Advisory Board. Bynum has received several honors including National Entrepreneur of the Year (Ernst & Young/Kauffman Foundation), Ned Gramlich Award for Responsible Finance (Opportunity Finance Network) and Annie Vamper Helping Hands Award (National Federation of Community Development Credit Unions). Today, HOPE is highly regarded as a financial institution and policy institute that advocates economic inclusion across Mississippi, Arkansas, Louisiana and Tennessee and influences related policies and practices nationwide.
Generally, capital is more difficult to access in the Mississippi River Delta region – which includes parts of Mississippi, Louisiana and Arkansas – than in other areas of the Southeast, because it is home to many underdeveloped, rural communities that investors don’t find attractive.
Many minority business owners live and work in rural regions like the Delta where access to capital is limited.
Bringing traditional financial services back to low-income areas will stimulate economic growth by giving entrepreneurs the opportunity to build equity.
Community Development Programs, like the New Market Tax Credit Program, are a good way to bring capital to areas deemed less desirable, like the Delta.
With a growing and diverse population, the Delta offers strong business opportunities for entrepreneurs who can think creatively about sourcing the capital they need.
Ramon DeGennaro is the Haslam College of Business Professor in Banking and Finance at the University of Tennessee – Knoxville. He has served as a visiting scholar at the Federal Reserve Bank of Atlanta, as the Tennessee Bankers Association Scholar and as a William B. Stokely Scholar at the University of Tennessee. He was also a visiting scholar at the Federal Reserve Bank of Cleveland, and is the author of “How the Stock Market Works,” produced by the Great Courses. His current research involves financial markets, small-firm finance, investments and prediction markets. Professor DeGennaro is also a Luminary Member of the Angel Capital Group, which has an office in Knoxville.He holds a Ph.D. in finance from Ohio State University.
The Southeast’s business-friendly climate makes it easier to do business in the region than elsewhere in the country. Despite this, the Southeast still lacks large amounts of organized capital.
In order to receive funding from angel investors, entrepreneurs must be willing to accept coaching, have a proven track record of success and outline a clear exit strategy for investors.
There are real advantages to being financed by angel groups, but that doesn’t necessarily mean angel groups are the sole source of a company’s success.
With the political uncertainty surrounding the 2016 presidential election, investors will likely be more hesitant to invest in the coming year or two.
In the near future, evolving technologies will likely alleviate geographical shortages and surpluses in capital.
In 2006, Jim Leven and Bruce Mittman came together to form the broadcast group Community Broadcasters, with the goal of being the voice for the community in small and mid-sized radio markets. The duo’s primary area of focus has been in the Northeast, but recently they’ve expanded into the Southeast with the acquisition of 12 South Carolina radio stations from Miller Communications.
A booming retail sector and business-friendly government regulations make the Southeast a great environment for businesses, specifically those in the radio industry.
From a radio industry buyer’s perspective, the acquisition process doesn’t vary much from region to region. In addition to considering financials, there’s an increased focus on facilities and people.
The current landscape of the broadcast industry means there’s likely to be more M&A opportunities in the future.
Doug Johns is a senior advisor to FourBridges Capital Advisors with many years of executive experience in the technology and telecommunication sectors. He also currently serves as the Chairman of the Board of Directors for NIVIS, LLC, the world’s leading developer and integrator of wireless network technologies.
Overall, the technology market in the Southeast is very robust, particularly in Atlanta.
From a tech standpoint, the Southeast is underserved in terms of access to capital, investment bankers and advisors.
The tech industry in the Southeast needs increased visibility to become comparable to other major tech hubs.
Developing incubators and accelerator programs are critical to the growth of tech startups.
Even though boomer-owned companies may flood the market over the next decade, strong businesses will most likely still find little difficulty in selling.
Deciding to sell can be the longest part of the selling process. After that, should take roughly three to six months to prepare the business and an additional three to six months to market the business and negotiate and close a deal.
As a seller, it’s important to be realistic about your business. Deal advisors like investment bankers, lawyers and accountants can help clean up the presentation, but they cannot build an entirely new company.
Because selling a business should result in swapping the source of the owner’s income from a business to investments, personal advisors like lawyers and wealth managers can do a lot to create an efficient transition.
Graeme Frazier is a partner in GF Data Resources LLC, which provides reliable transaction data on lower middle market transactions completed by private equity sponsors with $10mm to $250mm in enterprise value, and he is also president of Private Capital Research LLC, a consulting firm that provides investment opportunities to middle-market private equity firms and corporate clients.
• Overall, the market is very robust across the board. The Southeast is as healthy, if not healthier, than any other market in the country.
• Q1 was statistically similar to Q4, which bodes very well for the market. Historically, the volume of M&A deals tends to decline by about 25 percent from Q4 to Q1. Valuations were also up in Q1 2015. We’re likely to see a record year if things continue with this momentum.
• The average EBITDA multiples at which companies are selling were at historic levels in several market segments in Q1 2015. For example, the average multiple for healthcare services companies was 8.1x, and it was 7.7x for technology deals completed by private equity sponsors. Other notably robust sector multiples included 7.3x in publishing/media, 7.3x for distribution, 6.7x in business services and 6.6x in manufacturing.
• While this may all seem too good to be true, it isn’t. The fundamentals don’t appear to be incredibly overheated; debt multiples are up but not over the top and pricing on leverage is reasonable.
• Owners need to consider risks from the buyer’s perspective. Sellers tend to have blind spots for things relative to real estate leases, supplier contracts and customer contracts.
• Finding the right private equity partner is critical. Sellers should be looking for someone who has experience with similar companies and who thoroughly understands the industry. The right partner should have experts on staff and a proven track record of companies they’ve done business with. Continue reading Record Year is Within Reach: An Interview with Graeme Frazier→
Glenn Oken is a managing director at Mangrove Equity Partners in Tampa, FL, where he focuses on originating deal opportunities and qualifying acquisition candidates. Glenn has been a private equity investor focusing on the lower middle market for 27 years and has completed 129 transactions across 57 different niche industries.
For lower middle market companies in Florida, there are no longer geographic barriers. Money is willing to travel.
However, capital for startup companies may more commonly find seed funding through local angel groups and investors. Once they prove their business model they tend to attract interest from local investors, or from the start-up focused areas of the country.
Face-to-face meetings are essential in M&A deals. While numbers are important, relationships are key. In-person meetings give both sides an opportunity to assess the character of a potential partner.
As equity partners seek out lower middle-market companies, they look for those whose products or services are essential, non-cyclical and non-commoditized. Often, this ends up being companies with some measure of engineering content, customization, or technical capability who offer mission-critical products or services.
Thanks to the strength of the manufacturing and industrial services sector, the South may be one of the best regions for investors focused on those industry categories.
The M&A market has not yet seen a sudden mass exit by Baby Boomers. Multiple factors, not just age, are involved in an exit decision. Thus, deal volume seems to have followed a natural cycle over the years, rather than a sudden deluge of exiting Baby Boomers.