Category Archives: States

Local Investment Driving Memphis’ Diverse and Growing Market: An Interview with Matt Heiter

Matt Heiter is a shareholder at Baker Donelson in Memphis, Tenn. He focuses his practice on public and private securities offerings, mergers and acquisitions, corporate governance and business planning.

Key Takeaways:

  • Companies in Memphis garner capital from a strong local market of investors, as well as eager firms from outside the state.
  • Tennessee government has effectively marketed the state’s attractive business environment, encouraging a steady stream of out-of-state money.
  • The pent-up supply of cash from the recession and a general confidence in the economy has created a robust capital market.
  • In addition to strong financials, companies should focus on their management team when seeking investors.
  • Tennessee’s emphasis on start-ups has increased access to capital for companies of all sizes.

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Growing the Tech Economy in the Southeast: An Interview with Bob Crutchfield

Bob Crutchfield is a general partner with Harbert Venture Partners, an institutional capital firm located in Birmingham, AL and Richmond, VA. Harbert Venture Partners invests in emerging technology and healthcare companies in the Southeast, mid-Atlantic and Texas. Bob has launched five successful new business ventures and has led four M&A transactions during his career.

Key Takeaways:

  • Serious tech economies require a cohesive economic development model, combining private and public capital to provide predictable funding to fuel the early growth needs of startups.
  • A coordinated partnership between public and private organizations is necessary to commercialize the innovative technology being produced in Southern universities.
  • Government dollars, in the form of non-return on invested capital or technology-based economic development site prep, are most needed for seed funding of high growth companies.
  • State money relies on private intelligence. Therefore, if private entities allocate portions of their budgets towards seed-stage companies, it’s likely that state funding will follow.
  • Tech development is not a short-term process. Government funding vehicles are needed to maintain a level of continuity, and private funders can help facilitate funding predictability by smoothing out the disruptions that can result from political changes.
  • Investment should be paired with the organizational structure and management expertise that private industries provide for early stage companies to accelerate their commercialization time horizons.

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Government & Economic Incentives: An Interview with Stewart McMichael

Based in Tennessee, Stewart is an expert and consultant on government and economic incentives. Having worked as an engineer, Wall Street tax attorney, fund manager and business owner, Stewart has a unique perspective on how small and mid-market businesses can maximize the use of incentives to help reach their goals. Currently, Stewart is working with FourBridges Capital Advisors to advise businesses on how to best integrate traditional forms of financing with all forms of incentives.

Key Takeaways:

  • Incentives (offered by federal, state, city and county governments, and some utilities) are readily available and can be highly effective. However, in many cases, they are underutilized.
  • With respect to any business within its taxing jurisdiction, the government effectively acts as a passive partner with a financial interest in the net profits of the business. Through this partnership, the government offers incentives as a way to foster the growth and prosperity of the business, reducing costs or providing it access to cheaper capital, property, infrastructure and job support.
  • In the Southeast, just at state and local levels, billions of dollars of incentives are offered each year to businesses of all sizes across most industries. Incentives can play a vital role in a business’s capital structure and should be considered as an alternative or complement to other types of capital.

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North Carolina Adds On: An Interview with Lee Lloyd on M&A Trends and Financing the Growth of High-Quality Companies

Lee Lloyd is a senior strategic advisor for M&A and financing transactions through his independent advisory firm, J. Lee Lloyd, LLC. He has over 30 years of professional experience in investment banking, business law and accounting. Mr. Lloyd was previously an investment banker with Goldman Sachs and an M&A/corporate attorney recognized in “The Best Lawyers in America.” He has advised clients on deals ranging from $5 million to $6 billion, including cross-border transactions in over 26 countries.

Key Takeaways:

  • In an effort to deploy capital, private equity firms and mezzanine funds are aggressively seeking out high-quality companies. As a result, companies of that caliber have numerous options for obtaining capital.
  • Since the recession, investors and lenders have become more risk-averse, so lower quality companies have fewer options for obtaining capital.
  • North Carolina companies currently are benefiting from readily available capital across all size and stage of maturity classifications.
  • The increasing ease and accessibility of cross-border transactions is a major trend. These deals are now more viable because of technology, relationships and experience.
  • Early-stage entrepreneurs should pursue external outreach activities to build their networks.
  • Out-of-state investors often seek a local co-investor when pursuing early-stage deals.
  • In the current M&A middle market, many entrepreneur-owned businesses are looking to grow through add-on acquisitions rather than harvest through exit transactions.

Continue reading North Carolina Adds On: An Interview with Lee Lloyd on M&A Trends and Financing the Growth of High-Quality Companies

A Seller’s Market in South Carolina: An Interview with Melinda Davis Lux

Melinda Davis Lux is an M&A partner and leader of the corporate practice group for Wyche, P.A., a South Carolina law firm. Ms. Davis Lux focuses her practice on mergers and acquisitions, joint ventures, and financing transactions.

Key Takeaways:

  • It is a seller’s market in South Carolina for profitable middle-market companies seeking capital. The challenge for these companies is not becoming more attractive to investors, but becoming more visible to them.
  • Many out-of-state PE firms are active in South Carolina, and this is one of the biggest drivers of M&A activity.
  • In addition, South Carolina companies are buying businesses in other regions of the U.S. and bringing the acquired company’s headquarters to South Carolina, which is also driving economic activity.
  • Manufacturing remains a staple in South Carolina’s economy and this sector is active in the M&A market, as are the distribution, healthcare, advanced materials, aerospace and technology sectors.
  • As PE firms migrate downstream towards lower middle-market companies, there is increased competition for local investors who want to buy small companies.

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Angel Investors Breathe Life Into Alabama Businesses: An Interview with Richard Marsden

Mr. Marsden is an attorney at Lanier Ford in Huntsville, AL. His practice is concentrated in the areas of corporate law, securities, and technology. He advises clients entering into private equity transactions and assists them in negotiations with venture capitalists.

Key Takeaways:

  • Middle-market Alabama companies in the $10 million to $50 million range can have a difficult time finding capital.
  • Bank inactivity has forced underserved middle-market companies to look for opportunities in private debt.
  • Organizations like the Huntsville Angel Network provide structure and efficiency to the investment process so that those looking to invest make well-informed strategic decisions with their money.
  • For companies above $50 million on the acquisition side, most capital comes from out-of-state.
  • State and local governments should create incentives for retaining top talent.
  • A diverse management team and a strong board of directors make a company more attractive to investors.

Continue reading Angel Investors Breathe Life Into Alabama Businesses: An Interview with Richard Marsden

Tech Companies Attracting Out-of-Region Investors to North Carolina: An Interview with David Jones

Mr. Jones is co-founder of Bull City Venture Partners in Durham, NC, and partner of Southern Capitol Ventures in Raleigh, NC. He previously co-founded and served as the Chief Technology Officer of Orthocopia.com.

Key Takeaways:

  • In today’s market, growth is one of the greatest definers of value. Consequently, private equity groups are competing to invest in tech companies because they are fast growing, require relatively little upfront capital and offer the potential for a quicker return.
  • Traditional tech centers like San Francisco, New York and Boston are investing outside their region because markets are overcrowded and value can be found in innovative companies in areas like the South.
  • The startup market is gaining strength because successful entrepreneurs who have sold their businesses are choosing to reinvest in their local communities by funding early stage companies.
  • Industries that have a binary outcome – meaning they are either approved or not, like biotech – are becoming less attractive to investors. Meanwhile, hardware companies like 3D printing are gaining traction.
  • Companies should seek to build relationships with funders long before they think they need the money. By engaging funders in the business early on, companies position themselves to call on them when the time is right.

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Early Stage Funding Growing in Tennessee, Middle Market Access More Difficult: An Interview with Commissioner Hagerty

Commissioner Bill Hagerty leads the Tennessee Department of Economic and Community Development, Nashville, TN.

Key Takeaways:

  • It is more difficult than it should be for middle market businesses to access growth capital, but early stage capital is becoming more available, especially in Tennessee. In addition to providing funding, early stage investors help entrepreneurs create a logical and disciplined capital structure that makes it easier to attract follow-on funding.
  • Obstacles to greater access to capital in Tennessee include the need for stronger links between research institutions and entrepreneurs, loss of major banks and a growing appetite for more direct flights from capital centers.
  • At the same time, Tennessee and the South benefit from the current low interest rate environment nationwide, which drives the current frothiness of corporate debt markets. This easy money environment has driven valuations higher as investors seek equity returns. With valuation multiples more reasonably valued in the South, disciplined investors are becoming increasingly interested in the area
  • Capital deployed in the South is made more efficient via a more business-friendly tax and regulatory environment that keeps more capital in the business working toward future growth.
  • Tennessee is benefiting from the states’ efforts to increase entrepreneurial activity and attract capital, including helping out-of-state private equity groups partner with local investors, which is key.

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The “Halo Effect:” An Interview with Bruce Doeg

Mr. Doeg chairs Baker Donelson’s Business Department in Nashville, Tenn., which consists of more than 200 attorneys in the Securities, Corporate, Mergers & Acquisitions, International, Real Estate, Intellectual Property and Tax Groups in 21 offices across the South.

Key Takeaways:

  • Capital is available for companies in the South with strong assets and steady cash flows – especially startups and early stage businesses.
  • Increased capital flowing into startups and early stage companies creates a halo effect that is leading to more capital for middle market companies, as well.
  • Most money is coming from money centers outside the South, as well as across the globe. Foreign investors, in particular, are looking beyond the coasts for better opportunities in other parts of the U.S., especially the South.
  • Southern cities doing especially well at attracting capital include Atlanta, Nashville, Memphis and New Orleans.
  • There are a lot of people with money on the sidelines who would like to get involved in equity investments, but they don’t have the experience, time or enough capital to be the lead investor. Need to provide a way for them to get in deals.

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Put Me In, Coach! Capital Is Sitting on the Sidelines: An Interview with Donny Harrison

Mr. Harrison is a partner in the Business Development & Capital Markets group with Ridgemont Equity Partners. Based in Charlotte, NC, Ridgemont is the largest private equity firm headquartered in the Southeast. 

Key Takeaways:

  • Capital is available for companies with a solid business plan and a good opportunity for growth, especially for larger companies with EBITDA over $10 million.
  • Debt financing is especially available and from sources in the South and other regions of the U.S. Equity capital is available in the South, but higher levels are resident in money centers outside the region.
  • There is capital sitting on the sidelines because there is more money available than quality businesses to invest in, and investors are focused on not overpaying for companies.
  • State governments are assisting capital formation by attracting headquarters of major companies, and those companies can help by being great places to work. The talent and capital typically follow.

Continue reading Put Me In, Coach! Capital Is Sitting on the Sidelines: An Interview with Donny Harrison