Monday, May 10, 2010

Growth Conference Notes

Following up on my trip to the Business Growth Conference, I attended four breakout sessions: 
* Financing Growth with Debt: Fuel for your business
* Cashing in For Maximum Value: Finding the Best Exit Strategy
* Private Equity Funds: Insights about deals that get done
* CEO Confessions: If I knew then what I know now

What follows are my rough notes and observations from each session. 

Financing Growth with Debt:
            Venture Lenders
                        want warrant coverage as a % of loan
                        want security against loans
                        currently they are in a position to be "highly selective"
                        recent terms for a deal were 3.5% in fees, 12.65% interest, 8% backup fee (fee against the unused loan amount), and 80% warrants
                        monthly and quarterly payment terms

            Asset Based Lending (ABL)
                        primarily against AR (preferred) and inventory
                        80% advance on AR
                        6-18% in fees with 8-12 as the sweet spot
                        different from factoring because - w/factoring there is no risk to borrower, ABLs prefer to lend $500k and more, and factoring is more expensive

            Traditional Banking
                        discussed ways to get around a PG if a Co can stand on its own
                                    look at Cash Flow, LTM EBITDA, Growth, and EBITDA as a % of cash flow
                        often ask the question - is it debt or is it equity that I"m ultimately on the hook for

Cashing in for Maximum Value
            there is currently pressure for PE firms to invest
            acquisitive companies are flush with cash
            expect activity in the deal markets this fall
            strategic buyer valuation = DCF + synergies
            diversification of a company's channels mitigates risk
            an entrepreneur who sold 70% stake to a PE consortium had the following comments
                        had a lot of data and info on the biz which was a plus for the buyers as he was able to anticipate the next three or four questions and provide data against them
                        took 1 year to complete the deal.  Took his time FT and relied on another exec to run the business
                        you need to define your objectives for your exit/liquidity event
            deals are closing in a much longer time frame than in the past - buyers are more actively looking for "things that come up" for which they can they adjust the term sheet
            need to consider 1 time events that are reflected in the financials and are the FS reliable
            consider: what are the industry trends?
            best way to handle due diligence is to prepare ahead of time
            DD will cover several areas, thoroughly
                        Legal, IT, Financial, Tax, People, Commercial (partners, contracts, etc.)
            use an "e-room" for doc storage to allow others access to them
            the entrepreneur described his process for selecting professional service providers:
                        interviewed 5 IB firms, all top and highly qualified
                        wanted to be the "big deal" for them, not just some other deal
                        didn't want big egos to get in the way of the deal

Private Equity Funds
            looking for CEOs with proven track record of success
            and companies with thick Gross Margins
            generally looking for companies with between $20 - $250M in revenues requiring $10 - $50M in equity capital
            I asked a question about target Co's cap structure and how that affects their decision - ans: look primarily at senior debt and anywhere there is 2x EBITDA

            the session had a lot of good stories and anecdotes but nothing specific worth making note of, outside of what I've already shared

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