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I can’t tell you how many times in my investment banking careers – the first doing Wall Street deals in the 1990s and my current serving the small and middle market with sell-side and capital-raising  advisory services – I have seen companies try to get everything perfect in their own house before accessing the capital markets or pulling the trigger on a sale process, only to have the whole plan backfire when the markets correct and every potential investor runs for the exits like in a theatre on fire.  The timeless capital markets maxim is that an ideal situation for a company seeking an exit or capital is when the company is perfectly positioned and there is a tailwind in the capital markets.  But those times are relatively rare.  The more common situations are that (1) the company is not in tip-top shape but the market tailwind is strong, and (2) the company is ideally positioned but the market is blowing a headwind.  In the first situation, deals are still very doable and often at very good valuations.  In the second, they aren’t, at least at anything above a fire sale price.  Every good investment banker is constantly advising companies to always work on improving the situation they can control, but don’t let the lack of improvements keep them away from selling or financing – if that is what they need or want – when a market tailwind exists.

We have intimate knowledge of a situation right now that is a perfect example.  A fast-growing company in highly fragmented but rapidly consolidating industry – one that was fueled by exciting, disruptive technology that in turn drove the major disruption of a number of huge, well established industry players – entertained the idea of selling about 14 months ago.  Given the pace of consolidation and the high valuations accorded those companies with the best, most disruptive technology and market strategies, we advised them to immediately initiate a sale process that we estimated, based on market comparables, could produce a sales price of approximately $60MM, and possibly as high as $90MM.  We advised that market frenzies in which it was immersed are infrequent and the company should hurriedly capitalize on the favorable conditions.   The company and its investors, some of whom are name brand VCs and should have known better, decided to focus instead on polishing the company’s business model and execution, hoping that the company’s improved performance and an even frothier market would produce an even higher valuation.  Well, you know how this story goes.

Fourteen months later, the company is now finally involved in a sale process – one that was started about 6 to 9 months after our advice was rejected.  But market conditions have changed dramatically.  A full-blown industry shakeout is happening, public company comparables have plummeted, and no one wants or is able to go out on a limb and pay anywhere near what the company was worth just over a year ago.  Granted, the company is much stronger today from both earnings trend and technical risk standpoints, but it is irrelevant to the market.  The market headwind is strong and a sale above $20MM is unlikely.  In fact, sale may be impossible.  If so, the company needs cash if it is going to stay independent, but raising cash will be very difficult given market conditions.  In sum, the company’s future, indeed its existence, is at great risk as a result of its decision to wait and try for a nine-figure (or about a 10X multiple of investment) outcome when it easily had a $50MM (or about a 5X MOI) exit in its reach.  

For a PDF of the above, click here: Pigs Get Fat, Hogs Get Slaughtered…Always and Forever

Are you interested in selling your company?  No?  How about raising capital from an outside investor?  No?  That’s fine.  But are you operating your business as if you were interested?  If you aren’t, you should.  Why?

First, things can change and change rapidly.  You can’t say for certain that you will not need outside capital or that you – or your heirs – will not need or want to sell.  Second, if you don’t operate as if you were in the market to raise capital or sell, you are at great risk of losing your customers.  Because there are competitors, both ones known to you and unknown ones lurking in the shadow, that are operating their businesses as if they were in the market.  And those competitors are likely offering – or about to offer – a better product at a better price. 

 How do you operate as if you were courting capital?  You operate to maximize the value of your enterprise.  And how do you do that?  Make sure you have you have your 4 Elements, 3 Disciplines, 2 Glues, and 1 High-Impact Leader in place and firing on all cylinders.  Click TCA_Library_Leadership_The Golden Formula for Building Enterprise Value for The Golden Formula for Building Enterprise Value.

As one who has run a number companies and engaged investment bankers to assist in raising capital, buying companies, selling companies, and strategic planning, and one who has also been an investment banker for many years of my career, I have a pretty strong opinion about what they should be delivering to their clients in exchange for the healthy fees they receive. Here it is: TCA_Library_Capital Markets_Client Bill of Rights 

So when a start-up hits the wall, it’s usually a pretty fast death as people run for the doors.  And they run for the doors because they think all value has vaporized, they need a paying job, and while it’s okay to have been associated with a failed start-up, there is a stigma attached to hanging around the carcass too long.  But there is usually value in the fast sinking ship: the people themselves, their ideas, their teamwork, their connections, and, of course, their IP.  So this guy at ExitRound is trying to develop a way to effectively broker the remains.  Kind of interesting.  

Avoiding Undue Diligence: My Strange Approach To Angel Investing
http://onstartups.com/tabid/3339/bid/94928/Avoiding-Undue-Diligence-My-Strange-Approach-To-Angel-Investing.aspx

 

As an investment banker, I often hear CEOs bad-mouthing private equity and venture capital firms.  And I get that..it’s tough to have someone over your shoulder demanding performance.  But the data says companies backed by these capital sources perform better.

WordPress-driven Site and Twitter to Be Key Communication Tools

San Francisco, CA, January 14, 2013 – Traversi Capital Advisors, LLC (“Company” or “TCA”), which meets the executive advisory and investment banking needs of small and middle-market companies with revenues between $5 million and $500 million, announced the launch of a new website.

David M. Traversi, TCA’s Chief Executive Officer, said, “We are excited to announce the launch of our new website, a dynamic, WordPress-driven site that will allow us to easily and continuously add valuable content that will assist our clients and prospective clients in building their enterprise value and optimizing their capital market transactions. We’ll also be tweeting this content, and invite people to follow us on Twitter at @Traversi Capital.”

 About Traversi Capital Advisors, LLC

 Traversi Capital Advisors, LLC, the investment banking arm of Traversi & Company, LLC, founded in 1999, is an investment banking and executive advisory firm specializing in private placements of equity and debt, merger and acquisition advisory, restructurings, and executive advisory (strategic advisory, strategic execution, executive coaching, and executive team building) for companies with revenues between $5 million and $500 million.  The Company serves the IT/Software, Business Services, Financial Services, Manufacturing, Clean Technology, Media and Entertainment, Food and Beverage, Real Estate and Building, Lodging and Hospitality, and Sports and Recreation industries.  The Company maintains corporate offices in San Francisco, CA.  Its phone number is (800) 689-7941.  Its website is located at www.traversi.com.

 For a PDF of this press release, click: TCA_Press Release_01_14_13


Twitter: TraversiCapital

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