It's a Great Time to Sell a Business

“It’s A Great Time to Sell a Business” and “We invest in people” were the two themes that emerged from the recently held 11th Annual Conference of the Pittsburgh Chapter of the Association for Corporate Growth. As explained by Michael E. Gibbons, Senior Managing Director of Brown Gibbons Lang & Co., buyout funds are flush with cash and aggressively seeking to invest it and pricing multiples are “going through the roof.”

Glen B. Kaufman, Managing Director of American Securities Capital Partners, LLC confirmed the positive sentiment by stating that the M&A market was the strongest he had seen in years, highlighted by aggressive buying activity from private investment funds. He stated that EBITDA pricing multiples from recent transactions were more than double the level of two years ago.

In percentage terms, more equity is being invested in acquisition deals. Senior debt, from bank and non-bank sources is more readily available. Consequently, as explained by Albert M. Ricchio, Managing Director of Dymas Capital Management, LLC, subordinated debt providers are being squeezed. In fact, some deals are being structured very simply with a layer of equity, a layer of senior debt and options for management.

As to early stage investing, the message was more mixed. Panelists indicated that deal flow was steady and that capital is plentiful with regard to larger transactions and more mature startups. Joel Adams, Managing Partner of Adams Capital Management wondered, however, whether there is too much capital chasing too few quality transactions. He also noted that valuations for early stage investments were not uniformly increasing, that valuations were being more influenced by industry and geographical location than a general trend upward.

One particularly positive trend was noted by Jeanne Cunicelli, Principal of Bay City Capital when she stated that substantial capital was being reserved by venture capital funds for follow on investments in the companies they were backing. Ms. Cunicelli indicated that this trend and others she observed led her to conclude that the “quality of capital” is high at the present time.

With regard to very early stage investing, Patrick Stewart, Managing Director & President of IdeaFoundry, indicated that angel investors, many having been burned in the dot.com burst, are more cautious than in earlier boom times. In general he stated, angel investors are most comfortable investing in companies that have customers and revenues. It appears that the days when a software hotshot could raise millions with a “big idea” are indeed over.

One interesting theme was repeated over and over at the conference by both venture capital and buyout fund investors -- “We invest in people.” They seem to be saying, yes, you need a good idea, a good product, a good plan and numbers that add up. But that is not enough. We need to believe in you as a person. Can you accomplish what you are promising? For those seeking funding, the importance of a good management team, an enthusiastic project champion, and people who can get things done, cannot be stressed too strongly.