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September 21, 2018 No Comments Author: Andy Jones

Investment Banking – Deal Flow Challenges

The challenge for all investment banks at any given time is cultivating quality deal flow. In this case, “quality deal flow” means businesses with these attributes:

  1. Growing revenue streams, (preferably recurring)
  2. Stable, increasing cash flow
  3. Scalable
  4. Non-cyclical products or services
  5. Low CapEx required to achieve growth
  6. An excellent management team
  7. A diverse customer base
  8. A motivate seller

With corporate valuations at historic highs (in 2018), business sellers operating “quality” businesses tend to have the mindset that they should hold longer. They delay an exit because cash flows are good, and the company continues to grow. Further, using the recent historical performance of their company to forecast growth prospects plus applying recent high valuation multiples, leads many company owners to rationalize that they should continue to grow the company because it will be worth even more in a year or two.

July 12, 2018 No Comments Author: Andy Jones

Value of Cash Conveying in an M&A Transaction

I’ve been asked the following question on several occasions:

If a publicly traded company is being acquired and it has cash in the bank, would the acquirer need to pay more to include the value of the cash?

It’s kind of a technical question, and the answer is somewhat unintuitive initially, but fairly straight forward once explained with a simple analogy.

Short Answer

The calculation for Enterprise Value (EV) – the actual value of the company – subtracts cash.

EV = (market cap) + (debt) + (minority interest) + (preferred shares) – (cash and cash equivalents)

If this seems backwards, keep reading.

July 03, 2018 No Comments Author: Andy Jones

Displaying Integrity Helps Close M&A Deals

Integrity between principles can be considerably more valuable than specific deal points in an M&A transaction.

Late one evening, back in my investment banking days, we were hammering out the final points of an acquisition contract for our client to sell his engineering firm to a much larger corporate buyer. We were in a large conference room at the law office with several representatives from the buy-side (including the CEO), their lawyer, our clients (a majority owner and two minority owners), our client’s lawyer and two bankers – one of which was me.

June 25, 2018 No Comments Author: Andy Jones

Using Humor to Help Close M&A Deals

Humor can be a powerful tool to push through negotiation barriers in M&A transactions. I remember one sell-side deal in particular where humor, brilliantly applied, probably saved the day.

We were negotiating the final points of the acquisition contract. In the conference room that evening were the two owners from the sell-side (our clients), the CEO and CFO from the buy-side and two bankers – one of which was me.

June 01, 2018 No Comments Author: Andy Jones

Private Equity Relationships with Select Investment Banks

Private equity firms try to develop and maintain good business relationships with the various investment banks because the I-banks drive potential deal flow to the PE firms. It’s a symbiotic relationship.

When private equity firms exit their portfolio companies, some act as their own M&A advisor (private equity executives often have prior investment banking experience), but many PE firms hire investment bankers to represent them in the sale of their portfolio companies.

Which Investment Banks Do They Engage?