M&A Finance vs Crowdfunding in 2013: What Works for You?

As mergers and acquisitions continue to bounce along the bottom, large company CEOs are reaping the benefits in 2013 despite struggling with the many market uncertainties that hold back deal flow. But what options for capital raising do SME CEOs have? More than you may think. But it pays to be careful.

While global M&A activity declined from over $3 Trillion in 2007 to $1.5 Trillion in 2012, according to Dealogic, it should be no wonder the damage these lingering effects are having on M&A transactions. One industry in particular, Food & Beverage is the tale or two worlds. According to the Food Institute’s annual research on Food M&A, the number of deals in 2012 was 316, down from 386 in 2011. Meanwhile, US corporate balance sheets continue to pile up cash, and Central Banks around the world continue to flood markets with new currency. The US stock market as a result continues higher and higher with the Dow past 15,000, and the S&P past 1600, both all-time highs.

The consequence of all this money flooding in from all corners of the globe is to inflate US stock prices. In fact, public food companies are trading at new record Multiples, now over 12x times earnings for food products, processing , and ingredients, up from 9x only 9 months ago. Note the recent purchase of Heinz by Berkshire Hathaway which paid $27.5 Billion to close the deal, a premium price.

Smaller private companies on the other hand, food or otherwise, are not getting as much love nor the benefits from the truck loads of global money flowing into public market stocks. Rather the multiples for lower middle market private companies are half what these giants are valued at. So why are the big deals getting bigger while small deals still lag? The assumptions I hear from smaller company CEOs is “buyers want perfection.” And any dip in earnings or EBITDA becomes a large discount to value, and hence lower purchase price offers from Strategic Buyers and Private Equity Groups. In other words “Risk Off.”

The same results can be seen in lending to middle market companies. According to the SBA: Office of Advocacy, lending from brick and mortar banks was still trending down in 2012 for loans under $1 million, at the same time interest rates are at rock bottom… hence a gap that needs filling.

Enter the new world of Crowdfunding 2.0 courtesy of the Jobs act signed by President Obama in April 2012. While the SEC is still tinkering with the final rules for just how these online portals called Crowdfunding Platforms will comply with Reg D rules, the road is paved for final release any day now that incoming SEC chief Mary Jo White has the rules on her desk for final approval. As it stands now, however, any company or person can raise money online using a CF platform like Kickstarter as long as the funds are considered a Donation.

For companies that want to borrow money using a CF platform, like SoMoLend the old rules of requiring no more than 35 unaccredited investors is still the golden rule. But that’s about to change. According to the new rules being proposed under the JOBS Act, companies can raise up to $1million each year from any number of unaccredited investors. That’s people who earn less than $200,000 per year. This opens the doors for smaller companies to beat the banks at their own game. In 2012 CF platforms raised over $2.7 Billion according to Crowdsourcing.org. That’s not much in a $200 Trillion global monetary system, or even of the $$55 Billion Angel and VC money invested each year. But, CF is growing at a tremendous rate, and is expected to top $5 Billion in funds raised by the end of 2013.

So fear not ye middle market CEOs, for until local banks can see their way back to the lending table, Crowdfunding is stepping up, ready to help new and established business owners get the funding they need to grow into bigger firms, and one day earn the higher multiples these companies deserve as much as any S&P behemoth. For food companies and everyone else in middle-market- land the time is coming to have our cake and eat it to.

Rick Andrade is a Los Angeles based investment banker focused on helping middle market companies in finance, mergers, and acquisitions. He began his career learning Big Five accounting firm strategy-consulting at Accenture and later at Cap Gemini Ernst & Young. Andrade is a Managing Director at Janas Associates in Pasadena, Ca. and blogs at www.RickAndrade.com

Read:

The consequence of all this money flooding in from all corners of the globe is to inflate US stock prices. In fact, public food companies are trading at new record Multiples, now over 12x times earnings for food products, processing , and ingredients, up from 9x only 9 months ago. Note the recent purchase of Heinz by Berkshire Hathaway which paid $27.5 Billion to close the deal, a premium price.

Smaller private companies on the other hand, food or otherwise, are not getting as much love nor the benefits from the truck loads of global money flowing into public market stocks. Rather the multiples for lower middle market private companies are half what these giants are valued at. So why are the big deals getting bigger while small deals still lag? The assumptions I hear from smaller company CEOs is “buyers want perfection.” And any dip in earnings or EBITDA becomes a large discount to value, and hence lower purchase price offers from Strategic Buyers and Private Equity Groups. In other words “Risk Off.”

The same results can be seen in lending to middle market companies. According to the SBA: Office of Advocacy, lending from brick and mortar banks was still trending down in 2012 for loans under $1 million, at the same time interest rates are at rock bottom… hence a gap that needs filling.

Enter the new world of Crowdfunding 2.0 courtesy of the Jobs act signed by President Obama in April 2012. While the SEC is still tinkering with the final rules for just how these online portals called Crowdfunding Platforms will comply with Reg D rules, the road is paved for final release any day now that incoming SEC chief Mary Jo White has the rules on her desk for final approval. As it stands now, however, any company or person can raise money online using a CF platform like Kickstarter as long as the funds are considered a Donation.

For companies that want to borrow money using a CF platform, like SoMoLend the old rules of requiring no more than 35 unaccredited investors is still the golden rule. But that’s about to change. According to the new rules being proposed under the JOBS Act, companies can raise up to $1million each year from any number of unaccredited investors. That’s people who earn less than $200,000 per year. This opens the doors for smaller companies to beat the banks at their own game. In 2012 CF platforms raised over $2.7 Billion according to Crowdsourcing.org. That’s not much in a $200 Trillion global monetary system, or even of the $$55 Billion Angel and VC money invested each year. But, CF is growing at a tremendous rate, and is expected to top $5 Billion in funds raised by the end of 2013.

So fear not ye middle market CEOs, for until local banks can see their way back to the lending table, Crowdfunding is stepping up, ready to help new and established business owners get the funding they need to grow into bigger firms, and one day earn the higher multiples these companies deserve as much as any S&P behemoth. For food companies and everyone else in middle-market- land the time is coming to have our cake and eat it to.

Rick Andrade is a Los Angeles based investment banker focused on helping middle market companies in finance, mergers, and acquisitions. He began his career learning Big Five accounting firm strategy-consulting at Accenture and later at Cap Gemini Ernst & Young. Andrade is a Managing Director at Janas Associates in Pasadena, Ca. and blogs at www.RickAndrade.com

Read: https://rickandrade.com/wp-content/uploads/2013/05/Food-Exec-Grp-Ppt-Rick-Andrade-5-7-13.pdf


MORE LIKE THIS

  • Get the CEO Briefing

    Sign up today to get weekly access to the latest issues affecting CEOs in every industry
  • upcoming events

    Roundtable

    Strategic Planning Workshop

    1:00 - 5:00 pm

    Over 70% of Executives Surveyed Agree: Many Strategic Planning Efforts Lack Systematic Approach Tips for Enhancing Your Strategic Planning Process

    Executives expressed frustration with their current strategic planning process. Issues include:

    1. Lack of systematic approach (70%)
    2. Laundry lists without prioritization (68%)
    3. Decisions based on personalities rather than facts and information (65%)

     

    Steve Rutan and Denise Harrison have put together an afternoon workshop that will provide the tools you need to address these concerns.  They have worked with hundreds of executives to develop a systematic approach that will enable your team to make better decisions during strategic planning.  Steve and Denise will walk you through exercises for prioritizing your lists and steps that will reset and reinvigorate your process.  This will be a hands-on workshop that will enable you to think about your business as you use the tools that are being presented.  If you are ready for a Strategic Planning tune-up, select this workshop in your registration form.  The additional fee of $695 will be added to your total.

    To sign up, select this option in your registration form. Additional fee of $695 will be added to your total.

    New York, NY: ​​​Chief Executive's Corporate Citizenship Awards 2017

    Women in Leadership Seminar and Peer Discussion

    2:00 - 5:00 pm

    Female leaders face the same issues all leaders do, but they often face additional challenges too. In this peer session, we will facilitate a discussion of best practices and how to overcome common barriers to help women leaders be more effective within and outside their organizations. 

    Limited space available.

    To sign up, select this option in your registration form. Additional fee of $495 will be added to your total.

    Golf Outing

    10:30 - 5:00 pm
    General’s Retreat at Hermitage Golf Course
    Sponsored by UBS

    General’s Retreat, built in 1986 with architect Gary Roger Baird, has been voted the “Best Golf Course in Nashville” and is a “must play” when visiting the Nashville, Tennessee area. With the beautiful setting along the Cumberland River, golfers of all capabilities will thoroughly enjoy the golf, scenery and hospitality.

    The golf outing fee includes transportation to and from the hotel, greens/cart fees, use of practice facilities, and boxed lunch. The bus will leave the hotel at 10:30 am for a noon shotgun start and return to the hotel after the cocktail reception following the completion of the round.

    To sign up, select this option in your registration form. Additional fee of $295 will be added to your total.