Finding the hidden gems
Capital markets experts preparing for the Association for Corporate Growth's DealMaker's Forum in October say investors are seeking opportunities to help companies grow, even if certain investment gems are indeed hidden.
"There is a tremendous supply of capital out there looking to be deployed," says David Mead, president of The Mead Consulting Group, Inc. "Frankly there is a shortage of places that the capital providers can find to adequately deploy the capital."
Mead says about a third of the economy is still doing well. For capital markets, certain types of businesses involved in energy, health care, and information technology are attractive now. In energy, Mead points to service companies working with new energy, such as companies that install and maintain wind and solar farms.
In old energy, natural gas is generating interest, and even controversial areas such as hydraulic fracturing (fracking) are seeing investment activity. In health care, investors like anything to do with cost containment, such as companies that develop paperless billing or disease state management. The latter refers to managing the entire disease rather than managing by categories such as pharmaceuticals, a hospital stay, and every procedure for, say, a diabetic patient. In information technology, cloud computing is hot now.
Warren Henson, president and senior managing director of investment banking firm Green Manning & Bunch Ltd., says it's a good time to sell a business.
"Even for companies that are not performing really well financially, we're still seeing some really attractive offers for businesses," he says. Henson says the hidden gems in energy include wellhead services, or companies that provide equipment and high-pressure pumps for fracking. Greg Anderson, director in the health-care industry practice at GMB, says the American Recovery and Reinvestment Act of 2009 gave health-care providers incentive to upgrade their information technology systems. That's why health-care IT companies are attractive now, as are companies that train employees on how to create and use electronic patient records.
Sean Odendahl, a partner at the law firm Holme Roberts & Owen LLP, says many of the deals he has seen lately have been health-care related. Many were physicians selling their practices to other physicians, but some were technology related.
"Health care is an industry primed for innovation," he says. The firm has also worked with mining and other resources companies that are organizing core assets with the intention of selling or tapping various capital markets.
Odendahl has noticed one positive trend lately: Companies are beginning to hire law firms and even in-house attorneys. "First you hire salespeople," he says. "In the long-term pipeline, lawyers are going to be the last hire because we are a cost center."
Henson says one trend he's noticed is some buyers are interested not in a controlling stake but want to buy only 20 percent to 40 percent of a company. The business owner gets some liquidity and a value-added partner to help grow the company.
Mead is seeing the same thing. "Traditional private equity investors have mostly invested and wanted a controlling position or majority position," he says. "We are seeing a trend for private equity firms to consider a minority investment to provide growth capital to companies and provide good management and a good business model."
Ken Lund, executive director of the Colorado Office of Economic Development and International Trade, sees a less rosy trend. Private equity and venture capital firms have become more risk-averse in the last few years, so they're not funding early stage companies. The State of Colorado has stepped in with grant programs.
"Part of the goal is to find a way to keep these startup companies here in Colorado as they get set to commercialize and launch a product, especially after investing so much time and effort in the talent in our labs," Lund says. "The other part of our goal is to keep the deal flow these startups make in the state, which should in turn help to attract private capital and further strengthen our capital markets."
ACG Denver Presents the 4th Annual DealMaker's Forum, HIDDEN GEMS & FOOLS GOLD: The Future of DealMaking in Colorado on Thursday, October 6, 2-5 p.m. at the Denver Athletic Club, 1325 Glenarm, Denver. Go here to register.
Here's the agenda:
1:30 PM REGISTRATION OPENS
2 PM - 2:10 PM Opening Remarks: Overview of Panel Discussions Presenter: Greg Anderson, Green Manning & Bunch
2:10 PM - 3 PM Panel 1: Capital Strategies for Growth Companies Discussion and insights from experienced dealmakers, investors, business owners and entrepreneurs about growth opportunities in niche markets. What factors make up the decision to seek investment for growth, sell, or stay the course? What capital sources and deal structures work in today's environment? Panel: Bill Ashbaugh, Senior Vice President, Capital Southwest Moderator: Dave Mead, The Mead Consulting Group
3 PM - 3:10 PM Brief Overview of State of Capital and Debt Markets Insights from a local investment-banking expert on the state of local capital and debt markets. Presenter: Warren Henson, Green Manning & Bunch
3:10 PM - 4 PM Panel 2: Navigating the Opportunities and Pitfalls in Healthcare's Transformation Insights from forward-thinking health-care companies and dealmakers on the opportunities and pitfalls that are on the horizon and coming, and coming fast. Technological advancements and legislative reform are primed to have a tremendous long-term impact on cost containment and the delivery of health care. Panel: Charles Fred, CEO of The Breakaway Group Larry Gray, CEO of The Assist Group Clay Anselmo, CEO of Reglera Matthew Hicks, Partner, Excellere Partners Moderator: Sean Odendahl, Partner, Holme Roberts & Owen
4 PM - 4:50 PM Panel 3: The Energy Economy: Co-existence of new and old. What's the bet? New-energy opportunities abound in the Rockies next door to traditional energy. Does traditional energy re-tell its story with a different cast of characters? What's real in new energy? What are the businesses involved in the Rocky Mountain energy industry that have the most compelling future? Panel: Peter Dawes, CEO of Compostech Structures Sean Ebert, Principal of Altira Group John Spisak, CEO of SolaRover Moderator: Brad Marvin, Bank of America Merrill Lynch
4:50 PM - 5 PM Closing Remarks Presenter: Sean Odendahl, Partner, Holme Roberts & Owen
5 PM - 7 PM NETWORKING COCKTAIL RECEPTION