Axial has published its Industrials YTD 2013 Network Activity Report. The report, which reviews the 725 active Industrials Opportunities on Axial, includes real-time data and trends in the space.

Overall, the Industrials space has had a mixed year. While factors like sluggishness in deal making, shifting regulatory changes, and the sequester have slowed activity, there are a variety of positive trends on the horizon.

Topics from the report include:

• Rising margins for Industrials companies
• Trends in A&D given the ongoing budget cuts
• The impact of airline mergers and cheap energy on Transportation
• The effect of the weak housing market on Building Products
• And more…

View the One-Page Tear Sheet

Download the Full Report

The post Industrials YTD 2013 Network Activity Report appeared first on Axial.

The story of Yahoo’s $1.1 billion purchase of Tumblr, a microblogging and social networking site, lit up media channels yesterday.

The deal stands as one of the largest social media acquisitions in years, beating out Facebook’s $1 billion acquisition of Instagram last year. The acquisition — along with the ten others already made by CEO Marissa Mayer — indicates the aggressiveness with which Yahoo is looking to rebrand and reposition itself in the online community. With the purchase, Yahoo hopes to gain a 50% increase in its user base, increased web traffic, a new engagement channel for its historically weak sectors (fashion, art, travel, etc.), and the one thing it’s argued can’t be bought: the cool factor.

While the strategic implications are interesting, the biggest unanswered question is around Tumblr’s billion dollar price tag. How did a company that generated just $13 million in revenue last year get acquired for $1.1 billion?

To find the answer, we did not look very far — the same question was being asked just over a year ago in the aftermath of Facebook’s acquisition of Instagram.

Insiders chalked up Instagram’s inflated price tag to the buyer competition Instagram CEO Kevin Systrom created for the start-up. While in talks with Twitter, Systrom shopped the deal to Zuckerberg who, in a whirlwind weekend of deal-making, offered to buy the company for $1 billion. By creating competition and by playing on Zuckerberg’s fears of becoming outdated, Systrom was able to significantly grow Instagram’s value.

The Instagram story shows the importance of having multiple buyers in a process — competition among highly qualified buyers is the best way to drive your business value. By pitting different buyers against one another, Systrom was able to garner a premium price for his profitless business.

It appears that Tumblr may have benefited from similar competition. As it turns out, there were rumors that Facebook might make a last-minute play for the micro-blogging platform, leaving Mayer and Yahoo concerned. Like real competition, the threat of competition can be just as useful for driving up purchase price. The desire to acquire Tumblr may have driven Mayer to extend an unusually high offer.

While generating unnecessary competition may risk the deal, it is essential to have a system in place to help foster and encourage competition between interested and qualified buyers. One of the best approaches is to simply incorporate multiples types of buyers into your list. As investment banker Walter Bailey of Pickwick Capital recently told us, “a broad sampling of buyers tends to create a better value outcome for your client.” He continued, “If your mandate is to maximize value, then diversity definitely contributes to that maximization.”

Strategics are arguably the most important presence on your list if you are looking to drive a bidding war. Since strategics have more to lose if a competitor acquires a one-of-a-kind asset that ensures the dominance of a particular market, they will take extensive measures to counter the acquisition — especially if they think you are knowledgeable about the competitive landscape and have brought the deal to competitors and other qualified buyers. Strategic acquirers also look beyond just the financials to consider the possible synergies an acquisition would provide, typically driving up the price tag they are willing to pay.

Just as Facebook felt during the Instagram process and Yahoo may have felt during the Tumblr acquisition, buyer competition (or the illusion of it) can increase the odds of the highest price for a business. By making the deal known to more buyers, you’ve effectively created a marketplace — and if you’re lucky, that marketplace may be worth $1 billion.

The post Was Tumblr’s Valuation Instagram Part 2? appeared first on Axial.

Tomorrow marks the one-year anniversary of Facebook’s IPO. Although the offering left investors displeased — and created a veritable black hole in the IPO market — there is hope that the IPO market is on the mend. Not only have many investors forgotten about Facebook, but IPOs are set to raise more money. Both Marketo (NASDAQ: MKTO) and Tableau (NASDAQ: DATA) went public this morning and, as of this writing, have seen 50% gains. If Hong Kong is any example, there may be hope yet for IPOs in the US markets.

In other news, Dell took a serious hit this week, Wall Streeters were spooked to learn that Bloomberg journalists may have access to some sensitive data, and Yahoo has acquired 10 companies since Marissa Mayer became CEO.

Dell’s Profit Dives as Billionaire Battle Rages On: Yesterday was a roller coaster for Dell. Early in the day, T. Rowe Price — Dell’s second largest shareholder — sold 10.26 million shares. Just a few hours later, Dell announced its earnings — and the 79% slide in profits. The timing seems good (almost too good) for T. Rowe Price. Did they have breakfast with any Bloomberg journalists yesterday?

Some are beginning to wonder whether Silver Lake will even stay in the deal. Could Michael Dell float the entire MBO on his own?

Wall Street Traders are Freaked by Bloomberg Message Leak: Earlier this week, it came to light that Bloomberg News journalists have access to some potentially sensitive data. While Bloomberg has confirmed that its journalists have access to log-in history, there are questions around chat history, help room questions, and other pieces that could be combined into an interesting puzzle. There is a chance that more and more traders will become grey dotters.

Families Edging Out Private Equity in Consumer Deals: Family-run investment firms are making their presence known in the consumer industry. Many European family offices — including Maxingvest, Verlinvest, and Joh A. Benckiser — have made plays for large consumer deals, emphasizing their long-term investment strategy as a value-add. Joh A. Benckiser has been stirring up the consumer space for some time, with plays for Jimmy Choo and Avon in recent years. Whether the trend is confined to the consumer space only remains to be seen — as some don’t see PE and family offices as direct competitors.

Yahoo Has Now Acquired 10 Startups Since Marissa Mayer Became CEO: You might be tempted to call Marissa Mayer a shopaholic. Since taking the helm at Yahoo, she has completed 10 acquisitions. Needless to say, the speed and aggressiveness of her actions have raised some eyebrows, especially since Yahoo has a poor track record of acquisitions. If these are secretly acqui-hires, Mark Suster would be concerned.

Did you hear?

• Vikram Pandit is getting back in banking
• JPMorgan Banker Says Revenue Up as M&A Lags
• PEGCC finds PE Activity Slowed in Q1
• David Rubenstein Plots Top 10 Seismic Shifts in Private Equity
• Facebook might buy Tumblr (so that Yahoo can’t)
• Formula One’s $12 billion IPO on track

Member Spotlight:

Last week, HT Capital Advisors announced it has successfully advised Rollo Mio Artisan Bakery in a recapitalization and strategic partnership with Kuzari Group.”Kuzari brings strong operational capabilities and strategic relationships to a very well-run family business, which has grown, and now caters to a very important segment of the tri-state area marketplace for fine artisan breads,” says Steve Rathbone of HT. Kuzari and HT were first introduced on the Axial Network

HT Capital Advisors is a private investment-bank specializing in domestic and cross border middle market mergers and acquisitions, recapitalizations, management buyouts, and other financial advisory services. Headquartered in NYC, HT has advised on transactions in a wide variety of industries including consumer products, manufacturing,business services and many distribution segments.

Click here to connect with HT Capital Advisors or any of the other 11,000+ Axial Members.

 Thanks to Guillaume Paumier for the photo. 

The post Week in Review: Facebook, Dell, and Bloomberg Reporters appeared first on Axial.

Despite the record-breaking DJIA and rising corporate profits, the volatility of public securities is causing many single and multi family offices to flee traditional stocks and bonds. Instead, the families are looking to private alternatives for their investments.

“It has become clearer to many family offices that privately-held companies are not as susceptible to the same risk as public investments,” said Howard Romanow, COO and CFO of Island Management, a family office for a fourth generation family with more than 100 years of ownership experience. He added, “Additionally, as the public markets have become more efficient, it is increasingly difficult to get above-market returns on a consistent basis.”

Cue private equity. Since private equity firms are the pros at specialized, private investments, it would make sense for families to line up to become LPs. Or at least one would think.

As it turns out, many family offices are bypassing PE firms. “Although many more family offices are looking for private investments, many are hesitant to invest in PE firms because they do not see the benefit of the structure,” Romanow explained. “If you are capable of directly investing, the idea of fees, the illiquidity of the fund, the lack of control, and the desire to quickly sell the winners and hold the losers is not appealing.”

Little Direct Competition

If family offices begin direct investing en masse, should private equity firms be worried about rising competition? Romanow does not believe so. He explained, “When it comes to the types of businesses we are acquiring, there is less competition — the companies that are interested in the value-add of a family office are less interested in a private equity firm, and vice versa.

“The reality is that we typically do not participate in auctions,” said Romanow. “Overall, we are focused on fewer, more hands-on investments that we will hold for far longer than a typical PE firm. We are not confined by any holding period limitation or structural limitation, so we can be as creative with an investment as we want. This allows us to review each opportunity as a unique investments and not have to be confined to a specific industry or investment type.” He added, “We tend to look at ownership in terms of generations rather than five-year investment periods.”

Romanow was certain to add that family office investment strategies run the gamut. While Island Management may be interested in long-term investments, there are many other family offices that are keen on pursuing more traditional private equity-style models. He explained, “Because of the timeline and strategy of most private equity firms, we would be much more likely to partner with another family office than a private equity firm. But, much of it depends on the family. If a family’s investment objectives are like a PE firm, a partnership with a PE firm might make more sense.”

Private Equiteers Moving to Family Offices

Rather than competing around investments, family offices and private equity firms may soon be competing for investment managers. Romanow explained, “Although it is still a relatively young trend, you are more frequently hearing of private equity professionals leaving firms to move to family offices.”

The alignment of supply and demand is near perfect. On the demand side, family offices have begun to “tap existing private equity professionals to source opportunities, conduct thorough due diligence, negotiate transactions, and work with the acquired companies.”

On the supply side, many private equity professionals are finding it an offer they can’t refuse. As the PE industry has evolved and changed — especially in response to tax questions and realization of carry — the idea of working for an office under a more flexible policy is significantly more appealing to many PE folks.

Romanow explained, “I spent 15 years in private equity before joining Island Management. When I decided to move to a family office most of my reasons were centered on the issues I saw with institutional private equity funds — decreasing fund returns, ability to generate carry, limited holding periods, the difficulty of raising new funds, registration requirements, the conflict of LPs-GPs, and the fact that we were regularly selling the best companies for a quick return.”

The post Family Office Trends to Keep an Eye On appeared first on Axial.

Private equity is ripe for change. As political scrutiny, questionable fund performance, and increasingly complicated LP-GP relationships take a toll on existing funds, the JOBS Act is simultaneously opening a new frontier. However, many equiteers may be missing out on this watershed moment by focusing on the wrong developments.

The JOBS Act, while offering private equity to the (accredited) masses, does not guarantee that investors will jump into this alternative asset class. Bob Rice, Managing Partner of Tangent Capital, fears that new investors may be hesitant to add private equity to their portfolio, jeopardizing the opportunity afforded by the JOBS Act. The reservation will have little to do with political stigma or IRRs — instead Rice fears that investors will shy away from private equity because they have no easy way of understanding the investment opportunities.

“The lingo used in the space is so arcane and out of date that investors have no context for the discussions,” said Rice. “The failure to establish a clear, effective communication system has been the biggest sin private equity has committed.”

He added, “Private equity is such a bad way of talking about private equity. There are so many different flavors and styles of private equity that to generalize the investment type would conflate so many different approaches and strategies.” The industry-specific vernacular will likely only become more of a hurdle as firms begin promoting private equity and their fund through general solicitation. If dozens of firms are constantly repeating the same message, it could risk solidifying the confusion.

“The only way you can mainstream alternative investments — like private equity — is to explain them clearly,” commented Rice. “If investors cannot fully understand the investments, there will always be an uphill battle. As a result, the need to demystify private equity — and alternative investments in general — has become increasingly important recently.”

In his new book, Alternative Assets: The Nontraditional Investments That Drive the World’s Best-Performing Portfolios, Rice lays out what he believes is a much more effective communication strategy: speaking to investor goals. “Instead of relying on confusing phraseology, a simpler framework needs to be implemented for private equity to attract new investors.  Instead of discussing the space as an entire asset class, I believe it would be more efficient and clearer to discuss it by desired investor outcome.”

The four common investor goals Rice suggests are:

1. Increase current income
2. Reduce risk of loss
3. Increase returns on accepted risks
4. Protect wealth against inflation and currency devaluation.

Speaking to these ends, rather than to the performance of a specific fund or asset class, could “serve as a tool for people in the industry to communicate more effectively with the outside world,” said Rice. The outside world is not limited to investors either. Rice continued, “It could help facilitate communicate with regulators as well. I have already heard some private equity professionals have been passing the book onto regulators to help give them better insight into the purpose and strategy of the industry.”

Although Rice envisioned the four categories as a means of discussing all alternative investments, they are particularly appropriate for private equity. “Private equity runs the gamut of the types,” explained Rice. “Private equity from a debt perspective belongs to the income section, while growth equity may sit in risk reduction and diversification.”

Rice believes that the firms that are able to better communicate with investors will not only be able to better capitalize on the opportunities presented by the JOBS Act, but that they may likely to adopt a more creative and forward thinking strategy. He explained, “One of the biggest drivers of change in private equity will be the dispersion in manager performance. As the performance gap builds, firms that are smaller, nimbler, and more specialized will be more equipped to drive top-line revenue growth.”

As these smaller firms begin to outperform competitors, they will be the model for an ideal firm. “A larger number of smaller, specialized firms is where the renaissance will really occur,” said Rice. “I think the total dollars flowing into the industry will increase as the industry becomes more nimble.”

The post Bob Rice on Private Equity’s Jargon Problem appeared first on Axial.

Mega-investors dominated the news this week. Buffett first made headlines as his insights, takeaways, and Cass-related quibs surfaced from the shareholder meeting. By the middle of the week, Trump created some buzz when he publicly endorsed — and participated in — the crowdfunding site FundAnything. Finally, Icahn rounded out the week when he announced his and Southeastern’s counter-offer for Dell.

In other news, BMC Software is going private for $6.9 billion, Microsoft is looking to buy Nook Media, and Apollo-backed Claire’s is going public to pay off some debt.

Donald Trump Gets Into Crowdfunding: The Donald is in the crowdfunding house. Earlier this week he announced his endorsement of FundAnything, a newly launched crowdfunding site. According to the site, Trump will be funding select projects and will be “Giving Away MONEY!” Not just regular money — MONEY.

Icahn and Southeastern Ready Rival Bid For Dell: Looks like Icahn was not satisfied with the deal he cut with Dell. It was announced late Thursday night that Icahn and Southeastern Asset Management would offer a counter-bid for Dell. Unlike Silver Lake’s offer, Icahn and Southeastern have offered shareholders $12 per share and would leave a portion of Dell public.

BMC Software to Go Private in $6.9B Deal: BMC Software has decided to go private. In a seeming echo of Dell’s decision earlier this year, BMC is hoping the take-private will allow for greater innovation and strategic development. Bain and Golden Gate Capital are leading the $6.9 billion buyout. Will we see other tech companies follow suit?

Microsoft Mulling Nook Media LLC Purchase for $1 Billion: Microsoft has offered $1 billion for the digital assets of Nook Media LLC. The acquisition is likely an attempt to secure control of the assets before Nook discontinues its Android-based tablet and hosts its digital content on third party devices. The relationship has been a long time in the making.

Apollo-backed Claire’s Files for IPO: After nearly going under during the recession, Claire’s announced this week that it would be going public to pay down some of its debt ($2.33 billion). If you are hoping this is a positive sign for IPOs, don’t get too excited — Quicksilver Resources cancelled its IPO this week.

Top 10 M&A Quotes: The folks at Firmex have compiled this slideshow of the top 10 M&A quotes. The quotes are from some of the most influential dealmakers of all time — including Andrew Carnegie, Warren Buffett, Mark Cuban, and others.

6 Things I Learned at Berkshire’s Annual Meeting: Amidst the Buffett-palooza that is the Berkshire Hathaway annual shareholders meeting, Forbes’ Stephen Gandel gleaned interesting insights from the Oracle of Omaha. Apparently Buffett is concerned about rising health care costs, corporate profits, and bitcoin, but is still bullish on America (and his newspapers).

How Warren Buffett Avoids Getting Trapped by Confirmation Bias: In addition to throwing a fantastic shareholder event, Buffett is also skilled at avoiding confirmation biases, or the tendency to “put more faith in information that agrees with what we already believe.” He overcomes the cognitive bias by frequently finding opinions that differ from his own.

Did you Hear?
Hertz Private-Equity Backers Selling Rest of Stake
TPG and Warburg Pincus Are Looking to Exit Neiman Marcus
Yahoo’s Mayer Has Met with Hulu Execs
Facebook in Talks to Buy Israel’s Waze for Up to $1 Billion
Silver Lake Closes $10.3 Billion Fund in the Midst of Dell Bid
Dow Closes Above 15,000 For First Time Ever
Many Banks Hope that Wealth Management Will Restore Fortunes
Warburg Pincus Closes Latest Fund at $11.2 Billion

Member Spotlight:

Glencoe Capital is a private equity firm focused on lead-sponsored acquisitions and growth equity investments in lower middle-market companies. Founded in 1993, the firm has completed over 35 acquisitions, representing over $1.5 billion of transaction value (as of 12/31/2012).

Glencoe Capital’s Michigan Opportunities Fund, the firm’s fourth fund, has $150 million in committed capital and makes lead-sponsored acquisitions and growth equity investments in companies that demonstrate a viable strategy for expanding their business, operations or presence in Michigan.

The firm’s third fund, Glencoe Capital Partners III, currently manages four portfolio companies. Fund investments consist of lead-sponsored acquisitions and growth equity investments in companies with values between $25 million and $125 million.

Click here to connect with Glencoe Capital or any of the other 10,000+ Axial Members.

Thanks to Gage Skidmore for the photo. 

The post Week in Review: Buffett, Trump, and Icahn appeared first on Axial.

Investing in a new market is often a test of one’s investing prowess and management skill. As you face the challenges of unknown players, new trends, and industry secrets, successfully acquiring in a non-core industry can be extremely difficult.

Still, firms do it all the time. CAPAS, Inc., a Detroit-based private equity fund, recently expanded into the e-learning space with the acquisition of E-Learning Mind, an ed-tech company that provides online training and courses.

To learn more about the transition, we spoke with Andrew Fayad and Simon Casuto, two Partners of CAPAS and the new Managing Partners of E-Learning Mind, who told us the story of their acquisition.

Finding the Deal:

Attend Industry-Specific Conferences
As Fayad and Casuto began the search for the opportunity, they wanted to become as knowledgeable about the e-learning space as possible. They feared that if they were too inexperienced, they would risk missing valuable opportunities.

To expedite the learning process, Fayad and Casuto conducted comprehensive industry research, established new relationships, and even explored some alternative learning techniques. “One strategy that really helped us to learn the e-learning space and key players was to attend an industry-specific conference — the Learning Solutions Conference,” explained Fayad.

He continued, “We went there as investors, which really opened everyone up. Many companies were willing to tell us their story, their business model, and their perceived value add. Some people were even giving us their revenues since it is so rare for investors to go to an industry-specific conference.”

Although Fayad and Casuto ultimately sourced their deal through Axial, these conferences gave them a snapshot of the industry, the major players, and the investment opportunities.

Closing the Deal:

Synergy with the Seller is Crucial
Since acquiring E-Learning Mind and expanding into the e-learning space, Fayad and Casuto have learned the value of having a synergistic relationship with the seller. “Shortly after discovering the opportunity, we met with Jack Makhlouf, the former CEO of E-Learning Mind,” explained Casuto. “It became evident during the meeting that there were clear business and personality synergies present between us and Jack.”

Casuto added, “Not only did the synergies allow for a congenial and easy deal process, it also allowed us start growing the business from day one.”

According to Fayad, “We are bringing sales, business development, and strategy experience to the table, while Jack is showing us the ropes of the e-learning space and of the business in general. Even if we were experts in the space, Jack’s wealth of knowledge and experience has proven invaluable in helping to develop the new future of the company.”

Running the Company:

Not all Competitors are Bad
Another surprising source of knowledge for Fayad and Casuto has been other companies in the e-learning space. “Everyone in the ed-tech space seems to be really friendly,” Fayad explained. “They like teaching people and if you are new to industry, they are happy to explain.”

While the disposition of teachers and educators may be congenial, the dynamics of the industry and e-learning space may also contribute. “Although there may be relatively low barriers to entry in the e-learning space, the amount of available capital is enormous,” explained Fayad. “There is a $56.2 billion global industry for corporate learning with only a few hundred competitors. We noticed that there is so much money out there and profit margins are so high, so it is not too competitive.”

Hire Industry Experts
While having Makhlouf on board has helped with the transition, Fayad and Casuto have also begun planning for the long-term. “As we look to grow the company, one of the biggest challenges is determining the type of person to hire,” explained Casuto. “Besides the basic considerations of personality match and skill level, you need to consider whether or not they are experienced in the industry.”

The two have opted in favor of those with relevant industry experience. “We believe hiring industry experts is important to the growth of our business,” explained Fayad. “When you combine our knowledge of business and sales with insider knowledge, you strike a right balance. Instead of overemphasizing one knowledge base or skill, you are able to establish a brain trust that spot checks itself.”

Hiring those with industry experience has proven a worthwhile investment for both the short-term and the long-term. In addition to helping inform business strategies, “Having insider knowledge has been particularly important in maintaining customer satisfaction during the management transition,” added Fayad.

Balance Old Customers with the New
To generate awareness and business for E-Learning Mind, Fayad and Casuto immediately began employing their sales and management expertise. “One of the first strategies we have adopted is re-engaging with previous customers — it was such low-hanging fruit,” explained Fayad.

Casuto continued, “We began reconnecting with past E-Learning Mind clients by pitching our service in innovative and nontraditional ways. These alternatives to traditional training resonated with the past relationships and we were very quickly able to drum up some new business.”

However, the new owners are continuously looking for the next major client. Fayad explained, “The main challenge comes in landing the first Fortune 1000 company and then getting referrals.” It is critical to use old relationships for new referrals.

The post Profile of an Acquisition: Entering New Markets appeared first on Axial.

Even the most planned deal is rife with uncertainty. Whether it is the unexpected departure of a senior employee, the loss of a critical customer or supplier, or some transformative regulatory change, the terms of a deal can quickly change.

For Winston & Strawn, a leading international law firm, one of the best ways to prepare for these risks is to conduct comprehensive legal due diligence. “Legal due diligence focuses primarily on legal compliance, change of control triggers and uncovering the unknown,” says Justin Levy, Partner at Winston & Strawn.

He continued, “Our goal is to identify legal risks and liabilities, advise the client of such, and then negotiate with the seller in order to properly allocate risks and liabilities in the purchase and sale agreement.”

To best identify and prepare for the diversity of risks that can appear in a deal, Levy offered some strategies to recognize potential red flags.

Collaborate with Various Advisors and Consultants:

Since legal matters underpin almost every element of a deal, legal due diligence tends to interact frequently with other forms of diligence — like cultural or tax. In an effort to maximize productivity and expertise, “We regularly collaborate with finance, tax, and accounting advisors, IT consultants, and insurance specialists to ensure client satisfaction,” explained Levy. By working with the various consultants, Winston & Strawn can comfortably review all potential risks in a deal.

This type of broad-based understanding and review is critical, especially for any legal issues. To conduct effective legal diligence, “you need to understand both the business issues and the industry,” said Levy. Only by having a true and comprehensive understanding of the business and the broader industry can you be certain you are asking the right questions and uncovering the necessary risks.

Come Prepared with a Checklist:

Another great technique to ensuring there are no stones unturned is to enter the due diligence process with a checklist. “Every due diligence process begins with a general due diligence request list, which is modified depending upon the industry, whether or not the target is a private company, and a variety of other factors,” explained Levy. “The request list focuses on a number of different areas of law, including general corporate matters, litigation, material contracts, tax, environmental, labor, benefit plans and IP.”

Danny A. Davis, a leading M&A integration specialist in the UK, similarly echoed the importance of a checklist. He previously told us, “For each merger, I have a list of about 6,000 items to consider. With every new deal, I add a few items. Although deals are always different, and require different plans for different items, we can take a somewhat standard approach to increase efficiency. Many companies start from scratch each time, which costs money.”

Be Particularly Cautious of Regulated Industries…

While checklists and consultants allow you to comfortably review most companies, special attention is needed for carefully regulated industries. According to Levy, “Highly regulated industries are one of the biggest causes for alarm. Because regulations can be so intricate, you always want to confirm compliance and understand change of control risks.”

He continued, “It is critical to understand these industries and the issues facing them, and advise the client appropriately so that they can adequately assess the risks associated with their investment.”

Levy also explained that hot industries also need particular attention. “There are so many industries that are under the public spotlight,” said Levy. “Fracking business, logistics companies with independent contractor risks, and the eCommerce industry in respect to privacy and sales and use taxes, are some current examples.” Because of the public scrutiny surrounding these types of industries, unidentified risks can be much more problematic and costly.

…Especially if the Company is Owner-Operated:

Particular attention must also be paid for businesses that are owner-operated. “Smaller founder-owned companies are not as professionalized from a legal diligence perspective,” explained Levy. “Because they do not have the infrastructure and resources of larger companies, they are understandably more focused on building their business as opposed to legal and regulatory compliance matters.”

While the focus on the business model can be extremely promising for growth, it can also create some outstanding risk.  Levy explained, “This lack of infrastructure and lack of compliance needs to be accounted for in diligence, and private equity sponsors need to determine how to remedy post-closing. Specifically, any resolution may give rise to added costs, through initiatives and/or hires, and this could have a meaningful impact on going forward EBITDA.”

Focus on Litigations:

Another major concern for any legal diligence process is litigation. “Litigation — both past and outstanding — is always a concern,” said Levy. “While identifying historic and settled litigation is relatively easy, identifying current and future litigation risks requires in-depth communication with the target company and a strong understanding of the industry.”

Levy mentioned that most litigation-related issues are identified early in the diligence process, most often during the initial questioning.

Although uncovering any litigation can be unpleasant — both for the company and for the deal — you should not dwell unnecessarily on it. “In smaller deals, you are often buying from founders that are rolling over equity,” said Levy. “In situations like that, most sellers appreciate the partnership post-closing, and therefore are typically forthright in disclosing information.”

Best Practices in Legal Due Diligence is the third installment of Axial’s six-part series on due diligence best practices. The first two installments discussed the importance of tax due diligence and cultural due diligence. Future articles will discuss operational, IT, and other guidelines.

The post Best Practices in Legal Due Diligence appeared first on Axial.

It’s a week of good news and bad news. On the plus side, private equity seems to be outperforming most other asset classes. On the other hand, the demise of very small US banks may be near and Lloyd Blankfein is nervously watching interest rates.

In other news, Bayer is buying California-based Conceptus for $1.1 billion, deal leaks may not be as accidental as they seem, and MBAs might be more important than many people think.

Global Private Equity Watch 2013: According to a recent report from E&Y, private equity firms have been outperforming most other asset classes. While recent diversification and brand leveraging has paid off, most analysts are eyeing the encroaching regulatory changes and exit potential to see if the trend will continue.

It’s Time to Say “Goodbye” to Very Small Banks: Very small banks in the US may soon become extinct. Between new regulations, high overhead costs, and economies of scale, small banks are struggling to survive. Since 1988, the number of very small banks has declined by 8,216. If you’re looking for growth, keep your eye on medium-sized regional banks.

Blankfein Sees Parallels to 1994 Interest-Rate Increase: Sooner or later interest rates will have to rise, right? Lloyd Blankfein, Goldman Sach’s CEO, is concerned that the eventual uptick will catch many investors flat-footed, much as it did in 1994. However, as Europe entertains negative interest rates, an increase may not be too near in the future.

Bayer to Buy Conceptus for $1.1 Billion: Bayer AG announced on Monday its plan to acquire California-based Conceptus Inc. for $1.1 billion. The acquisition is part of Bayer’s plan to expand into the contraceptive space. Maybe the acquisition will distract investors and customers from Bayer’s existing contraceptive-related lawsuits.

Gabriel Gomez Wins Massachusetts GOP Senate Primary: Gabriel Gomez, an Advent International and Summit Partners veteran, escaped much PE criticism as he secured the republican nomination to run for Massachusetts senate. Has the public already forgotten about private equity? Or is Gomez’s history in private equity less important?

Studying the Dark Art of Leaking Deal Talks: Turns out that leaked deals may not be all bad — at least for the seller. According to a recent study from the Cass Business School, leaked deals typically realized an 18% increase in purchase price. Makes you wonder if the leaks are really accidental.

If MBAs are Useless, We’re All in Big Trouble: The merits of an MBA have come into question. Focused on innovation, entrepreneurs and corporate execs alike have begun to turn away from proven business practices and focus on newer approaches. But these “outdated” practices may be more valuable than they seem.

Celebrities Lend Power to Venture Capital: Looking for some capital? It might be worthwhile to add some celebs to your buyer list. Katie Roof reports that having an A-list celeb — like Ashton Kutcher, Bono, or Magic Johnson — as an investor offers needed capital and great brand recognition. However, don’t expect them to replace VCs entirely.

Did you hear?

• Ares Management Speaking to Banks about an IPO
• David Petraeus may join KKR
• Warren Buffett Joined Twitter
• Wyoming votes to invest $600M in private equity
• Glencore Completes Deal for Xstrata
• Instagram Deal Is Looking Better and Better
• T-Mobile Merges With MetroPCS, Will Trade as ‘TMUS’

Member Spotlight:

Founded in 2003, Kinderhook Industries is a private equity firm that manages $770 million of committed capital. The firm prefers to make control investments with transaction values between $25 – $100 million. Target investments include orphaned non-core subsidiaries of corporate parents, existing small capitalization public companies lacking institutional support and management-led recapitalizations of entrepreneur-owned companies. Additionally, Kinderhook is a licensed Small Business Investment Company (SBIC) with the U.S. Small Business Administration.

Click here to connect with Kinderhook Industries or any of the other 10,000+ Axial Members.

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More importantly, however, there are also a few apps that are making deal professionals’ lives easier. Below is a slideshow of 11 apps that can help you stay up-to-date, maintain relationships with contacts, sign NDAs on the go, and even remotely manage your data rooms.

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