Celebrity Investing: Bono Plans to Keep Rocking Investments ‘With or Without You’

Although you may not know who Paul David Hewson is, chances are, you’ve heard of his alter-ego, Bono – front man for the Irish rock/pop band U2. Even if you don’t particularly like his brand of music, you can’t deny that Bono has taken U2 to dizzying heights of fortune and glory (with over 150 million albums sold worldwide and 22 Grammy Awards won), but he didn’t stop there. Read more here.

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Better Background Checks for Advisors May Cost Investors

The Securities and Exchange Commission recently approved a FINRA rule requiring brokerage firms to put in writing their procedures for verifying the accuracy of a broker’s registration Form U4. Under the terms of the new rule, which goes into effect on July 1, brokerage firms will now be required to conduct a search of “reasonably available public records,” on all new hires and registrants. Read more here.

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Natural Resource Expert Jason Stevens Discusses the Fortunes of Oil: a Q & A

In light of dramatic developments in oil pricing, we asked Jason Stevens of Sprott Global to sit with us and explain what is going on. Stevens weighs in on factors that could explain oil prices: supply (Saudi Arabian policy, fracking), dollar strength v. gold, and anticipated world commercial activity, as well as the accuracy of oil price forecasts made in the principal organs of the financial press. Read more here.

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Episode 24 with Brandon Ross

In Episode 24 of Accredited Investor Markets Radio, Brendan Ross of Direct Lending Investments and host Chris Cahill discuss how Direct Lending Investments’ fund pools high-yields, 6-18 month business notes and what approaches may help diversify and mitigate risks in the pool. Mr. Ross also comments on peer-to-peer lending in general, including how, and why, the investment method attracts borrowers once served by community banks. Additionally, the discussion touches on what the consequences may be for P2P in a new period of severe financial distress.

 

 

You can learn more about Brendan Ross and Direct Lending Investments here.

 

Or you can find him here:

Twitter: @brendan_ross

LinkedIn

Facebook

YouTube

 

 

About Brendan Ross

 

Brendan Ross is the President of Direct Lending Investments LLC, the general partner of the oldest and largest short-term, high-yield, small business loans fund. An expert in alternative assets, Brendan has directed the purchase of more P2P-originated U.S. small business loans than any other institutional investor. Previously, Brendan was a turnaround CEO and ran a number of companies, including ReserveAmerica and Fanfare Media Works.

Brendan began his career at Mercer Management Consulting (now Oliver Wyman), where he worked for a variety of clients including United Airlines, Bank of America and AOL. He left Mercer to join MediaOne’s newly formed Strategy Group.

Brendan’s business experiences also include leading a product management team at Ticketmaster, where he received two patents for Ticketmaster Auctions. He has served as CEO of a number of companies, including ReserveAmerica, the world’s largest outdoor recreation reservation company, and local advertising leader Fanfare Media Works.

Regularly cited by top-tier media outlets such as the Wall Street Journal, Investment News, Bloomberg, Fox Business News and others, Brendan is a go-to source for information and analysis concerning the growing P2P and small business lending sectors.

 

Brendan graduated with honors from Brown University with a double major in economics and sociology. He lives with his wife and two children in La Canada, located just north of Los Angeles.


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Are the Sharks of ABC’s “Shark Tank” Predators?

According to at least one entrepreneur, the offers made on ABC’s reality TV show Shark Tank are often based on lowball company valuations. Says Vonjour CEO Daniel Tawfik, “It’s not uncommon for the sharks to demand a 50 to 75 percent stake in a company for less than a $100,000 investment. Those equity stakes are not commonplace.” Read more here.

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Are The Broken Windows Fixed Yet?

The Securities and Exchange Commission announced in October, 2014 that it brought a record of 755 enforcement actions, a 10 percent leap from 2013’s 686. With the use of a reward system for whistleblowers and technology-like data analytic tools, the SEC has been able to spot anomalies and streamline investigative efforts to enforce penalities against wrongdoers who harm investors and threaten financial markets. Patterned after former New York City Mayor Rudolph Giuliani’s “broken window” strategy, the SEC has focused on the smallest of violations to deter more serious crime. Read more here.

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The Importance of Management in M&A

For any business considering a sale or acquisition, the importance of management cannot be overstated. In particular, sellers of middle market businesses should take a hard look at their management depth to assess gaps and evaluate the strength of the team. The perspective of management can make or break a deal or, at minimum, influence the ideal acquirer, terms and overall succession planning for a business. In this article, we will explore some of the reasons management is so critical and the steps owners and acquirers can take to provide strong incentives to ensure that key talent remains after the deal.

Putting aside potential M&A transactions, it is not surprising that management talent is the most valuable asset for any business. Even companies with great business models can fail dramatically with poor execution, and management is the core group responsible for execution of a plan. There are a host of ways businesses can provide managers incentives to align their interests in growing the business, including phantom stock, stock options, and sweat equity to name the most common. Each of these has their respective pros and cons, but the important point is that a team who is invested in the future of the business generally feels more ownership of results through a direct benefit.

How is this important for a transaction? Management skill and the ability to execute will have a tremendous impact during a merger or acquisition in areas such as operational performance, buyer interest and exit price. The scale of the impact depends on the type of buyer. “Strategic” buyers are usually in a similar business line or make an acquisition that fits within their organization or growth plan. If a strategic buyer intends to absorb an acquisition into its existing infrastructure, it may consolidate certain functions, such as finance or IT, thereby reducing the reliance on an acquisition’s management team.

On the other hand, “financial” buyers (e.g. private equity groups) will place a greater emphasis on the whole team if acquiring a business as a brand new investment. Most middle market financial buyers are not business operators, and while most have relationships with operating executives who they can use to supplement an acquisition’s senior team, they will spend a great deal of time assessing the team’s capabilities to grow the business.

Companies that lack management depth will find it difficult to attract a premium price at the cost of losing the interest of a large portion of the financial buyer market that seeks to invest in strong teams. Key managers may control client relationships, industry expertise, technical skill, etc., which if lost from the business would substantially diminish the value of the company.

This dynamic makes it incredibly important for sellers (and acquirers) to assess the management team objectively. Some useful questions to ask are:

  • Who is running the business day-to-day?
  • What are each manager’s key responsibilities and how are they performing relative to expectations?
  • Who controls key relationships internal and external to the organization?
  • If the current leadership stepped down, who would replace them?
  • What are each manager’s short and long-term goals?
  • Where does each manager believe the business should go in the future?
  • What are each manager’s strengths and weaknesses?
  • How dependent is the organization on any one or set of individuals?

 

Given the value of management to a business, retaining key individuals is standard practice during a transaction. There are many ways to do this from both the seller and buyer perspectives. Sometimes sellers will provide managers they deem critical with a retention bonus at the closing of the transaction for remaining with the business and helping complete the deal. These payments are also partially intended to help protect managers who may not be retained by buyers post-closing.

 

For those managers who are necessary for the business post-transaction, many buyers typically make deals contingent upon entering into employment agreements with these individuals. Financial buyers also commonly create equity incentive pools for key managers to provide a share of the equity when they eventually exit the business, thereby building a direct link to a manager’s performance growing the business to a long-term, potentially lucrative incentive. On the flip side, this also provides an opportunity for managers to learn more about financial partners to provide input on who they think the right partner would be to grow the company, since managers have a very tangible stake in the outcome.

 

Stock options are a common form of incentive. While the devil is in the details, the crucial point is structuring options to drive the desired behavior. Setting thresholds for performance are good in theory, but one should be careful about incentives that drive short-term decision making, such as revenue growth targets, which can backfire by focusing on the top line instead of overall profit.

For middle market businesses, the discussion around management also includes a very important consideration: how important are the shareholders to the company’s operations? Shareholder-managers are the norm for many middle market businesses, and such individuals face a succession planning challenge. Exiting the business is very difficult if you control day-to-day operations, key relationships, or long-term growth. Thus, if you are an active part of management as a shareholder, it is even more important to develop a layer of management depth to allow you to extricate yourself from key roles and responsibilities for an eventual sale.

 

Overall, management is what many buyers are investing in, and a strong team can mean the difference between a successful transaction and stalled succession planning. Furthermore, aligning the incentives of management with shareholders through a variety of forms can create a formula for success by providing a sense of ownership and tangible results by creating shareholder value.

Karl Stark and Bill Stewart are Managing Directors and co-founders of Avondale, a strategic advisory and principal investing firm focused on growing companies. Karl, based in Chicago, and Bill, based in San Diego, have a combined 30 years of experience helping businesses achieve and sustain profitable growth. Their strategic and financial advice helps companies unlock the value drivers in their business and focus investment around the most profitable growth opportunities.  Avondale, based in Chicago, is a high growth company itself, and is a two-time Inc. 500 award recipient.  The authors thank Avondale’s Sameer Pal for his contributions to this article.

Email: Karlandbill@avondalestrategicpartners.com

Twitter: @AvondaleSP @KarlStark @BillStewartASP

 

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FINRA Addresses Compliance Issues in Annual Letter

Most compliance problems can be alleviated if brokerage firms act in the best interests of their clients, says FINRA. Wait – aren’t they already supposed to be acting in the best interest of their clients? Not in the way you may think. Read more here.

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Episode 23 with Jeffrey Lampe

In Episode 23 of Accredited Investor Markets Radio, host Chris Cahill is joined by Jeffrey Lampe, Principal at Hopewell Ventures, for an in-depth discussion of early stage investing and venture capital rounds. Join them to learn about what backing a VC venture entails, what ‘items’ might be on a venture capitalist’s wish list (e.g. guaranteed Board seats), what to watch out for, when it may be a better investment strategy for a VC to borrow and what risks may still be present after the VC rounds have been completed.

 

You can find out more about Hopewell Ventures and Jeffrey Lampe here.

 

Or you can find him here: LinkedIn

 

About Jeffrey Lampe

 

 

Mr. Jeffrey J. Lampe, CFA is currently a Principal with Hopewell Ventures, a $110 million Chicago based venture capital and growth equity fund.  He previously served as a Senior Associate with Hopewell. He was a Key Team Member involved with the initial formation of Gazelle TechVentures in 1999, providing research and analytical support. He went on to become a Co-Founder and Senior Associate at Gazelle TechVentures  in 2000, a $60 million Indianapolis based VC fund. Prior to this, he served as a Senior Associate at Monument Advisors and Monument Capital Partners. He has been directly involved in over $500 million of corporate finance, mezzanine, private equity and venture capital transactions over his career. He currently serves as a Director of Video Home Tours (VHT), National Pasteurized Eggs (NPE), and several other high growth companies.  He was formerly a Director of SageQuest and Pioneer Surgical Technology. Mr. Lampe is a Chartered Financial Analyst and a Member of the CFA Society of Chicago. He received an M.B.A., with high honors, from the University of Notre Dame and a B.S. in Business from Purdue University.


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Is it possible you don’t know you’re actually rich?

Credit Suisse ReportIn the 2014 Global Wealth Report, from Credit Suisse, it appears that the world is rapidly becoming richer, with global wealth growing at the fastest rate ever calculated. Read more here.

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