Recent crowdfunding survey results for 2011 revealed incredible potential for equity crowdfunding in the United States. Although funding activities cannot start until the Securities & Exchange Commission issues rules for the protection of investors under sections 4(6) and 4A of the Securities Act of 1933, the rulings are expected sometime in January.
Massolution™, a business unit of Crowdsourcing LLC and research firm specializing in crowdsourcing and crowdfunding solutions, released its first comprehensive Crowdfunding Industry Report (to obtain a complimentary copy, visit http://www.crowdsourcing.org/research). The report states:
After collecting data from more than 170 crowdfunding platforms (CFPs) and other sources, the results revealed that CFPs raised almost $1.5 billion and successfully funded more than one million campaigns in 2011.
As of April 2012, there were 452 crowdfunding platforms active worldwide; and Massolution projects there will be more than 530 by the end of 2012. The report also found that the crowdfunding market is growing at the rate of 63% CAGR (compounded annual growth rate) for total amount of funds raised.
Massolution identifies, defines and tracks the market growth and composition of four categories of crowdfunding platforms:
1. Equity-based (for financial return): Platforms grew at 114% CAGR, primarily in Europe, and raised largest sums of funds per campaign; over 80% raised $25,000+
2. Donation-based (motivated by philanthropic or sponsorship incentive): Platforms raised the most funds at $676M, but are the slowest-growing at 43% CAGR
3. Lending-based (P2P, P2B, and social): Platforms represent the second largest category raising $552M, and grew at 78% CAGR faster than donation-based
4. Reward-based (for non-monetary rewards): Platforms show very high growth at 524% CAGR, but from a low base of close to $1.6M in 2009
What will drive future equity-based crowdfunding in the United States?
Consider these findings from Massolution’s report:
- The report forecasts total global funding to nearly double in 2012.
- North America is the largest market for crowdfunding (non-equity-based), accounting for over 55% of all funds raised worldwide in 2011 ($837M).
- Equity based crowdfunding, mostly in Europe, grew at 114% CAGR.
- The big money came from donation and lending-based crowdfunding.
It’s not difficult to extrapolate numbers for the potential North American equity-based crowdfunding market next year. U.S. investors have a strong appetite for crowdfunding, along with equity based offerings worldwide experiencing a 114% compounded annual growth rate.
One determining factor in the growth of equity-based crowdfunding in America will be the ability for CFP’s to successfully satisfy SEC rules and become registered. Only then will investors be able to fund companies (issuers) that meet their risk profile.
Another important factor will be the issuer’s competence in satisfying the rules, regulations and reporting requirements imposed by the Commission. Once these conditions are met, equity based crowdfunding offerings are expected to rise exponentially ... almost overnight!
If your company has even considered the possibility of using this extraordinary method of raising capital, you can’t afford to wait until the onslaught of capital seekers begin to backlog the limited number of institutions and resources available to help you prepare. You will be too late.
We recommend that you get a head-start on your preparation. Here’s how…
Navocate is offering a free webcast to educate companies (issuers) who want to learn the required steps to crowdfund their company. The “Webbit” will be held June 12, 2012, at 1pm EDT. Guest presenters will include industry experts Maurice Lopes of EarlyShares (http://www.earlyshares.com/) and Ruth Hedges of Funding Roadmap (http://www.crowdfundingroadmap.com/). Topics covered will include:
- Crowdfunding regulatory update
- Issuer eligibility and reporting requirements
- Positioning your company to raise capital (crowdfund)
- Secrets to success
- M&A strategies for Issuers
The presentation will be followed by a question and answer session.
To register, go to: https://navocate.webex.com. When asked ‘How did you hear about this webcast?’ during the registration process, please select ‘Paul Winkle’ in the drop-down menu.
Navocate provides Business Sales and Acquisition services for Emerging Companies with revenues from $3M - $30M. Specifically, Navocate focuses on the market segment above business brokers, and below investment banks. For more information please visit www.navocate.com.
It is generally easier (often, much easier) to sell a profitable company than it is to sell one with no income. The main reason is that for-profit companies are just that, for-profit. The buyer is interested in the purchase because of the cash stream it will produce for him. All other aspects (if any) take a secondary, distant position.
There is more to it. It is easier to price a profitable company, and a profitable company typically sells for a higher price.
For-Profit Company Valuations
Profitable companies sell more easily because the marketplace has established commonly-known pricing criteria that both buyer and seller accept. In the USA most profitable businesses will sell for 2 to 7 times EBITDA. Different industries, markets, company sizes, financial indicators (like gross margin and net profit), and growth rate, will all influence the selling price. The industry and market dictate the range, most commonly, 3X to 5X EBITDA. Industries with high growth rates (ecommerce and social networking, for example) will command a higher multiple range; while declining industries will command a lower multiple range. The availability of national and local databases help define multiples ranges that the banking and business intermediary communities have widely agreed upon.
A higher price is driven, first, by the fact that profit is present. Profit equals certainty, relative to the ability of the company to return cash to the buyer. With less risk, buyers are willing to pay full price, or close to it, because there is reduced risk to the buyer.
Understanding risk is central to establishing a realistic business valuation and offering price. Take, for example, two relatively equal companies. Both are niche manufacturers with $10M in revenues and $1.8M in EBITDA. Both serve the same markets in two different large metropolitan areas that have strong local customers. Both have been in business over 10 years and derive 80% of their business from repeat customers. Both companies’ revenues and profits fluctuate with the economic changes. However, both companies remained profitable during tough times because management acted quickly and reduced costs in a timely fashion. They should be valued equally. But what if the second has the Department of Labor investigating it for its labor policies? Or, what if the second business has an active lawsuit for infringing on an “M3” patent? Under these scenarios, the companies will not be valued the same. In both cases a risk factor outside the control of the company is present.
Valuing Pre-Revenue Companies
Understanding, more clearly, the effect of risk on a for-profit company valuation, allows us to apply similar risk concepts to companies that are not (yet) profitable.
As with a profitable company, let’s look at the benefit to the buyer as the measure of value—versus looking exclusively at profitability standards. Because profit is absent in a pre-revenue company, it seems obvious that risk is higher and thus the business value should be lower, relative to a profitable company. While this is often an appropriate approach, it is not always the case.
Consider the following example: The buyer is a successful ecommerce company, but it has failed to stay current and drive traffic to its web site. It has no social media presence or blogging activity. Even search engine optimization is not reviewed on a regular basis. If a smaller target-acquisition company had these capabilities as strengths, might it not be valuable to a buyer—irrespective of revenue and profitability? From our perspective, the answer is ‘yes,’ and perhaps a deal can be done under this scenario.
Here we have two companies of similar size: both viable, both close to breaking-even, but neither is profitable. Company ‘A’ brings operational strength, while Company ‘B’ brings sales strength. Both companies can be merged to create a new company that is much stronger. Yes, both owners will be losing control, but the shared operating, marketing, sales, and financial benefits often outweigh the loss of autonomy. The financial benefits can be substantial.
Say that each company has about $10M in revenues and each targets different segments of the market. Joining the two together builds a $20M company. As they integrate the companies by cross-selling to customers, they could grow the resulting company to perhaps $25M in revenues. After some additional, likely improvements are made—from cost-cutting and improved processes (taking the best from each company), to a more diverse management—profitability is likely to grow. Owning 50% of a profitable $25M company has more value than owning a $10M break-even company, period.
In addition, pre-revenue companies certainly have value on their own, as free-standing entities outside of a merger. Venture Capital is commonly associated with high-risk, high-reward investments in many early-stage companies. Venture Capital’s current investments in cloud computing solutions, Greentech, and mobile apps are among the new “promising growth markets.” Similarly, many buyers are interested in non-tech, pre-revenue companies. With a lower acquisition price, ex-executives—with industry knowhow, who want to head up their own company, and have some capital—often can purchase a pre-revenue company and grow it successfully. Owners of pre-revenue companies can exit in the tens and hundreds of million dollars when successful. For example, most of the 59 start-up companies Google purchased in 2011 were in the pre-revenue category. http://dealbook.nytimes.com/2011/10/27/google-hits-new-ma-record/
Each of these companies has different benefits and risk factors, which require a different analysis to set a fair market price range for the specific company.
In my next blog I’ll describe Navocate’s approach to company valuation.
Contact Navocate for a Business Valuation
If you are interested in talking with Navocate to get a feel for your company value or get a valuation done please, contact me: Boaz@Navocate.com.You can also look at our team’s Biographies and select a team member you feel has the best fit for your business by going to http://www.navocate.com/team.html. Each team member’s email and phone number are listed.
Ready to act? 
Navocate provides Business Sales and Acquisitions services for Emerging Companies with revenues from $3M to $30M. Specifically Navocate focuses on the market segment above the business brokers and below investment banks. For more information please visit www.Navocate.com.
A great way for tech companies to grow organically with their current products and/or service offerings is to procure government contracts. The federal government is the largest contractor in the United States. Landing a government contract, however, is not the same as contracting out your product or service commercially. It is a process that involves considerable up-front work.
There are tactics technology companies can use to break through the barriers to entry and land those contracts. But before we go there, let’s explore some do’s and don’ts when dealing with the government, as described by Matt Hankes in his article “Secret to Winning Federal Contracts” published at www.fedmarket.com.
Matt states, "The game known as federal contracting is fraught with rules and regulations. The game is so complicated that it even has its very own rulebook, the Federal Acquisition Regulation ('FAR')." He goes on to say that "Winning the game is not about following the FAR, though. The winners of government business know the secret is in selling. Yes, selling to those with whom you have created relationships built on trust."
As you can see, relationship building and the sales process is just as important in landing government contracts as it is with commercial ones. You can secure government contracts if your company has products and/or services the government needs AND the ability to build relationships through a skilled and motivated sales department. The article continues to make this point clear: “Although there are many pitfalls for companies embarking on an adventure in the federal arena, none is more costly or prevalent than the mistake of not adequately focusing on the relationship-building (or sales) process. Selling in the federal marketplace is much simpler in practice than it is in theory. To sell successfully in the federal market, one needs only do three things properly:
- Establish the customer’s pain point;
- Create a solution; and
- Make it easy for the agency to choose you.”
Bypassing the key barrier to entry: past performance
In late 1990’s the federal government codified detailed past performance rules within FAR. Past performance is a significant barrier to entry for companies wanting lucrative government contracts. An article published on http://www.smalltofeds.com/ entitled ‘The Small Business Government Contracting “Past Performance” Challenge’ describes it best:
“As a small business begins the proposal submission process to federal government agencies or to prime contractors the past performance challenge is a major challenge. By definition a start-up company in government contracting has no direct government agency past performance projects to site in meeting the requirement in requests for proposals (RFP’s) for historical references to similar projects in terms of size, duration and complexity.”
So how can an established technology company sell their offerings to the federal government? The article makes one suggestion: “Many small businesses work through prime contractors to "grow" past performance history (subcontracts count). By teaming with a sizable firm a small entity can relate its participation to larger projects and ultimately graduate to a good library of references, carefully maintained and kept as a living, growing data base of good customer service records that can be sited again and again in proposals.”
A better, quicker way:
I will now share a shrewder way to enter the government market. It can take years for a company to develop past performance status. A great way to eliminate this barrier to entry is to acquire a company which already has a past performance history. The challenge is to locate a target with synergies and a coverage area of expertise in information technologies.
Ideally, you want to acquire a company with a comprehensive understanding of technology and revenue procurement process as well as a proven focus on relationships and sales.
To view a spot-on example of such a company for sale, click here:
Mobile commerce grew to more than 13% of online retail sales in Q1 2012, double the number seen in Q1 2011. (http://www.sacbee.com/2012/05/02/v-print/4459425/online-and-mobile-buying-trends.html, quoting IBM's retail online mobile indicator, http://www-03.ibm.com/press/us/en/pressrelease/37610.wss). What's driving the growth? IBM's tool points to rising consumer sentiment about the convenience, shopping experience and overall value of digital buying. (http://www.sacbee.com/2012/05/02/v-print/4459425/online-and-mobile-buying-trends.html above).
"More shoppers are turning to their mobile devices when purchasing goods and services online than ever before, according to a recent survey conducted by Harris Interactive for Placecast. The survey found that 39m Americans made an online purchase using their phone last year, which represents roughly 20% of all mobile phone owners in the United States.
Of the smartphone owners Harris Interactive polled, some 59% indicated that having the ability to make a purchase using their device was at least 'somewhat important.' Surprisingly, 30% of all mobile phone owners who don’t already receive marketing text messages from retailers said that they’d be interested in receiving them." (Chris Horton, http://www.business2community.com/online-marketing/3-trends-driving-the-future-of-online-commerce-0176246, May 9, 2012, citing eConsultancy, “39M People Made a Purchase Via Mobile Last Year: Stats“).
Accenture, the global management consulting, technology services and outsourcing company, has declared that mobile commerce "is finally starting to emerge as a serious market force." http://www.accenture.com/us-en/outlook/Pages/outlook-journal-2012-upward-mobility.aspx# Accenture attributes the increasing promise of mobile commerce to rapid growth of near-field communications, or NFC, which is a mobile communications technology that connects mobile devices to readers to initiate a payment transaction (including contactless data exchange), and applauds the efforts of more than 150 companies to establish NFC industry standards. Accenture identifies these potential barriers to continuing growth of mobile commerce:
- availability of mobile devices
- consumer confidence in the security of transactions
- absence of accepted technology standards
- financially viable business models
- the need for broad acceptance of mobile commerce accross diverse types of merchants, products and services
- high infrastructure and other startup costs
- lack of standard mobile commerce solutions
Nevertheless, NFC is becoming an engine that "will enable mobile commerce to become mainstream," and Accenture has recommended that interested companies start developing their mobile commerce growth strategies. http://www.accenture.com/us-en/outlook/Pages/outlook-journal-2012-upward-mobility.aspx#
One company that appears to be addressing the security barrier head-on is AuthenTec, which just introduced a new "smart fingerprint sensor" for use in mobile commerce, to enhance secure shopping with today's NFC-equipped smartphones and tablets.
Wisely, AuthenTec designed the sensor in a modular package that will integrate easily with leading smartphones and tablets and highlights their technology as "compatible with today's NFC and Secure Element subsystems," thus planning for the adoption of technology standards and continued growth in mobile commerce. http://www.businesswire.com/news/home/20120508005482/en/AuthenTec-Introduces-Fingerprint-Sensor-Targeted-Secure-Mobile.
Should other technology companies jump on the NFC bandwagon? "Early forecasts indicate that the NFC mobile payments market alone - just part of the overall mobile commerce picture - will represent about $205 billion globally by 2015. Currently, the bulk of the NFC payments activity is in Asian markets, but the Western economies are expected to catch up very quickly. Western Eorope's slice of the NFC payments pie is expected to rise from 6 percent today to 24 percent in just four years." http://www.accenture.com/us-en/outlook/Pages/outlook-journal-2012-upward-mobility.aspx#
Navocate provides Business Sales and Acquisitions services for Emerging Companies with revenues from $3M - $30M. Specifically, Navocate focuses on the market segment above business brokers, and below investment banks. For more information please visit www.navocate.com
If you own a business (start-up, early stage or established) and want to capitalize it using the newly passed Crowdfunding Exemption, you will find the following information vital.
There are 8 months before the SEC is required to issue final rules for the protection of investors and to carry out the terms of the Act as it pertains to Title III – Crowdfunding. Before businesses (issuers) can raise any funds, they are required by the Act to disclose and report a laundry list of information about their companies to a registered Crowdfund Investing Portal (CIP). There are preparations and positioning strategies an issuer can implement now to ensure a successful raise, grow the business and create jobs. 
Here is an outline of action items you, the owner, need to be thinking of. This is presented as a motivational guide and act as a tool for further research.
Corporate Housekeeping and Governance
The level of preparation needed here will depend on the stage of development your company is at (start-up, early stage or established). First of all, your company must be incorporated to offer equity shares. This means researching the rules and procedures of the state you plan on incorporating in. Consulting an attorney or accountant experienced in this area is advisable.
You should establish a management team capable of handling daily business operations and the financial and regulatory reporting requirements. Having an Advisory Board of trusted and experienced mentors is suggested. In general, you are setting up a system of rules to follow while running your company.
Business Plan and Financials
Have a business plan. All of the information you are required to file with the SEC and report to the CIP will be contained in your business plan. This includes a description of your business, names of officers and directors, a description of the financial condition of the company, the stated purpose of use of proceeds, ownership and capital structure, the target amount to be raised and the deadline for reaching that target. The business plan should include an elevator pitch, executive summary, due diligence documentation, financial statements and pro formas.
Utilizing cloud based electronic business plan and due diligence reporting systems that provide complete transparency as required by the Crowdfunding Exemption is preferred. Your business plan will need to evolve as your company does. Using a cloud based service will allow you to easily make updates as your company morphs and keep up with reporting requirements. If you do not have the time or expertise to write a business plan, hire someone.
Issuers are also required to produce financial statements. The amount of the offering will determine the level of review required. For example, companies raising under $100k are required to disclose their most recent tax return and financial statements (certified to be true and complete by the principle executive officer). If an issuer is raising more than $500k, audited financials are required.
Valuation Model
As an issuer, you are required to provide the commission and investors via the CIP, the share price of securities being offered or the method for determining the price. Issuers must also state how the securities being offered are being valued, and must give examples of methods for how the securities may be valued in the future.
This is an area that the issuer should seriously consider seeking professional guidance. Look for help from qualified specialists trained at assembling valuation models. They will draw information from documents provided in the business plan, financials and pro formas.
In Closing
I have only mentioned some of the requirements necessary to be compliant with the reporting requirements of the Crowdfunding Exemption. Additionally, the SEC will most likely add to those requirements in order to protect the investor (they have been granted latitude to do so). 
Issuers that begin positioning their companies now will have the best chance of getting crowdfunded next year.
Survey Question
As a business owner wanting to prepare your company to raise money via crowdfunding and after researching the costs of services mentioned in the above article, what would you reasonably expect to pay for the collective, bundled services listed below? Please respond by using the comment box below this blog.
- Incorporation services
- Cloud based business plan, due diligence and financial reporting services
- Business plan writing services
- Valuation services
Navocate provides Business Sales and Acquisitions services for Emerging Companies with revenues from $3M - $30M. Specifically, Navocate focuses on the market segment above business brokers, and below investment banks. For more information please visit www.navocate.com
Posted by
Karl Buhl on Mon, May 07, 2012 @ 08:52 AM
Navocate has been engaged to sell an IT solutions development company in the network management software (NMS) niche.
The company had revenues of $10.5M in 2010, and $9.6M in 2011, but is in a turnaround situation for 2012. Contracts and revenues are in place to generate $400k EBITDA in 2012.
Ideal acquirer is an NMS company that brings strong operational and management abilities capable of servicing this company’s existing sales pipeline and building strategic growth based on existing prime contracts with the U.S. Army, Department of Defense, and Central Command.
Click on the link below to download the company overview.
Posted by
Karl Buhl on Wed, May 02, 2012 @ 02:26 PM
MIAMI, FL (PRWEB) May 02, 2012
EarlyShares.com, a crowdfunding platform whose mission is to fund early-stage and entrepreneurial companies under the recently passed JOBS Act, is pleased to announce the signing of a strategic alliance agreement with Navocate Business Sales + Acquisitions. Navocate will serve as EarlyShares.com’s official provider for merger & acquisition intermediary services to all EarlyShares.com crowdfunded companies. EarlyShares.com will serve as Navocate’s official crowdfunding platform for its early-stage companies.
EarlyShares.com is quickly becoming the industry standard “go to” crowdfunding portal. Once the SEC finalizes its rulemaking, EarlyShares.com will raise capital from small investors to fund entrepreneurial companies. Under the Act, crowdfunded companies can raise up to $1,000,000 from investors through funding portals such as EarlyShares.com. Additionally companies will no longer be limited to the 500-shareholder rule, or any other State shareholder count limit, as the Federal Jobs Act pre-empts State law. The new limit is 2,000 shareholders. Under the new JOBS Act signed by President Obama on April 5th 2012, investors with annual incomes of less than $100k will be limited to $2,000 investments, while those who make over $100k annually will be limited to $10,000.
Navocate will provide M&A services to EarlyShares.com portfolio companies that mature to be sold as a corporate acquisition or to partner with private equity. “EarlyShares.com targets and validates companies that can provide our crowdfunding investors a good return on investment within three years of the funding date,” said Maurice Lopes, CEO of EarlyShares.com. “Partnering with Navocate provides our later-stage portfolio companies with a relatively easy and convenient transition path for acquisition by larger companies, or to partner with private equity for continued growth.”
Karl F. Buhl, managing member of Navocate, said, “We are pleased to be selected as the official M&A service provider for all EarlyShares.com portfolio companies. Navocate will be there to successfully transition EarlyShares.com’s emerging companies by providing M&A intermediary services for corporate acquisitions, or by matching emerging companies with a private equity partner.”
About EarlyShares.com
EarlyShares.com, founded in 2011, is an equity-based crowdfunding platform (Funding Portal) which provides early-stage companies and investors a secure, easy to use platform for raising and investing capital. EarlyShares.com has corporate offices in Miami, FL. Contact: Maurice Lopes, CEO. PR(at)EarlyShares(dot)com http://www.EarlyShares.com
About Navocate Business Sales + Acquisitions
Navocate provides business sales and acquisitions services for emerging companies with revenues between $3M and $30M. Headquartered in Tampa, Florida, Navocate focuses on the under-served M&A segment above business brokers, and below investment banks. Contact: Paul Winkle. paul(at)navocate(dot)com. http://www.navocate.com
Media Relations Dept.
EarlyShares.com
(786) 565-3344 101
Email Information
See the release on Yahoo! News
A business sale is based on assets, good will, but above all cash flow—for which a buyer needs a reasonable return on his or her investment. Valuing a business includes analyzing historical comps, but also new buyer cash flow. Valuation is not about what the owner thinks the business is worth—yet this is often how we see businesses priced.
Join Navocate for a free Webcast next Tuesday, May 8, 2012—1:00 PM EDT to learn the basics of business valuation basics, including...
• Four essential approaches to business valuation.
• Why you can’t rely exclusively on a sell-side market valuation today.
• The importance of a buy-side (investment) valuation.
• How your business associate’s valuation advice can kill your chances for a timely sale.
Who Should Participate?
• Business owners anywhere in the U.S. with company revenues between $3M - $30M.
• Attorneys, Financial Planners, CPAs, and Accountants with business clients that meet the above criteria.
Register now: Click this link: http://navo.cat/Jkc4FS
Look for the ‘Register’ link at the bottom of the page...
When asked ‘How did you hear about this webcast?’ during the registration process, please select ‘Paul Winkle’ in the drop-down menu.
Webcast participants will receive Navocate’s free “Selling a Business Preparedness Evaluation”: a ten step road map to selling a business.
You will have an opportunity to ask questions at the end of the ½ hour webinar. We look forward to answers your inquiries.
Navocate provides Business Sales and Acquisitions services for Emerging Companies with revenues from $3M - $30M. Specifically, Navocate focuses on the market segment above business brokers, and below investment banks. For more information please visit www.navocate.com
First quarter 2012 data is showing medical device M&A had 21 deals worth $6.9 billion (
health care M&A data publisher Irving Levin Associates, www.levinassociates.com).
“M&A activity is currently brisk for a number of reasons,” said Sanford Steever, PhD, editor of Irving Levine’s publications, The Health Care M&A Monthly and The Health Care M&A Report. “The health care delivery network remains fragmented; M&A can squeeze out excess costs. The Federal Reserve is keeping interest rates low for the next three years, implying low costs of borrowing. Some health care companies are buying other companies to take advantage of those low rates. This also implies a measure of stability in which M&A tends to thrive. Organizations are continuing to put together the components of ACOs, so that hospitals are buying physicians’ practices, while managed care organizations are buying e-Health and IT companies.”
The expectation that 2012 will surpass 2011 results is especially encouraging because 2011 was a growth year for medical device M&A, with some sizable deals.
In 2011, the medical device sector posted a total of 170 deals, according to Deal Search Online, the M&A database from Irving Levin Associates. 2011 had a grand total of $63.5 billion in medical device merger and acquisition transactions.
The five largest medical device M&A deals of 2011 were:
- Johnson & Johnson acquired Synthes GmbH, a deal valued at $21.3 billion.
- Danaher acquired Beckman Coulter, the deal valued at $6.8 billion.
- Apax Partners acquired Kinetic Concepts, the transaction was valued at $6.3 billion.
- Thermo Fisher acquired Phadia AB, the deal valued at approximately $3.5 billion.
- Endo Pharmaceuticals acquired American Medical Systems, a deal worth $2.9 billion (as outlined by Irving Levin Associates).
Definitions of the “Lower Middle Market” range from $50M to $250M at the bottom, to $500M to $1B at the top. That makes deals under $30M “very small deals.” At Navocate we think that we are likely to see similar growth in the “very small” company segment as interest in technology innovation, software applications, and web based solutions takes center stage as healthcare providers strive to improve costs and controls. (Increasing use of web based data automation is one example.) This trend is complimented by both large companies enjoying record cash levels, and private equity funds still experiencing “dry powder” levels far higher than desired. All of these conditions enhance the ability of “very small” players to be included in the M&A growth of the sector.
“Very small” companies (under $30 M in revenues) might be hindered by issues arising from trying to package their companies for sale. For example, they might be lacking written procedures and processes, audited financials, or clear quantitative control measurements. To get in on the game, these companies should begin now to assess their readiness for sale.
For more information about evaluating a company’s preparedness for sale, please go to Navocate’s web site, http://www.navocate.com/sellside.html.
Navocate provides intermediary services for Emerging Companies with revenues between $3M and $30M.
If you’re planning to buy a business, it makes sense to research industry clusters. Robert Trigaux, the Tampa Bay Times business writer, defines an industry cluster as “a geographic concentration of interconnected businesses, suppliers and associated institutions in a particular field.” The success of a cluster is measured by how well it “boosts the productivity and competitiveness of related companies” (Trigaux). In Florida, economic development groups are building these clusters at the city, county and state level. State and local communities offer incentives, tax subsidies or other benefits to entice certain businesses to join clusters. The economic support makes it much easier for companies to become established and grow, which in turn aids the economy even more.
An important feature of a successful industry cluster is its proximity to a large university with the economic and intellectual capacity to engage in research. According to the Carnegie Foundation for Advancement of Teaching, Florida’s research universities are among the top in the nation. Clusters are already booming in certain areas of the state; for example the Lake Nona “medical city” portion of metropolitan Orlando currently hosts numerous bioscience businesses. Lake Nona neighbors the University of Central Florida, which has the Business Incubation Program and the newly created College of Medicine. Lake Nona also hosts the Sanford-Burnham Medical Research Institute and will soon welcome Nemour’s Children’s Hospital and a VA medical center.
St. Petersburg and the Tampa Bay region at large are focused on growing industry clusters in:
• life sciences/medical services
• research/engineering services
• financial transactions/services
• information tech/electronics
• aerospace, defense and national security
• business services
As St. Petersburg and Tampa continue to target these industries for clusters, they can rightfully brag about the local expertise and research focus of the University of South Florida (in Tampa). Both Tampa and St. Petersburg benefit, in terms of creating high-paying jobs, from USF’s high ranking as a research university, its Small Business Development Center, and public-private partnerships with high-tech businesses including Draper Labs, SRI, and the Center for Advanced Medical Learning & Simulation (CAMLS), as well as its partnerships with major health care companies, including All Children’s Hospital. Moffitt Cancer Center, Florida Hospital, James A. Haley Veteran’s Hospital, Shriners Hospital for Children and Tampa General Hospital.
Florida is banking on the growth of industry clusters as a way to transform its economy from old to new. Years ago leaders saw that too much of the state’s economy depended on tourism and construction, which tend to be low-paying. Creating industry clusters was a way to nurture higher paying jobs, have a better-educated workforce, and increase the region’s emphasis on STEM (science, engineering, technology and manufacturing), to compete well in the 21st century. The Associated Press reported on April 22, 2012 that Florida’s unemployment rate is rapidly declining, from 12.7% in late 2010 to a current 9%, creating more optimism that the state’s economy can leap into the future and compete.
Florida’s economy ranks 19th in the world; but other states are also focusing on the creation of industry clusters, so early success in creating and fostering clusters is very important if Florida is to be a leading economy in the future. Hence, the “targeting” choices are critical. Florida’s beautiful weather and scenery, multi-lingual workforce and import-export infrastructure are an added draw for businesses choosing where to locate, but having the right industry cluster targets, and working efficiently to create them is the first step in competing globally for high-paying jobs and a vibrant economy.
In addition to looking for synergistic productivity and competitiveness, acquirers of businesses in 21st century industries would be wise to study the past success and future goals of local research universities and economic development organizations, the strength of industry clusters already in place, and whether targeted industry sectors should be considered as promising or pipe-dreams. If it’s a difficult decision between two or more geographical locations, then by all means, consider the weather and abundant wildlife.
Navocate provides business intermediary services to Emerging Companies with revenues between $3 million and $30 million.