Throughout the month of February, SNEWS will recap its coverage of Outdoor Retailer Winter Market 2012 with select stories from the O.R. Daily we published at the show Jan. 19-22. It’s an opportunity for you to catch up on stories you might have missed in O.R.D., and for us to update and upload the articles to our searchable archives.
Formerly an investment banker with RBC Capital Markets, Nathan Pund co-founded in January 2005 Silver Steep Partners, a boutique investment banking firm focused exclusively on serving the outdoor and active lifestyle industries. Pund and his team completed 16 mergers or acquisitions over the following six years. The number of closed transactions, he said, made Silver Steep the No. 1 global provider of M&A advice to the outdoor industry. In December 2010, Pund and his team sold the firm to D.A. Davidson, and Pund transitioned to become a managing director and group head of the Outdoor Investment Banking Group there. We spent some time with Pund discussing 2012 and what he expects to see with mergers and acquisitions both at Winter Market and in the year to come.
Share with our SNEWS readers what your M&A crystal ball says 2012 will look like?
I believe it will be a banner year in M&A, one that could rival 2007. There are a number of reasons driving that potential trend: One, while the deficit could influence the overall mood, there is little doubt that the economy is getting better, albeit inch-by-inch. As a result, people are willing to take a bit more risk and are willing to consider deals again. Two, consolidators have a lot more cash, but to grow they need to buy companies since it is easier to acquire a brand than to build one from scratch. Three, private equity is awash in money, and the firms have to get deals done or face the prospect of giving the money back. Private equity firms love to invest in the outdoor space. Finally, companies that survived the downturn are increasingly asking themselves, do I want to hang on for the next few years with no bank lending and eke by, or should I sell out to a larger company and walk away with proceeds in my pocket? On a greater extreme, folks falling on hard times still have good businesses but have little in capital financing to support the business operations and thus are on shaky ground.
What did you mean by private equity firms have to use the money or give it back?
Private equity firms obtain their funds from investors, called limited partners or LPs. They promise those LPs to invest their funds, typically, over a five- to seven-year period. For example, say you and I start a private equity fund with $100 million of investors’ money. We go out to find good companies to invest in but are limited in the time we can find the company, invest in the company, make it better, and then sell it. Depending on where you are in that five- to seven-year time period, you may only have a few years left before the time period has expired.
Now, if we can’t find a deal to use our investor’s money, we don’t physically give the money back as we never really took possession of it to begin with, but, what we have done is proven we can’t handle that much money and find an investment, so it becomes harder to get backers to provide that much capital in the future.
So does that mean Winter Market is going to be the market of deal making?
The Outdoor Retailer trade shows are a fantastic forum for deal making, be it PE firms, companies selling or large companies looking to acquire businesses. All the key players are there. You would be amazed at how much deal making is going on at any one time during the show! Look closely and I bet you will see either an investment banker, a private equity investor or an executive from a potential large acquirer talking to the next potential target. After all, it is much cheaper for Adidas to buy Five Ten than for Adidas to spend years trying create a brand like Five Ten on its own.
What advice would you give to a brand that is thinking it might want to or need to be acquired?
For any brand that may want to sell, start by hiring the right advisers – a professional team that can advise you all the way through a potential transaction. Selling a business is a very complicated and stressful process. Folks should hire an investment banker and an M&A attorney knowledgeable in the space so as to receive accurate and relevant advice, plus those with representation are typically taken much more seriously by potential investors or acquirers than those who aren’t. Private equity firms and consolidators just don’t want to deal directly with founders as that can be difficult and extremely time-consuming versus dealing with professionals who understand the process.
It is also critical to understand that you only get one shot at selling your business and you want to do your best and be well prepared. If you can’t answer basic questions about your business, potential investors will not take you seriously and the deal is canceled before it even started. You only get one shot to make a great impression.