A week ago, I listened to a presentation from the Corum Group. They are in the business of helping startup executives sell their companies. Each of them has gone through the process themselves, so they know the ins and outs.
Interesting discussion and they crammed it full of data and facts. There are some great technological reasons, and some great financial return reasons that people would want to begin allocating some of their portfolio to a startup fund.
Technologically, we are in the beginning wave of a sea change where massive data sets are being able to be manipulated by people that never were able to do it before. This gives new insight into their field of study. For example, in economics, economists are now able to work with larger data sets than they ever did before without having to wait in line to use a super computer for analysis.
Financially, it’s been proven that if you invest in a Series A round you do a lot better than if you wait. Look at the funding cycle on Yahoo’s ($YHOO) recent acquisition of Tumblr. Whose name do you see in every round of financing? Smart money that took calculated risk for a big gain.
The data they spit out also told me the stock market has plenty of headroom, no growth economy be damned.
The Fed has cheapened the value of the dollar. They have also created a lot of dollars. The dollars created are sitting on bank balance sheets. The other dollars are sitting on company balance sheets. Companies are a lot more cash efficient than they were ten years ago.
Uncommitted funds for mergers and acquisitions or investment sitting on public company balance sheets……$350 billion dollars. That’s Corum’s estimate. Currently, companies rarely are investing in new capacity. They don’t build that new factory or plant. It’s just too expensive to acquire labor. If they do, they are building in the southern “right to work” United States. That leaves a lot of money for M+A.
If you think that the number in the public company world is big, you haven’t seen anything yet.
Uncommitted funds for acquisitions in the Private Equity fund space……1 Trillion.
When PE firms manage cash, most of it sits in debt instruments when it’s not being deployed. The favored debt instruments are US Treasuries. (Wipe that smile off your face Gentle Ben)
Corum produces a Corum Index. It’s a quarterly survey of data on companies that have been acquired. They look at the multiple that they were purchased at from both a sales and EBITA level. I just jotted down some of the ones I was interested in.
Vertical Sales EBITA
Healthcare 3.95x 21.8x
Financial Services 3.49x 14.05x
A/E/C (Pro Services) 2.80x 14.43x
Human Resources 2.12x 53.54x
CRM 3.83x 18.53x
Supply Chain 5.36x 40.56x
I don’t know if the public companies on the stock market reflect these kinds of metrics. You’d have to do your own research.
thanks Crossing Wall Street for the link.