Andy Stockett, of Four Bridge Capital Advisors, will write a column for Edge magazine.Andy Stockett
Job: Managing partner for FourBridges Capital Advisors in Chattanooga
Education: A graduate of Baylor School, Vanderbilt University and the University of Chicago Booth School of Business.
Career: Prior to joining FourBridges in 2005, Stockett served for eight years as chief financial officer for Gordon Biersch Restaurant Group, growing the company's annual revenues from $7 million to more than $90 million. He was previously a partner for Mid Atlantic Holdings for five years specializing in initial public offerings and was senior vice president of capital markets for Raymond James Financial for nine years after working as Midwest regional manager for Saddlebrook Corp., for nearly three and a half years.
In the 1980s while at Raymond James Financial, Andy Stockett helped a number of small, growing firms go public with initial public offerings, including an offering that helped propel Outback Steakhouse into a major national restaurant chain.
With new regulatory rules and changed equity markets, Stockett said most initial public offerings today require more than $100 million of new stock to justify the expense of meeting all of the requirements under Dodd-Frank and other security regulations. So most small- and medium-sized businesses today are often looking for investors or an outright sale from private equity firms, which have grown in size as many wealthy individuals and foundations have sought to invest directly in businesses rather than just in the stock or bond market.
Stockett, a managing partner for FourBridges Capital Advisors in Chattanooga, joined the investment firm a decade ago after helping grow the Gordon Biersch Restaurant Group into a major national player. Stockett talked with Edge Editor Dave Flessner about buying and selling businesses and the growth in equity firms investing in many private businesses in the region.
Edge: Why is this a good time to try to sell your business?
Stockett: The valuations are higher than any time that I have seen them. Private equity funds have raised record amounts of capital from high net worth individuals, college endowments and other investors and that needs to get deployed. So there's certainly a lot of money out there. At the same time, interest rates are still near historic lows so when private equity or strategic equity groups come into buy the financing costs are so relatively low that you can leverage the company much more and that, of course, pushes up prices. After the recession, a lot of businesses and strategic investors cut back their spending so they are generating much more cash flow as the economy has improved.
Edge: What sectors of the economy are seeing more merger activity and higher prices?
Stockett: There has been a chilling effect in some energy sectors since oil prices have dropped so much in the past year. But health care and health care services are certainly hot. Anything that has the ability to take care of the aging demographics is very attractive. There also continues to be a lot of activity in high tech and manufacturing in general which has gotten much more efficient during and after the recession, is certainly appealing as the economy improves.
Edge: Why should a business looking to sell employ a firm like Four Bridges?
Stockett: In most industries the key players all know one another. But typically, the business owners don't have as much exposure to these private equity funds out there. We sold a company in Muscle Shoals, Alabama, a couple of years ago to a private equity fund in Boulder, Colorado, and they would not have had any idea about those buyers if they hadn't used us. For most business owners, selling the company is a once in a lifetime deal. You probably ought to have someone who does do this all the time.
Edge: What size firm do you focus on?
Stockett: Our sweet spot is probably those businesses with about $10 million to $100 million in value, although we have done deals with several hundred million dollars in value. Most of the companies we work with are between $5 million and $100 million in revenues.
Edge: What should businesses do to get ready to sell?
Stockett: Like you would if you were selling your house, you should walk around your business and see what is going to drive the value and make it more attractive. That can be looking at your customer base and make sure you have a diverse enough mix. You need to make sure all of your corporate books and records are in good shape and your financial statements, if not audited, are reviewed by third parties. The more comfort people have in your records, the more they will pay.
What should business owners try to assess when getting ready to sell their business?
You need to try to define your objectives in any sale. Are you ready to throw the keys to someone and retire. If so, we have to go to potential buyers who are comfortable with a management transition. But a lot of times we are seeing with the current valuations of businesses that there is an owner-entrepreneur who may be age 55 or so and still has a lot of energy but doesn't want to have the risk of going into another recession on his own and doesn't want to continue so much debt. You'll have a private equity company come in and buy 70 percent of the company and gain ownership control. But such owners are really betting on the management team to continue to take the company, with extra funding, to the next level. In a lot of cases, that 30 percent the original owner keeps might be worth more than the entire company in five or six years with the extra funding from the private equity group. That gives the entrepreneur selling the business and extra bite of the appeal.
Edge: Where do you find the best buyers?
Stockett: We try to look across the spectrum in all areas. There may be a strategic buyer within the industry, perhaps a competitor that wants to get into the market controlled by the business being sold. But there also are a lot of private equity funds from those not in the industry but looking for a good way to deploy their capital.
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