 |
|
|
The Blunt Bankers from Seattle
Cascadia parlays straight shooting, painful assessments into mandates
Avital Louria Hahn
When Scott Maxwell, a managing director at venture capital firm Insight Venture Partners, invited investment bankers to discuss the future of one of his firm's portfolio companies last fall, the company's executives were in for a rude awakening. The bankers, from Seattle-based investment bank Cascadia Capital, not only disagreed with the valuation the executives assigned to their firm, they pegged it a painful 40% lower.
Click here to read the rest of the story from Investment Dealers' Digest. (PDF)
|
|
2004 brought renewed confidence in the M&A market. Many companies leveraged M&A to achieve growth and improve their bottom line after having exhausted all cost cutting measures in prior years. M&A will continue at a robust level in 2005, but don't expect to see companies branching into new markets just yet. Instead, they will focus their M&A on augmenting their strategic platforms or expanding into adjacent vertical markets.
M&A deal quality will remain high through 2005. Company boards are taking their responsibilities more seriously than ever. They will be actively engaged in purchasing decisions and keep a watchful eye to prevent non-strategic deals from moving down the pipeline.
|
The disequilibrium between capital supply and demand will continue in 2005. Strong companies analyzing their growth prospects will be in the enviable position to choose their best strategic option—be that M&A, equity or debt. Valuations will continue to rise and transactions will remain fully priced.
From the investor's perspective, the outlook isn't so rosy. Good investment opportunities will become more and more difficult to find, causing some investors to stretch for transactions that aren't in their current investment parameters.
|
One of the biggest surprises of 2004 was the revitalization of the debt markets and the accelerated competitive environment that ensued within the asset class. Expect debt to remain readily available and competitive through 2005.
Debt financing is particularly interesting because both public and private companies can tailor debt to a variety of transaction situations. Debt offers flexibility and breadth of liquidity opportunities for private owners in dividend recaps and other liquidity financings without the need for a majority equity transaction.
|
Perhaps the biggest surprise last year was the degree to which the IPO market opened up for technology companies. Many didn't expect such a strong recovery, nor did they expect to see unprofitable companies successfully go public. But it happened.
With the window open and a better understanding of the metrics required for successful IPOs, companies will be more confident as they look at their prospects for a public offering this year. Many companies will go public, but the quality bar will remain high and we will only see IPOs for strong performers.
|
|
We expect the security industry to be a center of attention for investors and corporations alike in 2005. Private equity is fueling this market, in part due to the creation of security-focused funds by Guiliani, Paladin, GlobeSecNine, Thales Corporate Ventures and ACE Management. M&A activity has also been unprecedented with strategic investors and corporate consolidators driving transaction multiples to historic highs as companies compete for increasingly scarce security assets. With the country's steadfast focus on homeland security and the global war on terror, this strong investment activity will no doubt continue through 2005.
Mergers & Acquisitions: Strategic Combinations are Top of Mind
There isn't a Fortune 500 company today that isn't thinking about security as a means of corporate growth or as an integral part of doing business. We're seeing a race among these companies to capture market share and access the reseller channel—and this race is creating a very competitive M&A environment. With end-users' attention shifting from niche products to 1) cost savings through integrated solutions and 2) decreased human interactions with security systems, companies like GE, Honeywell, United Technologies and Schneider Electric are slugging it out on large transactions and searching for strategic add-ons in the middle market that will give them a total solution.
Meanwhile, large consolidators are diligently searching for acquisitions that give them the ability to offer an end-to-end security solution that spans geographies, distribution channels and product categories—recognizing the promise of broader end-user coverage and increased shareholder value.
The flurry of M&A activity has also prompted both private and public security companies to look for potential buyers willing to pay a strategic premium. And small and mid-sized security companies wishing to remain independent hope to exploit the integration challenges these acquisitions are likely to pose—and the vacuum they are sure to create.
Select examples of security industry mergers and acquisitions in 2004:
- GE's purchase of EST (life safety products) and Invision (security screening)
- Honeywell's purchase of Novar (security, fire protection and building controls) and Silent Witness (video surveillance)
- Viisage's purchase of imaging Automation (identity document authentication)
- Schneider's purchase of Andover Controls (building automation)
- Stanley Works' purchase of ISR Solutions (electronic security), Blick (security, communication and time management solutions) and Frisco Bay (video surveillance)
Private Equity: Fueling the Integration of a Fragmented Industry
The security industry still remains highly fragmented and technology-challenged. Most enterprises still rely on separate fire, alarm, access control, HVAC, video surveillance and other systems—none of which are networked or capable of communicating with each other. There continues to be no industry-accepted interoperability standards, which means that companies that are able to integrate different security systems find themselves becoming hot commodities.
These dynamics will result in significant investments in emerging security markets focused not on the systems that produce more security-related data, but on those that can analyze and improve upon that data. With these technology improvements, companies will be able to achieve their goals of decreasing costs and integrating currently disparate security systems.
A sample of 2004 security industry capital raises includes:
- Safeview's $16 million funding (weapons identification)
- GlobalSecure's $27.5 million funding (safety equipment)
- UPEK's $20 million funding (biometrics)
- Digital Persona's $13 million funding (authentication hardware and software for fingerprint identities)
- Cogent's $216 million IPO (fingerprint recognition)
Predictions for 2005
- M&A activity will continue to accelerate as end-user customers increasingly demand integrated security solutions—and companies like GE, Honeywell, UTX, Stanley, Schneider Electric and Bosch respond by acquiring best-of-breed solutions in areas like intelligent video applications, access control and identification.
- The communications and physical security industries will converge at last as security devices increasingly ride on corporate networks.
- Traditional physical security and network-centric security companies will finally become more integrated, bringing larger IT entrants like Cisco, Computer Associates and Symantec into the physical security market.
- The financial services sector will look to security as a potential new growth area. Specifically, with Marsh McLennan's purchase of Kroll, financial service providers will evaluate risk mitigation companies as strategic acquisition targets.
- Consolidators focused on integrating recently acquired companies may encounter setbacks as they move into new areas of security—and there will be cases of buyer's remorse and indigestion.
|
|
|
|
2004 was a year of strong growth for Cascadia Capital. The firm dramatically increased its transaction volume while transforming itself from a regional investment boutique to a national investment bank with a comprehensive service offering.
In addition to completing 23 transactions in 2004—a dramatic increase over last year—Cascadia Capital expanded in several other areas.
- We opened a New York office, bringing us closer to the East Coast capital markets and allowing us to better serve companies located in the Northeast.
- We more than doubled in size, bringing the number of bankers to 40, including several new managing directors.
- We added a Transaction Origination Group to originate investment opportunities for leading financial sponsors.
- We added debt capital and restructuring expertise, augmenting our transaction structuring capabilities and increasing our reach into this highly competitive asset class.
- We added two vertical market practices—Healthcare and Security & Defense.
Cascadia Capital is a national investment bank offering corporate finance, mergers & acquisitions, strategic advisory services, and capital market services to companies across North America. From its Seattle and New York offices, Cascadia Capital serves emerging growth and middle market companies, both public and private. The firm has an established track record in the following sectors: Information Technology, Communications, Security & Defense, Healthcare, and Industrial & Consumer.
Read more about our approach.
|
|
|
This
email is for distribution within the US.
Seattle Office
403 Columbia Street, Suite 500
Seattle, WA 98104
(206) 357-9100
|
|
New York Office
1230 Avenue of the Americas, 7th Floor
New York, NY 10020
(917) 639-4160
|
www.cascadiacapital.com
|
|
|
