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Hot Topics in the Middle Market > Categories
Golden bridge from China
Ten years ago, downtown Los Angeles had some real challenges. Today it’s a hip, vibrant community, thanks in part to investments made by Chinese companies in recent years. Several major Chinese real estate developers, such as Oceanwide, Greenland and Shenzhen Hazens, have purchased massive pieces of land for development downtown. Oceanwide’s project, for example, is a 4.6-acre site that will yield 504 condominiums, 184 hotel rooms and more than 150,000 square feet of commercial space. Greenland is investing $100 million to build the Metropolis, which spans 6.3 acres with a 350-room hotel and three residential towers totally over 1,500 units.
 
Chinese real estate developers believe strongly in investing in the major areas in major cities, and are purchasing  and developing properties outside LA, too. San Francisco, New York and even cities in Hawaii are naturally targets for them. In fact, Oceanwide has recently broken ground on a project in downtown San Francisco involving 26,000 square feet of new public spaces and two mixed-use towers: a 625-foot, 54-story mixed-use residential and hotel tower, and a 910-foot, 61-story residential and office tower, which provides 2.4 million square feet of new hotel, office and residential spaces.
 
The impact
These Chinese companies aren’t just providing the funds—they’re providing opportunity for the cities involved. For LA, their investments are critical to the urbanization and revitalization of DTLA. And, since the start of construction in February 2014, the Greenland project itself has already brought 15,000 jobs to LA. More jobs will be created in different capacities as the project moves along, including more hospitality jobs once the hotels are built. There will be more restaurants, entertainment venues and other businesses that will open up to serve the thousands of people moving into and visiting these new areas.
 
Conclusion
While these massive, landmark Chinese construction projects in the U.S. are likely good investments for the Chinese developers, much good to the communities is also coming out of them. These companies are hiring local workers to build these projects. They are also purchasing materials from within the U.S. The units provide housing options to every aspect of the community le
These local ties best symbolizes a “golden bridge” from China to LA and the rest of the U.S.
Technology, Trump and millennial effects on the consumer products industry
The effect of technology on the industry
E-commerce and the continuing outperformance of online sales are hitting traditional brick and mortar operations hard. As the merging of online and physical operations presents new challenges, retailers primarily focused on brick and mortar locations are looking to viable e-commerce offerings as a solution for their struggles and, instead of avoiding brick and mortar companies altogether, some acquirers are targeting companies with physical locations that also manage their own e-commerce and websites, as explained by one acquirer at a recent Nixon Peabody LLP private equity roundtable event focusing on consumer products and services in middle market transactions. This move away from brick and mortar companies has been noted across various sectors in the market, including apparel. However, some sectors, including the perishable products and home furnishings spaces, appear to be somewhat protected against digital disruption because consumers still crave the touch and feel factor for these products—they want to access them in person to assess quality and other factors. In 2017, the number of liquidations and bankruptcies among the brick and mortar sector are expected to increase as changing retail industry dynamics and shifting consumer purchasing habits weed out companies that fail to remain relevant and engage consumers.
 
In addition, many consumer-driven companies are now successfully using augmented reality (AR) technology and AR apps to enrich their customers’ experiences and interactions with their brand, and ultimately to boost sales. This use of technology, such as trying on reading glasses virtually over the internet instead of going into a brick and mortar store to try on and purchase glasses, is here to stay and will continue to change the retail space in the coming years. If a customer cannot experience a product online, it’s likely that such product will be less successful and, in some cases, avoided altogether.
 
The millennial generation effect
Private equity investors continue to focus on trends both created by and important to the millennial generation, which is steadily gaining more purchasing power. Within the consumer products and services industry, the millennial generation is focused on:
(a) paying for experiences (such as home furnishings and travel), rather than goods;
(b) healthier foods, including transparency around food chain sourcing and whether such production chains are environmentally friendly and, in some cases, come from sources that observe sustainability practices;
(c) paying up for customized offerings blended with an experiential setting and for convenience;
(d) new and different apparel as brand loyalty fades; and
(e) in some cases, the charitable giving practices of the providers of their products and services.
 
These various trends have caught the attention of private equity investors because private equity investors want to capitalize on this generation’s increasing purchasing power.
 
The Trump effect
The presidential election victory of Donald Trump, along with the Republican hold of the House of Representatives and Senate, signal changes ahead, including potential tax cuts and changes in trade policies and regulations. Given these potential changes, buyer hesitation across many sectors, including the consumer products and services sector, is reasonable; therefore, a focus on quality and clear established rationales for acquisitions will remain paramount.
 
Worry exists in the industry about the potential regulatory changes that the Trump Administration has promised to implement, including the potential for an import tax. No one knows what the import tax will be or how or when it would be implemented, and investors at the Nixon Peabody roundtable event are factoring this uncertainty into investment decisions. For example, one investor recently passed on submitting a bid for a target company that had a large number of imports from China but whose largest competitors did not also similarly import its products from China, given the risk of a potential future import tax. Another investor noted that his firm continues to bid on target companies, but requires an escrow of funds for a certain period of time following closing so that the seller bears the risk of potential import taxes and increased labor costs for a certain period of time following the purchase. In addition, changes in trade policies and trade agreements could lead to increased prices for imported goods, which would reduce spending power and lead to job cuts in export sectors.
Private equity roundtable discussion recap: consumer products and services in middle market transactions

On March 1, 2017, Nixon Peabody hosted a private equity roundtable event at its New York City office focusing on consumer products and services in middle market transactions. The panelists were as follows:  David Benyaminy, Partner, AUA Private Equity Partners, LLC, Christopher Bradley, Managing Director, Mistral Equity Partners, Michael Fanelli, Partner, Transaction Advisory Services, RSM US LLP, and Jonah Glick, Senior Vice President, Tree Line Capital Partners. The discussion was moderated by Marc Kenny, Partner at Nixon Peabody LLP, Richard F. Langan, Jr., Partner at Nixon Peabody LLP, and Jeremy Wolk, Partner at Nixon Peabody LLP.

The discussion began by one moderator noting that brick and mortar operations are being hit hard by a move to e-commerce. In response, the panelists stated that they do not avoid brick and mortar companies, but instead they look for target companies that have brick and mortar stores but who also manage their own e-commerce and websites.  This change has been noted in the market as more consumer product giants have been plowing more funds into their e-commerce offerings, beyond even more durable goods such as apparel. 

In addition, many major consumer-driven companies are now successfully using augmented reality (“AR”) technology and AR apps to enrich their customers’ experiences and interactions with their brand to ultimately boost sales.  The panelists noted that this use of technology is here to stay and will continue to change the retail space in the coming years (such as trying on reading glasses virtually over the internet instead of going into a brick and mortar store to try on and purchase glasses).  If a product does not allow a customer to experience it online, then the panelists said that it is likely that such product will be less successful and, in some cases, they do try to avoid investing in such products. 

The discussion then turned to the millennial generation with the panel noting that the behavior of this generation continues to be on the radar of private equity investors in the consumer sector. The panel further  noted that the millennial generation has shifted their focus towards experiences, so that they are more interested in paying for experiences than goods. In addition, another trend is that the millennial generation has a preference for convenience, health and the customization of products.  These trends have caught the attention of private equity investors and they are focusing on investing in companies that offer these types of products and services because the millennial generation is now gaining more purchasing power and private equity investors want to capitalize on this power.

The discussion ended with a note that there is worry in the industry about the potential changes in laws and regulations that the Trump administration has promised to implement, including the potential for an import tax.  No one knows what the import tax will be or how or when such an import tax would be implemented, so there is some uncertainty surrounding this issue, and this uncertainty is factored into whether the panelists will invest in a company. For example, one panelist recently considered bidding on a company that had a large number of imports from China but the target’s largest competitors did not also similarly import its products from China, so they passed on this bid as being too risky given the potential future import tax.

Shifting landscape of the consumer products industry

According to the panelists at our April 27  Hot Topics event in Chicago, the consumer products and services industry continues to evolve as consumer tastes and preferences rapidly change, requiring companies, investors, advisors and dealmakers in the consumer products space to be innovative and strategic in seeking investment opportunities. The panel also discussed the private equity investing outlook in the consumer products and services industry, including industry-specific trends, high valuation multiples in the industry, challenges for the industry moving forward and differentiating factors for an attractive consumer products company from the viewpoint of investors.

Omni-channel models
Consumers are trending towards companies that have service-linked models, and they’re searching for products that provide value. Consumer product companies are being forced to adapt and provide products and services through various channels to meet consumer demands, as preferences continue to shift (especially among millennials) and demand increases for products and services to be provided quicker and more efficiently. For example, many consumer products companies are having success with a direct subscription delivery model and by selling through e-commerce or mobile channels rather than through a traditional retail or brick and mortar channel.   

Challenges and opportunities
Current challenges in the consumer products industry include:

1. A decrease in brand loyalty
2. An increased focus by consumers and retailers on corporate citizenship
3. Additional global regulations and emphasis on transparency and disclosure
4. A fickle consumer base that requires products quicker and with higher quality 

At the same time, valuation multiples in the consumer products industry are at an all-time high, offering ample opportunities for successful companies to find a profitable exit opportunity or raise additional capital.  Factors driving premium multiples for companies in the consumer products and services industry include:

1. The ability to successfully deliver high-quality products through various channels
2. The ability to innovate and develop new and exciting products while fostering a culture to continue innovation
3. Operational excellence at the company

Food and beverage trends
Millennial consumer preferences are having a very strong influence on the industry as it evolves. Millennials have trended towards health and wellness products, bold and original flavors, on-the-go snacks and meal replacement options. Additionally, because of lower brand loyalty and a millennial preference for clean and healthy ingredients, companies have been forced to get closer to their supply chain and track how each of their products are being sourced, distributed and advertised.     

Deal environment
All of the panelists agreed that the current deal environment remains a seller’s market. One important consideration for consumer products companies seeking either capital or a sale is whether to consider a strategic investor or a financial sponsor. It is typically company- and niche-dependent as to which option makes the most sense, but due to the competitive environment for attractive investment opportunities, certain financial sponsors have recently shown a willingness to offer valuations similar to strategic investors.

Due diligence
Additionally, in preparation for a sale, companies are increasingly engaged in sell-side due diligence. Conducting due diligence prior to engaging with counterparties helps to spot issues and eliminate uncertainty surrounding a target resulting in a smoother sale transaction process. Many buyers and investors are also increasing their level of operations diligence for targets. Investors are not only concerned with the financial metrics of a target. The speakers mentioned that a company’s culture, and the ability to seamlessly move from innovation to actual manufacturing of products, can help predict the growth potential of a target and potentially result in a higher valuation.

Panelists for the event included Adam Filkin, Managing Director at William Blair, Robert W. Grenley, Corporate Finance at POP Gourmet LLC, Ben Holbrook, Managing Director at Mason Wells, and Paul Melville, Principal in Corporate Advisory & Restructuring Services at Grant Thornton LLP.  If you are interested in attending our ongoing Hot Topics in the Middle Market series, contact hottopics@nixonpeabody.com.

Early trends based upon private equity’s deal activity in the first quarter of 2016

The folks at PitchBook have crunched the data for U.S. private equity deal activity in the first quarter of this year and have outlined some very interesting early trends for 2016:

 

1.       Private equity’s “buy-and-build” strategy continues to be a significant portion of the private equity investment activity with add-on investments representing nearly 70% of the private equity investment activities in Q1.

2.       Macro-economic uncertainty and a competitive middle-market lending environment continues to reduce the use of debt in private equity deals in Q1.

3.       While deals in the lower middle market may require additional effort, funds continue to find attractive valuations in this segment of the middle market with a bit less competition.

4.       U.S. PE-backed sales saw a dramatic decrease in Q1 (as compared to the same period in 2015) with only 198 completed sales and not one PE-backed IPO!

5.       PE-backed exits remain robust in the healthcare, business-to-consumer, and financial services sectors.

6.       Private equity fundraising remains strong.  Of the 71 U.S. private equity funds closed in Q1, 98% of all these funds either hit or exceeded their fundraising target. (More info on this trend from PitchBook can be found here.)

7.       The median size of U.S. private equity fund vehicles in Q1 were larger relative to prior years.

8.      Notwithstanding the increased median size of fund vehicles, limited partners appear to have an increased appetite for smaller fund vehicles (between $250 million to $500 million) with focused and niche investment strategies.

9.       There is a higher success rate of private equity fundraising due to increased limited partner demand for established fund managers and for new managers with unique/specialized strategies.

(For additional information from PitchBook, please click here.)

 

Thus, while private equity deal activity was off to a slow start in Q1, the strong fundraising environment demonstrates limited partners’ continued confidence in private equity as an asset class and in the ability of private equity managers to carefully and creatively execute on their focused strategy in an otherwise uncertain economic time to generate consistent and attractive returns for its LPs.  

 

2016 to remain a seller’s market, but proceed with caution
2016 is a seller’s market, according to the panelists at our recent Hot Topics events. Investors, dealmakers and advisors came together in Boston and Los Angeles to discuss what’s on the horizon for private equity in 2016, including the impact of high valuations and rising interest rates on M&A activity, and the regulatory hurdles facing the financial institutions supporting the industry.

In Boston, panelists included:
• Gregory Bondick, Managing Director at Windjammer Capital Investors
• Jason Fennessy, Director at RSM US LLP
• Jay Hernandez, Director at Harris Williams & Co.
• Kevin Jolley, Managing Director at MHT MidSpan
• Matthew Keis, Managing Director at Gemini Investors
• William Nolan, Managing Director at H.I.G. Capital
• Andrew Shiftan, Managing Director at BHC Interim Funding, LP

The panelists had the following observations and predictions for middle market M&A activity:

Recap of 2015 – The past year had a healthy volume of M&A deals, with valuations in many instances at levels not seen since 2007.  For many PE funds, fundraising was strong, giving these funds ample capital to deploy in 2016.  The credit markets were also friendly to buyers with healthy balance sheets, giving many buyers sufficient cash to deploy on M&A activity. The health care and health care IT sectors were big winners in the past year, as companies and investors became increasingly familiar with the Affordable Care Act and corresponding investment opportunities. Brewery and SaaS-based businesses also drove high multiples.

The Year Ahead – The panelists agreed that while growth may have moderated, it is still a seller’s market.  That said, sellers’ expectations may have started to exceed the market reality and valuations are likely plateauing.  Despite this realization, the metrics driving deals will hold true.  The middle market and lower middle market are a good place for buyers seeking reasonable valuations.  Buyers who are flexible in terms of the capital structure of an acquisition and can provide certainty related to the closing of a transaction will continue to be more successful in competitive bid processes.

M&A activity will continue to follow growth sectors.  The panel agreed that the natural and organics, outdoors, pet product and business services industries would remain hot.  The pet products industry, for example, is growing faster than GDP and appears not to be affected by market cycles. The industrial sector will likely not fare as well, and finding growth here may be challenging.  The revenue of companies in this sector is often tied to the oil and gas industry, which is hurting, and the U.S. dollar, the strength of which hurts companies who have operations offshore.

From a lender’s perspective, 2016 will continue to present challenges as banks, business development companies (BDCs), SBICs and insurance companies compete to deploy capital. Uneasiness will remain in the high yield market related to macroeconomic conditions such as the price of oil and China’s economy.  At the upper end of the credit market, there is a lack of liquidity.  Larger institutions are holding debt in industries like oil and gas that are not faring particularly well. Lenders are also facing regulatory pressure related to balance sheet requirements.  The panelists agreed that only time would tell whether this uncertainty would trickle down to the middle market.

Speakers at our Los Angeles event included:
• Brad Meadow of SPK Capital LLC
• Andrew J. Howard of Shamrock Capital Advisors, LLC
• Naeem Arastu of Solace Capital Partners
• Saif Mansour of Breakwater Investment Management, LLC
• Brad Holtmeier of CriticalPoint Partners, LLC
• Yem T. Mai of Marsh Risk & Insurance
• Tracy Washburn Bradley of Fortis Advisors LLC
• Margaret Shanley of CohnReznick LLP
• Vince R. Lawler of Bernstein Private Wealth Management

Here are some of the key takeaways from the discussion:

Deal Environment – In general, 2015 was a sellers’ market with buyers competing for fewer quality assets and generally buyers paying top dollar in the process. With relatively modest economic growth forecasted in the U.S. for 2016, the consensus at the event was that corporate strategics would continue their strong pace of M&A activity in 2016 in an effort to acquire revenue streams to bolster their profits.  Private equity funds would also deploy their abundance of “dry powder” in this environment on the buy-side (platform, add-ons, and growth investments), but would continue to do so only in a very selective and careful manner. Entrepreneurs and private equity funds will likely continue to seek opportunities to sell their companies, but should be aware that the high valuation environment may be showing signs of compression.

Valuations – Valuations remained high throughout much of 2015 and, in general, the increasingly elusive high-quality assets should continue to demand higher valuations in 2016.  With that said, portions of the middle market (especially the lower middle market) showed signs of valuation misalignment between buyers and sellers during the latter part of 2015, and the general consensus is that this disconnect would likely continue in 2016. As a result, this misalignment has resulted in the increased use of earn-outs in the latter part of 2015 and will likely continue in 2016, especially in the life sciences and biotech sectors. 

M&A in a Rising Interest Rate Environment – The general consensus is that the Federal Reserve’s anticipated gradual increase of interest rates should not dampen M&A activity in the U.S. in the short term, and that debt should remain generally available notwithstanding the volatility in the debt markets over the past few months. In the long term, however, there was some concern as to whether a higher interest rate environment in the near future might impact a private equity fund’s internal rate of return on companies bought today but sold in a higher interest rate environment in the future.

Preparing to Buy and Sell – Notwithstanding the competitive environment for desirable companies, the general view was that it is essential for companies approaching a sale today to engage in a thorough sell-side diligence process before engaging with prospective buyers. Such a process allows the seller to identify any issues that may impact the value of the business or the ability of the seller to close the transaction quickly.  As noted during the discussion, the failure to identify and address issues before engaging with prospective buyers could result in a broken deal process, which could negatively impact the company’s business and valuation.  On the buy-side, it was suggested that it is equally important for buyers to be patient throughout the process and invest the time to thoroughly understand the seller’s business and build stronger relationships with the seller’s management team – an evaluation and building process that may, at times, last more than a year. Spending that investment time, however, allows a buyer to fully understand the challenges and opportunities facing a company and gives the buyer the opportunity to be transparent with the buyer’s lending sources. 

2016 Forecast – There was a cautious optimism that the M&A environment will continue to remain strong in 2016.  Corporate strategics will remain active on the buy-side, who will likely do more “carve-out” transactions in 2016.  PE firms will keep deploying capital, but they’ll continue to be patient and disciplined in their buy-side activities. Firms will also address the perennial issue of the “portfolio company overhang” and, in doing so, will continue to sell companies into a market with so many willing buyers. The new norm of rep & warranty insurance will continue in 2016 as more and more buyers obtain these policies in an effort to remain competitive for quality assets.   
Hot Topics: What's Next for Consumer Products and Services?

On April 30th, Nixon Peabody LLP hosted a Hot Topics in the Middle Market event entitled “Private Equity Investing Outlook: What is next for Consumer Products and Services” in its downtown Los Angeles office.  Los Angeles partners Matt Grazier and Marc Kenny (Private Equity & Investment Funds) served as moderators for a roundtable discussion with several industry leaders in the consumer products space:

·         Adam Abramowitz, Senior Vice President at Intrepid Investment Bankers

·         Nick Desai, CEO at Snack it Forward

·         Rachel Foltz, Vice President at Endeavour Capital

·         Ryan Gallagher, Senior Counsel at Roll Global

·         Derek Peterson, Director of Business Development at Transom Capital Group

·         Peter Rosenberg, Managing Director at Duff & Phelps

·         Margaret Shanley, Principal at CohnReznick

·         Erik Snyder, CEO at Armada Skis

Here are some of the key takeaways from the discussion:

  • Valuation.  Deal activity in the consumer products space continues to be very robust as private equity, angel investors, and strategics compete for acquisition targets.  Price multiples are reaching levels similar to those typically seen in the high tech space, especially when the buyer is a strategic.  Many types of consumer products and services companies are attracting high prices, especially health and wellness, beauty, food and beverage, and luxury products.  Given the frothy market and high valuations, some potential buyers are wary of expending significant resources evaluating certain targets, especially when faced with an auction process where they may not be granted exclusivity or confident of winning the bid. 
  • Preparing for a sale.  Given the high valuations, the importance of due diligence and identifying quality targets has become even more essential.  Buyers are digging deeper into the various financial metrics, the sustainability of the company’s products, the loyalty of the current customer base and prospects for expanding it, regulatory concerns, foreign currency risk, supply and distribution chain risks, talent, and many other areas.  Well-run targets are taking steps, whether simple housekeeping or otherwise, to do their “sell side” diligence to expedite the buyer’s diligence and get ahead of any potential issues.
  • Impact of social media on brands.  In the past, consumer products and services companies built their brands through traditional advertising and with the help of retailers selling their products.  Typically, building a brand was slow and expensive process.  With the advent of social media, such companies are able to build their brand more quickly and efficiently.  In particular, newer and smaller companies are able to quickly reach the increasing number of modern consumers who have become attracted to brands associated with a unique community or experience.  However, these fast and low cost branding opportunities have also increased the number of competing companies and the intensity of competition among such companies. 
Top Risks, Challenges and Trends of Private Equity Investment in Food, Beverage & Agriculture

On February 4, 2015, Nixon Peabody LLP hosted a Hot Topics Event in our New York City office on the Private Equity Investing Outlook: What's Next for Food, Beverage & Agriculture. The speakers were David Benyaminy, a partner at AUA Private Equity Partners, LLC, Carlos Ferreira, a partner at Grant Thornton LLP, Benjamin Fishman, a managing principal at Arlon Group LLC, Christopher Huisinga, a managing director at Stephens Inc., Richard Langan, a partner in the Private Equity & Investment Funds group at Nixon Peabody LLP, and David Martland, a partner in the Global Business & Transactions Group at Nixon Peabody LLP.

Following are the top takeaways from this Hot Topics Event:

1. Healthy eating is not a fad but is now a way of life for many people.

2. There are a few trends to watch in the food and agriculture industry in the next couple of years from an investment perspective, including:

  • The continued interest in natural foods, organic foods and foods that generally provide nutritional value;
  • The snack food space, specifically healthy and natural based snacks;
  • The growing interest and acceptance of ethnic foods in mainstream America;
  • Focusing on boosting yields, such as specialized fertilizers; and
  • Gourmet easy cooking at home.

3. There are numerous risks and challenges when investing in the food and agriculture industry, including:

  • The volatility regarding the input and cost of food products;
  • The regulatory environment surrounding food safety;
  • Competition with new products; and
  • Shelf space.

4. The main way to mitigate risk in this industry is diversification.

5. There is an increasing need to have an international presence in this space.

6. The following are some predictions for upcoming trends in the next 5 years, including:

  • Ownership of farms whereby farms would be owned directly by investors;
  • Eating good fats, such as avocados;
  • Eating bugs and insects as protein; and
  • Using technology in all aspects of the process, from the fertilizer to the delivery and consumption of food.
The Deal Webinar: Tech Sector Outlook: Buyouts & Breakups

The Deal hosted a Webinar this past Thursday addressing trends and observations pertinent to investors and other parties involved in M&A technology sector transactions.  Panelists included Sean V. Madnani, Partner and Senior Managing Director at Blackstone, Jeff Hoffmeister, Head of the Technology Investment Bank Team at Morgan Stanley, and Ronald J. Klammer, Managing Director at Oem Capital.

In the course of the roundtable discussion, the panelists highlighted the following:

  • Year in Review: 2014 was a banner year for national and cross-border M&A transactions in tech. The gaming, consumer, social media and connected home intelligence sectors were particularly noteworthy. For instance, Microsoft purchased Mojang (the developers of the game Minecraft) for $2.5B; Apple acquired Beats for $3B; Facebook purchased messaging app WhatsApp for $19B; and Google purchased home automation company Nest for $3.2B. According to the panelists, the amount of acquisitions is attributable to a number of deal-friendly factors, including improved economic conditions and outlook after a deep recession, a strong US Dollar, low interest rates, and increased cash on company balance sheets.

 

  • Social Media: The panelists referenced the accepted notion that established companies and start-ups are co-dependent. Established companies often acquire or invest in start-ups for new product offerings in order to avoid costly (and risky) research and development overhead; start-up founders see an acquisition by an established or blue chip company as an exit strategy for their investment. The panelists see no signs of this stopping.

However, in the social media space, the panelists opined that this relationship would expand through partnerships, rather than acquisitions. They cited IBM’s partnership with Twitter, through which IBM will acquire data from tweets that it hopes will allow it to predict trends in consumer activity. Such partnerships provide additional revenue streams for social media companies, many of which are not profitable. And because some see social media offerings as fads, the use of partnerships for a specified term will allow established companies to reap the rewards of services offered by social media companies without the expense and risk of a full-scale acquisition.

  • What Lies Ahead: Acqui-hiring, or the process of acquiring a company to hire its employees, without necessarily seeking an interest in the target’s products or services, will continue in popularity. The panelists observed that there is a high demand in the tech sector for talent. This demand exists throughout employment roles -- particularly in engineering, but also in areas like business development and HR. Acqui-hiring allows a company to enter new markets or improve upon current offerings without starting from the product development stage.

The panelists also indicated that one of the biggest issues facing the continued prevalence of cross-border tech deals is the fragile global economy. They noted that markets seem to have been resilient to global terrorist threats up to this point. However, investors may be deterred by factors like slow growth in Europe and China and volatility in currency markets such as Russia and the EU.

U.S. Firms Investing in Cuba?  Well, Havana Wasn't Built in a Day!

In light of President Obama’s historic announcement in December to revisit and revise the U.S.-Cuba relationship, U.S. firms interested in this emerging market will need to understand the current landscape and keep abreast of changes as the new U.S.-Cuba relationship evolves. Although many believe that U.S. firms will not be investing in the region for many years to come (see the recent article in Pensions & Investments entitled “No Gold Rush for Cuba Despite Diplomatic Thaw” found here), the private equity community is (or should be) closely following developments in the region in light of the number of potential opportunities in Cuba, which, according to one commentator, such opportunities could be anything “because Cuba needs everything.”  In that regard, my colleagues in our Washington, D.C. office (Douglas DziakAlexandra Lopez-Casero and Lindsey Nelson) recently held a fantastic webinar that provides an extremely helpful overview of the existing U.S.-Cuba relations, the policy changes proposed by President Obama (and the new business opportunities coming from the President’s actions), and the political hurdles facing the new U.S.-Cuba paradigm.  You can access the webinar where we answer your questions about investing in Cuba here.  As noted in the webinar and referenced article, there are a host of issues that will obviously need to be addressed before U.S. firms start investing in Cuba, including, among others, the U.S. Congress’ removal of the existing embargo, convertible and non-convertible currency in Cuba, and legislative and other changes in Cuba with respect to foreign investment.

 

It has been said that “Rome wasn’t built in a day,” and the same is true for Havana with respect to U.S. investment in that country. But, notwithstanding the time and challenges ahead, U.S. firms interested in this emerging market would do well to start their preparations now by keeping close attention to the evolving regulatory, financial and political landscape impacting the U.S.-Cuba relationship.  

 

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