Posted by Jimmy Secretarski on January 18th, 2012 |
No Comments » Have you ever heard of Salesforce.com? Or this thing that everybody is calling the cloud? Is it software? Is it hardware? Does it produce rain? Should I be concerned about shelter?
The cloud is actually a little bit of all that. The essence of the cloud is man’s basic want and need to enhance functionality while lowering TCO on somebody else’s real estate. Gosh, we’re greedy, aren’t we!
But think about it for a second—a company decides it’s “going to the cloud” and that it’s done with all its servers, boxes, cables, ERP, data storage, switches, routers, blah, blah, blah—that is no small task. In reality, it is an outrageously complex undertaking. And like I’ve said in past blog posts, when there is ‘change’ and it is ‘complex’, services companies with a consulting bent will tend to flourish…..especially if they can manage a piece of that away from the client. So let’s focus on just ERP and data from my litany up above.
In the ERP space, Workday will be going public later this year as the rock star contender going up against SAP and Oracle. And in Big Data, Splunk just filed. When companies like this enter the public markets with great success, it is due to their growth trajectory. And when they grow, the ecosystem for their services partners grows too. We will be coming to market with a few companies over the next months along this theme. There are emerging markets in cloud-based ERP (Workday) and Big Data (Splunk) with tremendous underpinnings—and while the software companies are the centers of those universes, or rock stars, the services partners are growing at a similar rate with attractive value propositions. And if you ask me, given where software multiples are these days, the smart money (with strong returns) is in services……but maybe I’m biased.
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Posted by Cooper Mills on December 28th, 2011 |
No Comments » CHILDS is receiving a substantially increased number of sale inquiries from owners across all our specialty areas including IT Solutions, IT Consulting, Healthcare Consulting, Marketing Services, Human Resource Outsourcing, and all areas of staffing. My guess is that the last economic downturn was so severe and financially threatening that owners thinking of taking chips off the table don’t want to miss this cycle and for high performance companies buyers are active.
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Posted by Jimmy Secretarski on December 28th, 2011 |
No Comments » It’s a fairly common misconception that people-based businesses, such as IT Consulting or Professional Services companies, cannot raise debt. “There’s NO WAY!” “Their assets get on the elevator every day.” “Their balance sheets don’t offer any collateral, therefore leverage won’t work.” And I reply to these naysayers: FALSE!!
While the conventional credit model points out that they lack significant asset levels (except for A/R) on their balance sheets, there is a market out there for cash flow-based lending beyond the A/R based revolvers. With the exception of one transaction this year, every deal we have closed has had some sort of debt in the capitalization. The range has been between 2-4x LTM EBITDA and the pricing has been LIBOR + 500 bps all the way up to twice that (LIBOR floor at 125-150bps).
An interesting dynamic, or observation, is how the traditional senior/sub structure and respective lenders are now competing with “unitranche” players. Unitranche is essentially a blended debt structure which combines the elements of both by providing a note with a slightly higher rate (akin to mezz returns) with senior preferences and rights (akin to senior debt), while being a single voice and throat to choke:)
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