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The Money Issue
Investing trends in Florida
With VC and private equity funding abundant, now's a good time for business owners seeking to sell or raise money.
After a dismal 2007-12, Florida's investing market is back. In general, it's a good time for companies looking for funding in Florida, with money coming from in and out of state. Businesses with little more than a concept face a tough road, and the hardest money to raise is early-stage capital up to $1 million. But for companies that can demonstrate growth and capable leadership, money is available. It's a "myth" that there's not capital for companies in Florida, says David Felman, a shareholder at Tampa law firm Hill Ward Henderson and co-chair of its corporate and tax group. The $426 million in venture capital invested in Florida in 2013, as tracked by PricewaterhouseCoopers and the National Venture Capital Association using data from Thomson Reuters, was the highest since 2007 but still a fraction of the $2.7 billion peak in 2000 and a fraction of California's 2013 total.
Florida's Strengths
The strongest sectors for investment in Florida are software, tech, nightlife-related companies (in south Florida) restaurant chains (particularly around Tampa) and health care plays. In health care, it's less about medical device or drug development than about companies that aid in practice management and regulatory compliance. Investors say companies that make for good platforms into which private equity firms can fold acquisitions are particularly in demand.
Sellers Market
It's a great time to sell a business. In private equity, valuations are rising. "Prices are going up, up up. We're higher than we have been for quite some time," says Bruce March, a Greenberg Traurig shareholder in Fort Lauderdale with a national private equity practice. The debate is whether they're going too high. "We're getting up to prices where it's not for the faint of heart," March says. Jim Cassel of Miami investment banker Cassel Salpeter & Co. Says prices are into the "frothy" range. "Equity is plentiful for good deals, maybe for not good deals," Cassel says.
Deal Flow
In a report on 2013 private equity activity in Florida, Cassel Salpeter, in partnership with Pitchbook, found deal flow down 7.5% from 2012, when tax-driven deals abounded, but still up for the fourth straight year from 2009. Florida did better than the nation as a whole, which saw a 13.6% drop. The same report found that the largest percentage of deals - 38.5% - were add-on deals in which private equity firms add to existing companies they own. Addon deals averaged 54.8% of total buyout deals from 2009 to 2013. The number of private equity firms based in Florida grew to 33 in 2013 from 26 in 2010, the report said.
Valuations
First, tax-law changes in 2012 spurred many business owners to sell. Private equity players raised funds, and now more players are chasing fewer companies. But the biggest factor has been financing. The low cost of debt from banks and from non-bank lenders has made it possible for private equity players to bid more for companies - a deal that would work at a multiple of eight now can be sold at a 10 because financing is so cheap. Higher multiples have pushed some larger funds that meant to target big companies down to the middle and lower markets in search of better returns.
Crowd Sourcers, Beware
Crowdsourcing is getting lots of press, but it's in its infancy, and companies that go that route face questions about how those investors will exit.
Calendar Items
- The BioFlorida Annual Conference is Oct. 12-14 at the Harbor Beach Marriott in Fort Lauderdale. The next Florida Venture Capital Conference is Jan. 29-30 at the Westin Diplomat in Hollywood.
- The Florida Venture Forum, which hosts two annual conferences - one for early-stage companies and one for later stage - has seen a significant increase in attendance, including strong investor attendance
Pledge Funds
Rather than build a private equity fund and then seek companies to acquire, a pledge fund finds deals and then essentially passes the hat among investors who might want a piece of it. Traditional funds complain that pledge funds - and their brethren that work deal by deal without a committed fund behind them - bid up the prices for companies to levels that compromise the ability to generate a good return on the investment. They caution that sellers who strike a deal with a pledge fund might be choosing the higher offer but could find themselves with a deal that isn't consummated.
BRIEFLY ...
In south Florida, people active in investing and building companies welcome the James L. Knight Foundation's $2-million investment in creating Endeavor Miami to help entrepreneurs launch companies, network and find financial and mentoring support. Begun in Latin American, the non-profit Endeavor has a track record in 15 countries of linking entrepreneurs with local successful business leaders for mentoring. Miami is its first U.S. post. Knight wanted to help Miami, which it sees as having an entrepreneurial environment but lacking in robust networks and infrastructure to support entrepreneurs. Miami is a natural place for Endeavor, with its Latin American roots, when it comes to tying into a global network.
- Raymond James Financial, the state's largest publicly traded financial services firm, reported record revenue, profit and assets under management for its third quarter.
