Executives: ‘Club’ investments, cash seeking deals in emerging Bay area economy
Click here to view original source: https://www.bizjournals.com/tampabay/blog/2013/07/executives-club-investments-cash.html
I’m often asked to go beyond the numbers and share thoughts and perceptions about how the local economy is faring.
To help with that, a group of business executives in finance, accounting, securities law, valuation and real estate came to our office to talk about the Tampa Bay economy. View their credentials in the accompanying slideshow.
Here are highlights of the conversation, edited for clarity:
Marshall J. Morris, Group125: Most of our work in the past had been fixing businesses and lately it's more focused on the growth side. Growth for growth sake is not a good thing. Growth with accompanying profits is a very good thing. I'm not sure anything evolves without some cost, so growing pains are sometimes a time to reflect and look back at what you need to do. We’re talking bandwidth issues, or infrastructure not being quite needed yet or figuring out what you need to grow the business. But I think if you keep your eye on the ball in terms of growth and profits, that’s what we’re hoping to help drive.
Julio C. Ramirez Jr., Fifth Third Bank: Really, what's been interesting about what we're doing is the amount of activity that we are seeing now versus what we saw maybe a year ago, so it is very positive and comforting to us.
Morris: The climate is opportunistic right now. Real estate – which is one of the strongest local economic drivers – is strong right now and it’s across the board –both strip [center] classes, office buildings and then residential real estate on a large scale. Looking at the pulse of the economy through the real estate lens is a good barometer. The business environment here is friendly and we are seeing job growth. I think we are seeing really good signs right now.
Luciano L. Prida Jr., Prida Guida & Co.: We're not at the bottom of the cycle and it's certainly not a ‘V,’ but momentum is building on the construction side. My restaurant clients have also all come back to pre-2008 sales levels, and everyone else seems to be making plans to move in the right direction. Even some clients I thought were maybe on their last legs seem to have found some balance here, including some old line businesses you wouldn't expect like printing. There's money out there chasing deals and opportunities. You've got some – I wouldn't call them aggressive – but you have some pretty astute investors in the marketplace that see opportunities and are trying to take advantage of them. On the residential real estate side, I have had clients that have been in that hot rental, single-family space and this is their third or fourth year into it and now they are on the way to doing something else. That’s because of the institutional guys like Blackstone coming in and driving that market up 30 or 40 percent of value.
Jay DeGeare, Bernstein Global Wealth Management: To put some scale on the growth side of the equation, nationally we consume about 1.2 million to 1.4 million homes whether that's through new family formations or demolitions, and right now new family housing starts [are] at 800,000. Although we have had some pretty impressive growth rates, you’re coming from such a low level that the ratios look like we can't sustain those, but in reality there's a lot of room left there in residential. This is a big thing for the state where a lot of individual’s wealth is tied up in their home. In general the consumer's balance sheet has improved because you've got record low interest rates and many have refinanced and for those who aren't under water, hopefully you are starting to see a little equity in the house so you see consumer confidence improving. All of that bodes well for Florida.
Steven E. Schuetz, Valuation Research Corp.: Building on the “opportunistic” theme, we get involved when people are making acquisitions and we have seen over the last couple of years, a pretty slow market. We did see some activity toward the end of last year with various changes in tax laws. Our clients have made opportunistic strategic acquisitions and what we have seen from a pricing perspective on those is relatively low purchase prices. Even though overall we're seeing relative value in businesses go up, we're seeing companies that have hung on as long as they could, that are saying ‘I've got to get out – this is not getting any better.’ So we have what I call “serial acquirers” that have gone out and made acquisitions – all different kinds of sectors – from reacquiring franchises to every area of business you can visualize. This year has been pretty slow. A lot of that work is absorbing some of these acquisitions and as we read the Business Journal, my interpretation is that the activity is down somewhat.
Ramirez: For us, it’s more mixed than that. To provide more scope around the kind of businesses we talk to, we're primarily dealing with only privately-held companies that have sat around on some liquidity for a couple of years and now are making very strategic additions to diversify either a product type or geography they serve. Some of our general contractors in a certain space are hot. But some segments that were hot a year and a half ago like public work, university work, medical office – are kind of at a lull. We work primarily with what they call commercial industrial type businesses, manufactures, wholesalers, and some business services. But we have no health care on our team, and no governmental. So it's mainly bread and butter C&I type of work so we are seeing some activity in that market for these types of organizations. We also saw a flurry of activity from last February through November because of some estate and tax planning strategies so we were very busy then and our momentum is still pretty decent in that space today. In other sectors, our team doesn't get a lot of visibility into the smaller independent developer that is going to be doing strip centers off Dale Mabry, for example. So we're not seeing those deals so I can't speak to that. Our real estate groups are seeing a lot of activity in larger multifamily and with experienced developers. There were a lot of projects that were on the shelf for many years like the stuff that is going on in downtown St. Pete or Tampa. Those deals have been out there since 2004 and they are starting to go now. Wholesaling – depending on who you talk to - some are doing well. Other folks are not. In transportation: most of it is doing well.
Curt P. Creely, Foley & Lardner: A lot of people have a lot of capital they want to deploy and they are trying to do that in stuff that interests them, or they've been at the golf club and one of their buddies has a deal they want to be a part of. Sometimes the calls I get are pretty funny with people saying, 'hey, what do you think about this potential deal?' and I will have gotten a call last week about the same deal – someone wanting to invest in it. You see all sorts of ad hoc investment partnerships or special purpose entities being put together in club investment in a bunch of different things. There’s a fair amount of private capital being put to work for that purpose. People hoarded cash for the last few years and are saying I have to do something with it.
Ramirez: We're working on reverse financing opportunities where organizations that have lots of liquidity and some amount of leverage or debt and because rates are so low, they aren't getting much return. So we are structuring transactions where they can use their liquidity to reduce their debt and right-size their capital structure or really take advantage of it temporarily while still leaving some liquidity for later on. That way, they can use their cash to basically reduce their debt for some period of time and then be able to draw it back later on as a service to the client. ...
A few years ago, we looked at some statistics where we ranked state gross product, by industry type. We're very focused on traditional C&I stuff and manufacturing is a big component of it. Florida was barely 5 percent manufacturing which from a different perspective, we look for organizations that can grow and for example, add jobs or add a service that creates multiples of growth. There are some businesses where you can add a staff person but they can only produce one time their weight – quote unquote – in gold. In the manufacturing sector, if you add one job, it may create significantly more weight through some kind of product stream or what happens next when the product gets to the marketplace where it creates a lot more jobs. Do we know what industries those are that create more than their own multiple when you add a job in that space? We see it from a small perspective. In our market, we cover 600 companies of the 9,000 between $2 million and $2 billion in revenue. We see it from the small scope and we always ask: How many multiples are you going to get out of that staff person for that job or investment in a machine or asset? That's part of getting to the answer of where do we invest?
Prida: Grow demand. We have to figure out how to grow demand. I think you look anywhere and everywhere to grow the economy here.
Group125 is an executive services firm made up of seasoned CFO's, CIO's, and COO's who understand the strategic thinking required for ambitious growth, as well as the operational need for fiscal efficiency. We don't just offer advice. We join in, roll up our sleeves, and help companies from start-ups to middle market companies meet the demands of growth, success and performance. We identify the best pathways to solutions that create new opportunity and long-term value. See www.group125.com for more info.