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Authentic Deal-Making Authentic Negotiating Deal-Driven Growth

Specialized Asset Management Firms

asset management: a man and a woman dressed in business clothing giving one another a high five

Brett Hickey is the Founder & CEO of Star Mountain Capital, a specialized U.S. lower middle-market investment firm with approximately $1.5 billion in assets under management that has completed over 100 investments to date. Star Mountain employs a data-driven approach to provide value-added debt and equity capital to established small and medium-sized private companies leveraging its scale-driven resources and longstanding relationships. Star Mountain also has a secondary investment business providing early liquidity for investors in U.S. lower middle-market private credit and private equity funds or direct assets. Brett has over 20 years of investment and advisory experience, with over 15 years specifically focused on investing in the U.S. private small and medium-sized business marketplace.

Throughout his career, Brett has been structuring, analyzing and managing private equity, mezzanine and U.S. Government sponsored investment funds for nearly 20 years. He also has extensive experience performing due diligence on, selecting and building small business fund managers. Brett has helped structure over a dozen larger funds representing a few billion dollars in assets.

Early Ambitions

Growing up in small-town Canada, Brett was very involved in the local community and sports scene. He admits he didn’t think too far ahead about the future; mostly, he enjoyed competing, practicing, and having fun. In hindsight, he figures those early interests helped him build grit.

The first business activity Brett initiated involved a small, empty classroom at his highschool. He approached the principal and asked if he could use the classroom. Thankfully, he also had the foresight to note that being able to use the classroom was going to support the curriculum of the entrepreneurship class he was taking at the time. The principal said yes!

From there, Brett approached a clothing company and convinced them to give him clothing on consignment. He didn’t have the money to pay up front, so he needed to be able to sell the items first. They agreed, it turned into his first business!

Around the same time, Brett started a roof shoveling company. He would garner business (and in snow-heavy Canada, many roofs needed to be shoveled!), and then take a cut from his labor team. All this was happening around 15-16 years old; Brett had an early start to business and deal-making!

Star Mountain Capital

Brett built Star Mountain Capital primarily to bring large market expertise down into the private lower middle market. Upon moving to the US, Brett had seen the sort of buying and selling that was occuring, and where there were opportunities for growth. He found he loved working with the access and resources of big firms…but also noted the many inefficiencies of the lower middle market. With Star Mountain, he wanted to build a specialised firm that focused exclusively on the lower middle market and its challenges and opportunities. To do this, they pursue two primary approaches:

  1. Star Mountain provides flexible capital solutions. This includes having both debt and equity investing capabilities. They can sit down with business owners, gain clarity on their desires, needs, and goals, and then come up with the structure and expertise needed to grow.
  2. With a separate division for that same market, Star Mountain uses a secondary funds business to purchase limited partnerships interests from those looking for liquidity. Across that platform, the company has closed over 100 separate investments.

Although exact definitions may vary slightly, Star Mountain thinks of lower middle market companies as not being start-ups, but also not yet a highly efficient market. This often applies to companies with over 15 million in annual revenue, and under 30 million in annual EBITDA (earnings before interest, tax, depreciation, and amortization). 

Star Mountain focuses on industries that have positive macroeconomic tailwinds and in which they have competitive advantages.

They tend to stay away from real estate (highly competitive) and gas & oil (highly volatile), and focus more towards technology companies, business services, transportation and logistics, education, and healthcare. Because they have deep expertise in those sectors, they can most confidently command the best deals for their clients.

Overall Market Trends

Recently, I did a solo-cast on the SPAC explosion, which has been a major trend in 2020 and moving forward. Brett noted that this seems to him to be an indicator that there are a lot of bubbles in the market right now. As you see abnormal dynamics and valuations, you’re also seeing higher risks, reminiscent of the late 90’s. This might signal a number of “black swans”, and there may be some bubble bursting. 

Some people are going to make a lot of money, but others will lose a lot. 

Based on current valuations, there is a lot that could happen. That’s going to probably include some hard drops.

Conversely, however, the valuation arbitrage between smaller companies and larger businesses is larger than it’s ever been. (SPACs are a great example!) Essentially, you’re taking private companies and reverse merging them into a public shell, with private owners giving up about 20% of their company. This allows them to move much more quickly to the public marketplace, often at higher valuations. If you can find 2-3 good quality smaller businesses, each with about 5 million in annual EBITDA, and effectively combine them and bring them to market, you can set yourself up quite well.

(Listen in to the full episode to hear more about Brett’s thoughts on this!)

Pressure to Deploy Capital

People who deploy funds don’t want their money to just sit in a bank account collecting interest. They are looking to get it invested in quality companies that will yield good returns. In overheated markets, however, this can create a pressure to deploy fundcapital in order to get things moving. That can result in entering into less-than-perfect deals.

Brett notes there are a few angles here.

For one thing, if you’re a wealth manager for a lot of people, it’s really hard to time the markets. History shows, in fact, that you really shouldn’t try to time them. As a result, a lot of the capital in the world will continue to stay invested. However, when people do pull out, the market can drop fast — last year we saw it go down about 35% over just a few weeks. We’ve seen that in 2008 and in other recessions as well. Even if things are frothy, however, a lot of money will stay on the market with the assumption that things will turn around and go back up again.

In the alternative investment market there is less obligation to stay invested. However, it’s worth remembering that zero investments equal zero chance of profits. 

Star Mountain focuses on simple premises and alignment of interests. 100% of the senior team has personal capital invested in all of Star Mountain’s deals, and every employee owns part of the company, making them completely employee owned. They find it essential to structure their funds appropriately relative to capital, market, and time. If you have many years to put your money to work, you can be more selective and identify better deals. Having your team fully aligned also allows for better deal alignment. Rather than seeking aggressive deals, or feeling pressured to deploy capital, you can then enter into opportunities that are best suited to your investment and return needs.

They also ask questions like:

What if there is a problem? How would I solve it? Could I lose my own money?

That sort of mentality is critical to ongoing growth and sustainable results. Brett also notes it’s a harder mentality to maintain in larger firms where employees are only employees and don’t tend to have the same level of skin in the game.

Specialized Asset Management & Investment Decisions

Every investor talks about management and the importance of the team behind a possible company to invest in. 

Brett and I wanted to talk about a few other factors related to making investment decisions. Last year, Brett notes that his firm looked at around 1,500 investment opportunities. They invested in about 30 of them. Some of the options just didn’t fit their focus at all, which is always a possibility.

For those companies that did fit the general picture of what Star Mountain was looking for, however, Brett noted a few distinguishing factors. 

Start with a business plan that has the highest probability of success as possible. This means considering the industry, sector, competitiveness, what the product or service actually is, and other factors. If that doesn’t make sense, the rest of it doesn’t matter.

If the probability of success looks good, Brett’s team turns to looking at competitive positioning within the business. What dynamics are at play? How does the business fit into the market, and in what ways can it set itself apart?

From there, the current diversity and quality of the customer base is key. This includes what relationships and contracts already exist, how sustainable the base is, and how long-term the relationships have been.

As those areas are clarified, then Brett notes you’ll start to get into the alignment and makeup of the team as whole.

Ultimately, you’re looking at the predictability of revenue occurring, as well as what can put revenue at risk. Brett states that revenue can solve a lot of problems, in that it gives you the time to work through issues and work through challenges.

You can listen to our full episode here!

Corey Kupfer is an expert strategist, negotiator and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author and professional speaker who is passionate about deal-driven growth. He is also the creator and host of the DealQuest Podcast.

If you want to find out how deal-ready you are, take the Deal-Ready Assessment today!

The information provided in this podcast should not be considered a recommendation to purchase or sell any particular security. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this podcast or that securities sold have not been repurchased. The securities discussed do not represent an account’s entire portfolio and in the aggregate may represent only a small percentage of an account’s portfolio holdings. It should not be assumed that any of the securities, transactions, or holdings discussed were or will be profitable, or that the recommendations or decisions made in the future will be profitable or will equal the performance of the securities, transactions, or holdings discussed herein.

 

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Authentic Deal-Making Deal-Driven Growth

Business Trends with Joel Block

Business trends with Joel Block: laptop screen with undulating graph showing gains and losses

Joel Block is CEO of the Bullseye Capital Fund and founder of the National Association of Syndicators. He has taught thousands of real estate brokers, CPAs, attorneys, and investors about raising capital and best practices for structuring group investments. Joel is also a nationally recognized expert in Private Placements, Reg D Offerings, Operating Agreements, deal structure, valuations, tax issues and capital raising approaches with both accredited and non-accredited Investors. He has his finger on the pulse of many of today’s business trends — the episode is worth a full listen!

(You can also listen back to DealQuest Ep. 4, when Joel was a guest almost two years ago!)

Joel’s Entrepreneurial Beginnings

At age 9, Joel and a friend bought a broken down mini-bike and got it working. (With the help of the friend’s dad!) Then they resold it, doubling their money. Joel says he didn’t fully understand how it happened at the time, but he got “bit” by the entrepreneurial spirit with that exchange.

Since then, he went on to begin his career as a CPA with the prestigious firm of Price Waterhouse. During his time with the company’s Entrepreneurial Services Group, Joel immersed himself in the real estate syndication business, and went on to launch his own syndication, raising several million dollars in three short years. By 1990, he had built a property management firm with a portfolio exceeding $100 million. Joel continues to syndicate real estate and other assets, as well as counseling other promoters on successful syndication strategies. He is also involved in many other types of deals!

As a real world, 25+ year veteran of the venture capital, private equity, and hedge fund world, Joel also gets to address global audiences on matters including capital formation and Investment CrowdFunding. Twice each year, he hosts and headlines the standard-setting  Real Estate Syndication and Hedge Fund Symposium program, educating and advising CPAs, attorneys, investment bankers and asset class specialists on organizing and running investment pools.

Actionable Business Trends

Joel notes that he’s always been a bit of a futurist, even when he was younger. That also means he’s a bit of an academic, although he notes he prefers to take action on all his thinking. He realized that when he asked a group of other futurists how they can know when they’re getting things right. While detailing his own answer, it all came down to researching, making predictions, and then betting on those predictions with real money. Actually placing the money and taking action was important to Joel — but based on the group responses, many futurists prefer to stick to the thinking part!

In his opinion, that action taking is part of what sets him apart from others.

Now,  Joel’s organization puts that combination of thinking AND action together by creating business trends books. They dive into what is happening in the market, what questions you need to be thinking about, and what observations they’re making about the market. 

As someone with skin in the game, Joel is a futurist who is deeply invested in accurately understanding the trends. When you read his business trends information (which includes 29 trends he’s seeing now), you can tell he takes this seriously!

Joel’s Favorite Trends

Although Joel said that ALL 29 trends feel like his favorites, he often finds himself talking about two in particular. We dove into those on the full interview, but I’ll include a few highlights here.

Subscription Trends

First of all, Joel noted the ongoing trend towards subscription revenue. (Listen in to hear how this was distinguished from fee revenue.)

In the “old days”, Microsoft was in the business of selling software. Now, they still make software, but they don’t sell it. Instead, they “rent” it to you via cloud-based accounts. That’s because, in 2011, they had the opportunity to get off the transactional rollercoaster they were on and create a more stable revenue flow. With more predictable revenue, they had the opportunity to increase their stock market positioning. This is a classic example of using a subscription revenue model.

This model did take a few years to take off. However, from about 2015 and afterwards, they had shifted almost completely into subscription-based revenues.

Joel notes that, years ago, he would pay around $250 for a hardcopy of Microsoft software. (The discs you used to actually take home from the store!) He would install them on his devices (with up to 5 licenses, his kids devices usually went under this purchase as well). Then, it could easily be 5-10 years before he upgraded to the next set.

Now, he makes the purchase online, and pays $99 per year for access to the same thing. Microsoft can handle bugs and make updates in live time….and instead of collecting $250 over the course of 10 years, they’ll now collect almost $1000 from Joel in that same timespan. That’s the power of a subscription model. 

And that’s not all. In addition to increased revenue, Microsoft’s stock prices went up in excess of 500% after the change really took effect. (The rest of the market saw average growth closer to the 50% mark during that time.) That’s not a coincidence!

Joel recommends looking for just one product, one line, or one service in your existing business that you could convert to a subscription opportunity. 

Work-From-Home Trends

Next, we discussed the current work-from-home phenomenon, and the changes it is portending. He believes that many organizations, including governmental groups, are in for the shock of their lives when things don’t return to normal.

Overnight, the working world changed in fundamental ways. 

All signs indicate that we won’t be going back to the “old” normal. Joel predicts we’ll see many increases in flexibility with work location and time. From full-time working from home, to alternating office and home days, splitting employees into A/B teams (that have complimentary office/home days), or other creative solutions – changes like this will be here to stay!

A lot of people make friends, socialize, and find life partners at work. There are good reasons to physically go to the office! However, people are also caretakers for children and parents, and have many other life roles that make flexibility much more optimal. Employers are being forced to acknowledge that many roles CAN be done from home. Moving forward, it’s unlikely that spending 40+ hours per week inside a physical office location will be an assumed expectation or norm.

The Ripple Impact of Business Trends

This has ripple impacts! For example, fewer people driving to work means less traffic issues. It might also be positive for the environment overall. However, just as there are “winners”, there will be “losers”. Demand for gasoline (for all these cars we’re driving much less) may go down. Joel predicts that oil is going to be soft for upcoming years. 

He also expects cities and governments to see a massive decline in revenue that would normally be generated from things like parkings fees and taxes, traffic violations, and more. 

In addition, Joel notes businesses are going to be renting smaller spaces (decreasing rent costs and utilities costs). This means that the people who own facilities or manage water/utility companies are going to see losses as well. The shoe shiners will see a downturn. The restaurants that cater to business people who are eating on the run will take a hit.

At least in the short term, traditional business centers are going to see downturns, reductions, and losses. Joel anticipates that this is eventually going to lead to money moving out of urban areas, and into suburban and then rural areas. We really dove into ripple effects, and it was so interesting. Listen in today to hear all about that!

Corey Kupfer is an expert strategist, negotiator and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author and professional speaker who is passionate about deal-driven growth. He is also the creator and host of the DealQuest Podcast.

If you want to find out how deal-ready you are, take the Deal-Ready Assessment today!

Categories
Authentic Deal-Making Authentic Negotiating Deal-Driven Growth

Market Upheaval & Continued Growth

Thriving despite market upheaval with Steven Mail

Steven Mail was the founder of the largest single manager global macro hedge fund in Europe. His investments center around companies that deliver insights to hidden areas of the enterprise. He is an ambassador for business to Scotland and an advisor to the Endeavor organization. Throughout his career, Steven has experienced market upheaval and panic. He says those things have shaped him for the better as both a businessman and investor.

Steven is also the founder and managing partner of Mail Venture Partners. He got his start as a bond trader and hedge fund manager in London. After “retirement” at age 39, he moved to Florida, where he has continued to engage in investment and giving back. You can listen to our interview HERE.

Getting His Start

Steven runs Florida’s largest youth soccer club, but growing up, he was an aspiring boxer. Both of his parents were involved in athletics, and he had an early passion for them as well. Now, he’s thankful that didn’t work out!

At age 12, he started playing poker (he was quickly playing with kids 5+ years older than him!). At age 15 he started his first job, and at age 17 he started his first business. By 21, he was involved in business. Coming of age in the UK during the “big bang” era had a strong influence on Steven’s career path, as many doors in financial industries were open and there was a strong recruitment drive.

Unfortunately, the week that he started his bond trader trainer also happened to be the 1987 “Black Monday” crash. It was an unusual, emotional experience that shaped Steven’s entire career. He finds that he has always been able to survive and even thrive during the most difficult times in the market, which he connects to the humility and detachment he was able to learn from the volatile markets he experienced early in his career.

Steven also notes that the ability to reverse his positions has been a clear strength. He’s never held too tightly to a stance, and has been able to pivot and change as needed on a moment-by-moment basis. (This makes total sense! Detachment is part of the negotiating framework I provide in my book, Authentic Negotiating.)

Regardless of the difficult market, he started trading in 1987 as a bond trader and market maker. He thought it was a bit like boxing; you put out an offer (throw a punch) and they throw one back and it goes on like that. He loved the years he spent in that arena, and eventually shifted into proprietary trading. This coincided with the launch of the Euro and it’s trade being shifted from headquartering out of Paris and into London. Steven was named head trader, and had a fantastic first year as such.

Growth Through Upheaval

At the end of his first year as head trader, France wanted the Euro trade headquarters to return to Paris. After negotiations ensued it became clear operations were going to be moving. Steven felt uncomfortable about the language change, and eventually it was agreed  that if he made the move, everyone would speak to him in English if he would be willing to come, which got him to agree. Ultimately, he was able to make many connections in Paris, and greatly enjoyed his time there. 

After some time in Paris, Steven returned to London and continued to grow his career. He worked through another crisis in which the market dried up, and things got hard. The markets literally closed, and there was general panic.

Shortly after, Steven became aware of a Japanese pension fund that was desperate to sell half a billion of bonds. Despite the market havoc, Steven decided that everything has a price, and that there was an opportunity there. After evaluating the market, he made an offer they accepted — an offer that covered the losses from all the rest of the positions he’d held during the market upheaval.

His ability to continue engaging in the market and think strategically has enabled him to continue to experience success, regardless of whether the markets are up or down.

Investing in Mentorship & Advising

Steven shares he’s never been in the game to make the most money. Instead, he’s always wanted to have an interesting experience. He enjoys meeting people, traveling, and enjoying new things. As a result, it’s no surprise that his career has changed over the years.

He found hedge fund management to be much slower than bond trading, and when he moved into private company investments he found it to be yet another slow down. Now, he does fewer trades, and they take longer.

Whether you find yourself in trading or investing, Steven notes self-confidence is key. If you don’t believe in yourself, who else will? Beyond that, he also looks for humility and character. In the same way you want your friend group to be made up of great people, the people you invest in ought to be the same.

His investor role often comes with a great deal more advising than his time in trading did. Steven leverages his network for connections, advice, and insight — he enjoys mutually beneficial relationships that highlight giving back and growing. Mentorship has also been something he engages with, from his formal role with Endeavor to his work with the youth soccer league in Florida.

Making Investment Decisions

Steven enjoys finding ways to help companies by opening doors and making connections. One way to do this is to help companies piggyback off of each other in order to scale their growth to the next level. 

He pictures investing as a pyramid, and finds early-stage companies to be the most fun to get involved with. He also notes it’s key to look at and choose individuals when investing in early-stage businesses. After all, the business itself is going to pivot as things progress. Rather than getting too attached to the hoped for final outcome, he finds it helpful to choose founders who have the traits needed to really push through the difficulties and change as needed. To that end, Steven looks for problem solvers who have resilience. Evolution, growth, change, and problems are all part of starting a business, and a founder who can’t endure them won’t be able to build a business that can last.

His Most Important Interview Question

Thinking back 30 years or so ago, Steven notes that the best interview question he ever asked applicants was:

What’s the worst thing that ever happened to you, and how did you handle it?

It may be a popular question now (or at least some form of it), but when he first started using it it was quite uncommon. He was specifically looking for people who had lost money and been able to make it back. Ultimately, he was hoping to find the quality of the “bounce back” in new applicants. No matter how good the markets looked at the time of the interview, Steven knew how quickly things could change. He wanted to hire candidates who would have resilience and grit when things got hard, because it was inevitable that they would.

For longevity and sustainability, you must be able to endure the hard periods and be willing to push through. I remembered a seminar I was at years ago when a speaker who had undergone a great financial failure was asked what his mistake had been. His answer? “I mistook a bull market for brilliance!”

Doing well when everything is going well isn’t that hard. Showing up, putting in the work, and refusing to quit when everything is falling apart – that’s what sets successful people apart again and again.

Growth Mindset

At the end of the day, embracing challenges, showing you can grow through hardship, and making smart decisions are key indicators that Steven looks for when he considers investing. He sums this all up as having a growth mindset, and thinks it is a powerful key to success.

To learn more about how he makes his investment decisions, what values have driven him, and how his journey has continued to unfold, listen in to the whole episode!