STRATEGIES FOR GROWING BUSINESSES DURING A TIME OF UNCERTAINTY IN THE CREDIT MARKET: Companies need to know how to manage the risks that arise from the uncertainty of credit availability during downturns in the credit cycle.

In the article below – “Credit Market Uncertainty: Strategies for Growing Businesses” -- by James D. Cockey, Senior Vice President, and Phil Worden, Senior Vice President, Bank of America Business Capital, describe how building the right relationships with credit providers takes time and resources. The authors detail the dynamics of the current credit cycle, and list four strategies to help businesses prepare for credit market changes.

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Active FOCUS Deals

With over 25 years of experience across many verticals, FOCUS currently has over 60 active transaction engagements in its four offices in Atlanta, Chicago, San Francisco, and Washington, DC in the following specific business sectors:

• Aerospace
• Automotive
• Building Products
• Business Process Outsourcing
• Business Services
• Call Center
• Construction
• Distribution
• Education and e-Learning
• Energy, Oil and Gas
• Food and Beverage
• Government Contracting
• Healthcare
• Information Services and Databases
• Information Technology: Hardware
• Information Technology: Services
• Information Technology: Software
• International
• Manufacturing
• Media and Publishing
• Medical Devices and Equipment
• Medical Diagnostics
• Metals and Mining
• Payment Systems
• Professional Services
• Retail
• RFID Technology
• Satellite Communications
• Security Systems and Services
• Sports
• Supply Chain Management
• Systems Integration
• Technology
• Telecomm and Wireless
• Transportation

We have executed dozens of transactions in a range of market segments, but the same fundamentals apply across all of them. Our on-going transaction process provides us with up-to-the-minute market knowledge in these sectors. Are any of them of corporate development interest to you? Give us a call or drop us a note.

Inquiries should be addressed via e-mail to info@focusbankers.com, by telephone to 202-470-1973 or by fax to 202-785-9413.

Cambridge Systems Has Acquired SSI Business Solutions

FOCUS facilitated the purchase of SSI Business Solutions, Inc. (SSI) by Cambridge Systems, Inc. (CSI). SSI is a professional services company offering unique consulting services to clients in the professional and administrative specialties. CSI is a professional services organization specializing in information systems management and IT support. The acquisition augments CSI’s medical and IT service capabilities with SSI’s expertise in providing professional accounting, finance, contract support and administrative services. For more information, go to http://www.focusbankers.com/tombstones/deal_cambridge_ssi.asp.

Alfa Laval Has Acquired AGC Engineering

FOCUS acted as financial advisor to and assisted with the negotiations as the representative of AGC Engineering, the premier manufacturer of plate heat exchanger service and equipment to the dairy and food processing industries, which are mainly used for pasteurization. Alfa Lava, headquartered in Sweden, is a leading global provider of specialized products and engineering solutions based on its key technologies of heat transfer, separation and fluid handling. The company’s equipment, systems and services are dedicated to assisting customers in optimizing the performance of their processes. For more information, go to http://www.focusbankers.com/tombstones/deal_agcengineering.asp

FOCUS Expands Resources with Floberg and Associates
Fred Floberg Named Regional Managing Director of Midwest Office

FOCUS has joined with Floberg and Associates, LLC, a Chicago firm specializing in financial consulting and merger and acquisition (M&A) advisory services to private and closely-held middle market companies. “FOCUS’ expansion with Floberg and Associates, LLC, is part of a recent multi-city acquisition plan to provide broader resources to meet the growing needs of mid-market companies,” said Doug Rodgers, CEO of FOCUS.

Fred Floberg, Manager of Floberg and Associates, LLC, will join FOCUS as Regional Managing Director of the Chicago-based Midwest office. Floberg has more than 25 years experience in investment banking with a concentration in M&A advisory work for a broad range of industries including industrial products and services and capital goods. More...

FOCUS Combines with Education Capital
Bill Blavin Named Regional Managing Director of DC Office

FOCUS is combining services with Education Capital, LLC, advisors to entrepreneurs and investors in the education and training sector. “Bringing these two businesses together is in line with FOCUS’ strategy of structural growth designed to ensure we are meeting the needs of mid-market companies,” said Doug Rodgers, CEO of FOCUS. “The addition of Education Capital will allow FOCUS to better develop a robust practice to serve this important expanding market.”

Bill Bavin, Managing Partner of Education Capital, will join FOCUS as a Managing Director in the Washington, DC office and lead efforts in the education industry. Founded in 1997, Education Capital has garnered a national reputation for successfully advising dozens of profit and non-profit education companies and investors, leading to more than $100 million of transactions. More...

Credit Market Uncertainty: Strategies for Growing Businesses

By James D. Cockey, Senior Vice President, and Phil Worden, Senior Vice President, Senior Business Development Officer, Central Region, Bank of America Business Capital

Businesses often use the financial leverage found in credit as the primary source of capital to fund their growth. The state of the credit markets most often move in tandem with the general economy, so when the economy softens, as it appears to be currently, the availability of credit typically tightens. Thus, companies need to be continually aware of the dynamics of the credit markets to manage risks that arise from the uncertainty of credit availability during downturns in the credit cycle.

Current Credit Cycle Dynamics

The last trough in the credit cycle occurred during the 1st quarter of 2002 when defaults of bonds and loans peaked. Since then, default rates have declined to what many currently characterize as unsustainable lows. Along the way, several dynamics have affected the character of the credit markets and will certainly influence the next downturn in the credit cycle.

• Increased Financial Leverage: Since 2002, financial leverage has increased dramatically. The flood of liquidity created by a period of very accommodative monetary policy sought the yield available from income producing assets, namely loans and bonds. With so much excess debt capital available buyers, particularly the LBO funds which are also flush with capital, have been able to use increasing amounts of financial leverage. This has spilled over to the non-LBO market as well.
  
  
• Different Sources of Capital: The overall sources of capital for loans have changed dramatically. Today, institutional investors provide $2 for every $1 provided by more traditional lenders, including banks. In 2002, that ratio was decidedly different as traditional lenders provided approximately $4 for every $1 provided by institutional investors. Many institutional investors (i.e. prime funds, CLOs, hedge funds, etc.) have never managed portfolios of loans through a credit cycle trough and so the jury is out as to how they will act when credit tightens. These institutional sources require liquidity in the debt paper, and as a result the trading of loans has expanded rapidly.
  
  
• Increased Financial Innovation: This flood of liquidity in the unregulated institutional sector has spawned new debt capital products allowing investors to capitalize on gaps that appeared on the traditional credit risk continuum. The "second lien loan," whereby investors seek to exploit the "unmargined" collateral or enterprise value of an issuer, is one of the prime examples of this type of innovation. Whereas in 2002 there was less than $1 billion in total outstanding of this type of paper, 2006 will likely see issuance top some $24 billion. Again, because many investors in this type of paper have never managed portfolios through a downturn in the credit cycle, there is great concern about how they will act, what their agenda's will be in a distressed situation, and how will they ultimately affect the restructuring process.
  
  
• New Distressed Debt Funds: With the downturn in the credit cycle on the horizon, large distressed debt funds continue to be raised by an array of market participants. Some of these distressed debt funds have interests in other parts of the debt capital markets as well as the equity markets. They are betting that when the credit cycle tightens, opportunities will arise to buy assets (debt instruments and/or equity securities) at "distressed" prices.

Preparing For Credit Market Changes

A business that seeks growth has to come to terms with the reality that access to credit capital could change significantly should the economy experience a downturn. To prepare, here are some suggested actions to be considered:

• Engage your capital providers in an open and honest dialogue. Discuss company strategies and plans and disclose the problems as well as the successes with equal weight. Above all, find out how they would react if the business plans and strategies don't play out exactly as hoped.
  
  
• Maintain relationships with firms who are not currently capital providers, but who you've screened and believe have the potential to play some future capital-providing role. Identifying who your alternative "go-to" firms might be allows you to leverage them for market intelligence and alternative perspectives — and you just might need them for capital as well.
  
  
• Seek to maximize flexibility in your credit agreements now rather than waiting until you have no choice. Prepare for the tightening phase of the credit cycle by ensuring the business can maneuver its way through execution of its strategies with some "wiggle" room in case they are not executed as planned.
  
  
• Don't get caught in the trap of complacency believing that most capital-providers are inter-changeable. There are very real costs associated with relationship change, especially when that change occurs during the time of need. Volatility usually increases during times of uncertainty and this can accelerate the timing of when credit needs have to be addressed.

As we likely enter a less attractive phase of the credit cycle, because of the new dynamics of the overall credit markets, the importance of the relationship between a growth-oriented business and its credit providers may have never been as great. Building the right relationships takes time and resources; and there is no time like the present to start or expand those efforts.

Reprinted with permission from the November/December 2006 issue of CapitalEyes, a Bank of America Business Capital e-newsletter.

Dr. Mark Braunstein Joins FOCUS as Senior Advisor

FOCUS, a national middle market investment banking firm providing merger, acquisition and corporate finance services, announces that Dr. Mark Braunstein has joined FOCUS as a Senior Advisor. Dr. Braunstein has years of experience in the healthcare information technology and medical management industry as a physician, senior executive and business owner. 

“We are thrilled to have Mark join us as a senior advisor. His years of business experience will make a vital contribution to the expansion of our firm, particularly in the healthcareinformation technology field,” said George Shea, Regional Managing Partner of FOCUS.

About Dr. Mark Braunstein

Prior to joining FOCUS, Dr. Braunstein was co-founder, Chairman and CEO of Patient Care Technologies, Inc., a 1998 Inc. 500 company, and a leading provider of electronic patient record and care management systems to the home care industry. Earlier, Dr. Braunstein co-founded PROHECA, an early developer of clinical pharmacy systems. Dr. Braunstein has won a 1996 Entrepreneur of the Year Award for the Southeast Region, received a 1995 Innovation in Medical Management Award from the American Society of Physician Executives. More...

New FOCUS Sector Intelligence Report on the Information Technology Industry Available Now
Selected Transactions: 2006-2007

To remain competitive, the rapid growth and globalization of the IT industry requires companies to continually adapt to changes, identifying important trends and working toward adjusting their businesses.

This new research-based Report covers horizontal IT industry drivers including: software as a service, systems integration, information security and content management as well as vertical IT industry drivers including: government contracts, health, the publishing industry and financial services.

Available exclusively from FOCUS, the new Report considers the best business options, questioning whether M&A is the smart choice and detailing macro-economic conditions to consider.

ORDER YOUR COPY TODAY: Address your request via e-mail to info@focusbankers.com or call Karen Kramer at 202-470-1973 to request your personal copy.