Vol. 10, No. 3, March 2012
FOCUS Represents Digital Intelligence Systems in Acquiring Assets of Conversion Services International
Digital Intelligence Systems Corporation (DISYS) has acquired certain assets of Conversion Services International, Inc. (CSI). FOCUS represented DISYS in the transaction.
Headquartered in McLean, Virginia, DISYS is one of the leading IT staffing and consulting firms in the country. Ranked number seven on the list of fastest-growing U.S. staffing firms with approximately $250 million in revenue, DISYS has offices and delivery locations worldwide in North and South America, Europe, and the Asia Pacific region.
According to Mahfuz Ahmed, Chief Executive Officer of DISYS, “Our organization’s vision is to be a global IT business partner, delivering the highest quality and most consistent services at the best value to clients worldwide. The acquisition of CSI’s assets will allow us to service a complementary set of customers and expand our presence in financial services and other key vertical industries. CSI is a leading provider of information management and business intelligence solutions. The company offers an array of services and solutions aimed at helping customers move from data-rich to knowledge-rich environments, and to leverage that knowledge to transform businesses.”
According to Manan Shah, FOCUS Partner and Co-Leader of the Information Technology Group, “We are delighted that DISYS entrusted us when they decided to pursue a growth-by-acquisition strategy. CSI’s acquisition will complement the spectacular growth DISYS has achieved organically in recent years.”
George Shea, FOCUS Partner and Team Leader of the Information Technology Group, commented, “We were honored to represent DISYS and its superb management team in executing the firm’s first-ever acquisition; they were a pleasure to work with.”
Operating nationally and internationally, FOCUS currently is working with buy- and sell-side corporate clients, private equity groups, holding companies, and late stage venture capital firms in 23 areas:
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 that may be of corporate development interest to you.
By Jeff Hooke, FOCUS Managing Director
The Securities and Exchange Commission (SEC) has announced a fact finding exercise into the procedures used by private equity (PE) firms to value their underlying portfolio companies. So far, it has requested documentation from selected PE firms on valuation reporting and procedure. Some PE firms are suspected of inflating their investment results by assigning unduly high values to portfolios companies.
By showing above-average investment results, a PE firm can more easily raise a follow-on fund and collect higher fees. The likelihood of this occurrence has been raised previously by finance professors in academic journals, but the SEC’s action is the first regulatory move in this regard.
The Valuation Process Combines “Opinion” and “Science”
The possibility of inflated valuations stems both from (1) The subjectivity of the valuation process, and from (2) the nature of the private equity industry. The valuation process combines both “opinion” and “science” and it is not unusual for two objective experts—both using identical information—to arrive at corporate values that differ by 15 to 20 percent.
From the industry side, definitive rate of return measurements must wait until a PE fund is fully liquidated and its cash flows tallied—a period which often results in a 10 to12 year time horizon. In the meantime, the PE fund managers essentially “grade their own homework,” because, for the most part, the managers assign values to portfolio companies with minimal outside inputs.
As one check, the limited partners (LP) of PE funds (e.g., state pension funds, university endowments, and family offices) sometimes question unrealistic valuations, but most LPs have thin staffing. A second check is the independent accountant who audits a PE fund’s books. The accountant may perform “reality checks” on a selection of the assigned values, but frequently such accountants lack the expertise to do a thorough vetting. They also may be reluctant to bill the client for the extra resources needed to validate suspect valuations.
Temptation: When “Subjectivity” Meets “Constraints”
Thus, when the subjectivity of the process meets the constraints of the auditors, it is inevitable that some PE firms are tempted to slip inflated appraisals through the system. The SEC appears intent on seeing if there are abuses and how far they have spread.
M&A Europe will hold its 2012 Spring Convention in Budapest, Hungary on April 26-27. The meeting will be hosted by Peter Feher, Managing Director of International Mergers and Acquisitions, Hungary, Ltd.
M&A Europe focuses on client cross-border merger and acquisition objectives through Partner cooperation. Delegates from as many as 30 countries are expected to attend.
M&A Europe currently is chaired by FOCUS Managing Director Gerald Turner, who will be the Keynote speaker, while FOCUS, CEO Douglas Rodgers will be a speaker and panel member.
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About FOCUS, LLC
Founded in 1982 in Washington, D.C., FOCUS, LLC provides a range of investment bank services tailored to the needs of middle market businesses and their executives. Today, we are a national firm serving clients from offices in major cities across the United States. FOCUS specializes in serving business units with revenue or transaction sizes between $5 and $300 million, serving entrepreneurs, corporate owners and various types of investors. FOCUS clients include large corporations and private equity firms that engage the firm for middle market transactions.
FOCUS has achieved a very high close rate on accepted buy side, sell side and corporate finance mandates because of the unique resources, process and perspective that we bring to middle market investment banking. FOCUS has developed a systematic, research driven, open and proven transaction process. It is the driving force of our firm and distinguishes us from other investment banks serving the middle market.
With extensive investment banking transaction experiences and a group of seasoned operating and financial executives, our firm provides a unique value proposition. We bring a strong operating perspective, a wealth of practical experience and a unique research and transaction process to our middle market clients. Our knowledgeable resources include seasoned partners managing directors, principals, research staff, internal databases of national and international contacts and deal experience in a range of industry sectors.