Search

Featured Small Business Lending Article

Small Business Lending
ABOUT

Jeffrey Sweeney is an investment banker with years of experience in direct lending and corporate finance for small- to middle-market companies. He is the chairman and CEO of US Capital Partners, an innovator in small- to middle-market business lending. US Capital Partners has been providing prompt, innovative, and reliable financing solutions across the United States and abroad for more than a decade.

Subscribe to Blog
Navigation
Tuesday
Nov142017

Intelligently Structured Financing for Your Business Acquisition

CEOs in the middle market are showing strong interest in growth through acquisitions. Find out how US Capital Partners Inc. can provide your company with the custom acquisition financing it needs to grow.

The first six months of 2017 proved to be the strongest first half for middle market M&A in 10 years. Underlying conditions have become favorable to M&A, such as an aging population of baby-boomer owners looking to sell their companies and the proliferation of technology in all industries. Activity was also fuelled by confidence in the overall economy, including a widely held expectation of lower taxes and fewer regulations in the future, as well as by investor enthusiasm for private equity as an asset class, which is fueling fundraising.


Click on image to enlarge

The momentum in the middle market looks likely to continue, with deal-making in the technology, media and telecommunications sector expected to soar over the next 12 months. Other sectors expected to experience high growth are energy, consumer goods and retail, and manufacturing.

Financing Your Business Acquisition

Making an acquisition can be a complex undertaking, especially for a small or medium-sized business (SMB), and often requires multiple sources of financing. Generally, there are three basic ways, other than cash, to finance your acquisition and grow your business to the next level:

1. Loans against specific business assets
An acquisition often involves the purchase of new business assets, such as buildings or equipment. Since 1998, US Capital Partners has been providing asset-backed loans of $500,000 to $100 million to finance acquisitions and other growth initiatives. Assets that qualify for such loans include accounts receivable, inventory, purchase orders, real estate, machinery and equipment, and even intellectual property.

2. Loans against cash-flow and enterprise value
US Capital Partners offers growth-capital term loans of up to $100 million. Businesses with a competitive advantage in a fast-growing industry can consider subordinate financing, which may lead to higher loan amounts. Unlike conventional bank loans, this formula allows flexible repayment terms.

3. Equity financing
US Capital Partners, through its registered affiliate US Capital Global Securities, LLC, also participates in and has wide distribution for private placements of equity to meet a variety of growth objectives, including funding add-on acquisitions. In raising private equity capital, US Capital Global Securities always make sure the deal structure is appropriate for a client’s specific needs. The firm is able not only to facilitate sell-side and buy-side transactions, but is also licensed to actually provide financing for M&A.

Customizing Your Acquisition Financing

Often, the best financing solution for a company is an intelligently structured mix of cash (if available) and debt, with some equity. US Capital Partners can, for instance, structure and provide an optimal combination of a growth-capital term loan together with some equity financing. This offers a minimally dilutive option to a straight equity raise, allowing you to retain greater ownership of your business.

If you are currently engaged with or aware of a business that is seeking acquisition financing, please email Jeffrey Sweeney, Chairman and CEO, at jsweeney@uscapitalpartners.net or call (415) 889-1010.

Thursday
Nov092017

Rolling Recessions in a Bull Market – Part 2

Last week, we highlighted the path of the current bull market since the Great Financial Crisis ended in March 2009. There have been moments of anxiety and periods of consolidation and corrections. We highlighted two periods (January 2010 to October 2011 and May 2014 to February 2016) when the S&P 500 traded sideways for 20+ months and suffered four pullbacks (-12% to -19%).

Last week, we also looked at a couple of sectors (energy and financials) that experienced longer and more serious weakness and stress. The energy and financial sectors were the first ones that came to mind as they were the biggest losers – they are not alone. Below is a chart of the drawdowns of all 11 S&P 500 sectors.

This chart highlights the stress in 2011 and in 2015-2016 for many sectors and the extreme pressure on energy over the past three years. The table below shows the sector drawdowns by maximum drawdown, date and weighting in the S&P 500 index.

Remarkably, the S&P 500 did not drop great than 20% in 2011 with the broad weakness and again in 2015-2016 when the S&P 500 recorded seven consecutive quarters of year-over-year earnings declines between Q3 2014 and Q2 2016 (clearly an earnings recession). One of the health care sub-sectors to note is biotech which after charging ahead +582% off the March 2009 lows through July 2015, then retreated -39%. Biotech is clawing back and has bounced off the lows in 2016, but remains -21% from peak.


Kyler’s Report

Where Are We Now?

One of my favorite financial thinkers, Howard Marks, always likes to ask the question “Where are we now?” as it relates to the current investing climate.  It is always difficult to exactly time markets, but observing that things are generally frothy might signal that you should proceed with caution in your investments and act a little more defensively. On the other hand, seeing that investors are generally fearful about current conditions might mean that valuations are lower and there might be good opportunities for long-term investment.

So, where are we now? Marks advocates looking at two important factors, one quantitative and one qualitative.  Quantitatively, how do valuations across risk assets such as high-yield bonds, foreign bonds, stocks, and real estate look? Are investors demanding lots of extra yield from risky borrowers in order to fund loans?

Here are high yield bond spreads:

As you can see, yield spreads are at 10-year lows. Furthermore, you don’t need to look far to see cap rates on commercial buildings heading down, and stocks are expensive compared to historical values on any relevant valuation basis.  In short, investors aren’t getting paid good premiums to invest across risk markets.

On the qualitative side, the relevant question to ask is how are investors feeling? Are most investors looking towards a strong future or depressed about the present? Are they asking tough due diligence questions in order to fund deals, or are they gladly throwing money at anything? Are they chasing markets up or concerned about the downside?

Two recent articles tell me that investors are generally in the euphoric, no due diligence mode.  This one highlights some of the excesses in the foreign bond market, and this one shows how much lenders are willing to put up with while still making loans.

To me, both quantitatively and qualitatively, most asset classes look a little stretched – valuations are generally high and investors seem euphoric and unquestioning. For long-term investors, this kind of environment suggests that you should conduct your affairs with caution. When you’re thinking defensively, the key is to focus on not making mistakes instead of trying to hit home runs.


Give Us A Call Today

As we approach 2018 and consider adjusting investment allocations for the New Year, we continue to be bullish and remain watchful for the next rolling recession. We invite you to give us a call at (415) 249-6337, visit www.uscapitalwm.com or email us at info@uscapitalwm.com if you have questions about how we can assist you in managing your investment accounts.


US Capital Wealth Management Stock Market Dashboard


Delta Market Sentiment Indicator (MSI) is published weekly in Barron’s


US Capital Partners

Wednesday
Nov082017

Jeffrey Sweeney’s Article “Banking on IP” Published by ABL Advisor

Click here to read the full article

Online Retailer

Chairman and CEO of US Capital Partners explains how alternative lenders can leverage patents and trademarks to secure greater availability for their clients.

SAN FRANCISCO, NOVEMBER 2017 – ABL Advisor, a leading online resource for the asset-based lending community, has published an insightful article on IP financing by Jeffrey Sweeney, Chairman and CEO at US Capital Partners Inc.

Entitled “Banking on IP: An Insider’s Perspective,” Sweeney’s article explains how to identify and value IP assets, including unused “Rembrandts” sitting in the corporate IP attic, what main asset-based loan structures are available for patents, what the minimum deal size is and what finance rates are typically available, and what to consider when qualifying a potential borrower.

Sweeney is an investment banker and fund manager with years of experience in direct lending and corporate finance for small to lower middle market businesses. Headquartered in San Francisco, his firm US Capital Partners Inc. is a full-service private financial group that specializes in making traditional middle market banking products and services available to the lower middle market.

“In today’s ‘knowledge economy,’ promising businesses are increasingly built on intangible assets, especially their patents and trademarks,” said Sweeney. “When a traditional asset-based lender may only be able to offer limited availability to an IP-rich client, collaborating with a suitable IP lender can help salvage the deal, by providing the additional availability needed while allowing any existing asset-based lenders to retain their senior positions.”

ABL Advisor is an innovative online publishing resource designed specifically to meet the evolving informational needs of the asset-based lending community. Its mission is to consistently deliver the highest quality, most engaging and resource-rich publishing resources available to commercial finance professionals nationally.

About US Capital Partners

Since 1998, US Capital Partners Inc. has been committed to providing small and lower middle market businesses and investors with sophisticated debt, equity, and investment opportunities usually available only to larger middle market companies and institutional investors. The firm manages direct investment funds and provides wealth management and M&A services. Operating with its registered investment bank affiliate, US Capital Global Securities, LLC, the firm acts as a licensed placement agent, and collaborates closely with its peers in professional banking and investment advisory.

To learn more, email Jeffrey Sweeney, Chairman and CEO, at jsweeney@uscapitalpartners.net or call (415) 889-1010.

Thursday
Nov022017

Rolling Recessions in a Bull Market

Since March 2009, the S&P 500 has advanced roughly 280%. With dividends reinvested, the return jumps to 350%. Those are fantastic numbers. Realizing that very few investors had been 100% in cash on March 8, 2009 and then invested 100% in stocks on March 9, 2009 at the bottom, let’s go back ten years near the highs. From October 2007 through the 55% drawdown during the Great Financial Crisis, the S&P 500 has gained +108% (dividends reinvested) which equates to a compounding rate of 7.6%. In real terms subtracting inflation, the real total return is almost 6% (below the long-term average for stocks of 7% since 1950).

On the chart below which depicts the S&P 500 percentage performance since the March 9, 2009 low, two periods are highlighted where the Index made no advance: January 2010 to October 2011 and May 2014 to February 2016. The first period lasted 20 months and experienced two drawdowns: -16% and -18%. The second period lasted 21 months and experienced two -12% drawdowns.

This is a reminder that markets don’t go up in a straight line and investing over the long run takes patience and sometimes a stomach for volatility.

Rolling Recessions

Much has been written about the length of the current bull market, the second longest in history at 103 months – only 10 more months to break the record. While the Index has had a great run and the economy continues to grow, there are many components (stocks, sectors and industries) that have not fared as well, especially during certain periods of time.

This week, we will highlight two sectors: energy and financials that can be considered as having recessions in the past 10 years while the overall market and economy grew (they are not the only two).

Below is a drawdown chart of the energy sector ETF XLE. An ETF is a basket of stocks and XLE is an ETF of energy company stocks. A drawdown represents the peak-to-trough decline during a specific period of investment. In this case, the XLE dropped -29% in 2011 and -49% from mid-2014 to early 2016. XLE still remains -33% below previous peak levels. As oil prices have been halved, the energy sector and an investor of energy companies has been in a recession.

Things haven’t been as bad in the financial sector, but in 2011 the sector ETF XLF sold off -34% and in February 2016 was down -23% (see chart below). As the overall market is hitting new highs, XLF is also hitting new highs.

As we approach 2018 and consider adjusting investment allocations for the New Year, we continue to be bullish and remain watchful for the next rolling recession. We invite you to give us a call at (415) 249-6337, visit www.uscapitalwm.com or email us at info@uscapitalwm.com if you have questions about how we can assist you in managing your investment accounts.


Kyler’s Report

Danger in Consumer Staples

Consumer staples stocks have done very well over the last few years as investors have been drawn to their relatively high dividend yields and perceived safety. These companies own diversified portfolios of strong, recognizable brands that throw off stable income that can be paid out to shareholders. Investors have historically enjoyed these relatively high dividend yields along with healthy share price gains and relatively muted volatility – everything you could want in an investment.

In the face of all this, actual business fundamentals seem to be weakening.  Here are some select quotes from five WSJ articles that were published over the last two weeks:

“Earlier this year Nestlé ditched a longstanding goal of achieving 5% to 6% organic sales growth after it missed the target for four straight years through 2016.”

“For decades, [giant food] brands controlled grocery-store aisles, commanding prime shelf space and funding expensive advertising displays. Online, however, the playing field is more level, as the internet has provided a quick, cheap and easy sales platform for newer, trendier food companies to reach consumers.”

“P&G, After Slight Sales Gain, Puzzled by Weak U.S. Consumer Spending”

“Food and beverage companies, even in indulgent categories, have “no choice but to respond to the growing consumer concerns of the consumption of added sugar,” said Rabobank analyst Nicholas Fereday.”

“Customers may be starting to shop for over-the-counter drugs in the same way they shop for groceries—with a keener eye for cost and content. This could be painful for consumer-health companies who thought they were insulated from changing tastes… Online price comparisons are more brutal and the consumer experience less easily controlled… Another problem is competition from private-label products. Drugstore copies of branded classics have been around for ages, but health-conscious consumers who are able to quickly look up product details on smartphones may be savvier about active ingredients. The risk is they don’t see much difference between generic ibuprofen and expensive brands like Pfizer’s Advil or Reckitt’s Nurofen.”

These companies, whether they sell household staples, food, or medicine, are running into similar problems – an increase in private label competition (i.e. sales from “store brands”), direct to consumer sales, consumer shifts to healthier products, pricing pressure from big customers, and more. It is not out of the question that future growth will be much slower than past growth, and we’re already starting to see those types of weak results.

This bleak outlook, paired with relatively high valuation multiples – shares of many large consumer staples companies trade at well over 20x earnings - means that investors in the sector need to be extra careful. Buying these stocks for their relatively high dividend yields and ignoring everything else could lead to very low total returns over time.


Give Us A Call Today

We invite you to give us a call at (415) 249-6337 or email us at info@uscapitalwm.com if you have questions about your account and how we can assist you in equities and fixed income.


US Capital Wealth Management Stock Market Dashboard


Delta Market Sentiment Indicator (MSI) is published weekly in Barron’s


US Capital Partners

Wednesday
Nov012017

US Capital Partners Advises on Multi-Million Dollar Growth Capital for Expanding Online Retailer

Online Retailer

US Capital Partners Inc. supports the continued growth of an established e-commerce retailer in the United States.

SAN FRANCISCO, OCTOBER 2017 – US Capital Partners Inc. has advised on a multi-million dollar growth finance program for an established online retailer headquartered on the East Coast. In business for more than ten years, the company has established relationship with top-tier manufacturers across a wide range of categories, from medical and fitness to toys and household goods.

Headquartered in San Francisco, US Capital Partners is a full-service private financial group with strong experience in e-commerce and retail finance. The firm focuses on providing small and lower middle market businesses and investors with sophisticated debt, equity, and investment opportunities usually available only to larger middle market companies and institutional investors.

“We are extremely pleased to have structured and advised on this multi-million dollar financing program,” said Jeffrey Sweeney, Chairman and CEO at US Capital Partners. “This e-commerce retailer approached US Capital Partners to secure growth capital to increase its inventory and complete rising customer orders. It has been a pleasure supporting the company as its exclusive financial advisor, successfully assisting it in securing growth capital promptly and efficiently.”

About US Capital Partners

Since 1998, US Capital Partners has been committed to providing small and lower middle market businesses and investors with sophisticated debt, equity, and investment opportunities usually available only to larger middle market companies and institutional investors. The firm manages direct investment funds and provides wealth management and M&A services. Operating with its registered investment bank affiliate, US Capital Global Securities, LLC, the firm acts as a licensed placement agent, and collaborates closely with its peers in professional banking and investment advisory.

To learn more, email Jeffrey Sweeney, Chairman and CEO, at jsweeney@uscapitalpartners.net or call (415) 889-1010.