slee tens in search 4 16-12
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© 2012 Robert T. Slee. All Rights Reserved. 1
In Search of the Midas Touch
Presented by
Rob Slee, CBA, CM&AA, MA, MBA
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In Search of the Midas Touch
www.MidasNation.com
The U.S. versus the World• This is not a country versus country battle• This is 5% versus 5% fight (the 90/5 Rule)• For the first time in humankind’s history, everyone
has access to the world’s communal resources • What decides winners from losers?• The math of IC leverage• Maybe it’s time to get strategic
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In Search of the Midas Touch
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The Strategy Thing: every so often the rules of business change
Agrarian Age… (lasted for 3,000 years)
Industrial Age… (lasted for 300 years)
Information Age… (lasted for 30 years)
Conceptual Age… (10 years)
Aggregation Age… (?)
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In Search of the Midas Touch
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An Aggregation Age of Paradoxes• It’s a confusing time because the past may not be
predictive• Intellectual capital – not financial capital – is king• Midas Mashups unlock extreme value• As the world gets bigger, niches get smaller• Hoarding of best practices and proprietary ideas is
out; sharing, collaborating, and open-source is in (crowdsourcing the next step)
• Midas Ramps…network marketing on steroids
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What Business Age Are You In?
Information Age Conceptual Age Aggregation Age
Left brain Left and right brain Right and left brain
Tactical Domestically strategic Globally strategic
MBAs & wonks Designers/deliverers Value architects
Checkers Chess Risk
….story time
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In Search of the Midas Touch
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My name is Rob…
and I’m a Niche-aholic
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Becoming a Niche-aholic in Your Business• Incrementalism versus departurism…do the math
• Steps:
1. Complete a physical inventory of your intellectual capital
2. Describe the needs/wants/compliance behavior of your current markets
3. Several niches (based on providing solutions) should ‘present’ themselves
4. Design a compelling value proposition for each niche
5. Test…test…test…fail…fail…fail…6. Set-up the buffet and pull the customers to you7. Rinse, lather, repeat
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Create a Niche Conglomerate
Preach
Write
Create
Engr.
Innovate
Seminars
BooksOwn Stuff
Advise
Mentor
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Value Architects Rule• Tradespeople - mechanics; fingerprints on everything;
low leverage (less than 2:1); earning a living; $50 per hour people
• General Contractor - still fingerprinting; some leverage (less than 5:1); earning a lifestyle; $150 per hour people
• Value Architect - fingers on pulse; substantial leverage (more than 10:1); creating value/wealth; $>500 per hour people.
• VA’s are the Maestro's…R&F example
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Capital Markets Overview
Sales($millions)
5 150 500 1,000
Small Lower Middle Upper Large
Businesses M I d d l e M a r k e t Companies
2-3x 4-7x 8-9x 10-11x >12x
5.4MM 300,000 2,000
15% 40% 45%
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The Middle Market – What’s Happening?• The US middle market is one of the largest economies in
the world• There are roughly 3,000 private equity groups (PEGs) in
the US – with >$1 trillion in spending power• PEGs own around 30,000 middle market companies
(10%) – but this represents about 40% of the market equity
• Hedge Funds are newer to private investments – but they have raised more than $1 trillion in the past five years
• Strategics are selective, but are the most active now• Realized returns are dropping like a rock
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Intermediated Value Gap
Middle Market InvestmentsExpected versus Realized Returns*
InvestmentsExpectedReturns
RealizedReturns**
5 Year 10 Year 20 Year
Venture capital 38% 4.6% -1.5% 17.8%
Mezzanine capital 21% 2.7% 2.3% 6.7%
Private equity 30% 5.8% 2.8% 11.3%
*Thomson Reuters US Private Equity Performance Index (PEPI)**Realized returns are net to investors after management fees and carried interest.
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Owner Value Gap• Most lower middle market companies have a cost of
equity capital of 20-30%• Yet 80-90% of owners do not generate returns on
investment to cover this cost of capital• This means that over time, a value gap occurs (the
difference between what the owner wants/needs the value to be…versus what the market says it is worth)
• The value gap shows-up in a number of negative ways (lack of job creation; diminished GDP; lower loan demand, etc.)
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PERSONAL BUSINESS MARKET
Do Most Owners Even Want to Create Entity Value?• No – it’s about lifestyle for most. What’s wrong with this?• What are the three most important things in real estate
valuation? In business valuation?• Let’s play the transfer timing slots game
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Private Market Timing
How to play this cycle?
U.S. Ten Year Transfer Cycle
Deal Recession Prime Selling Time Uncertainty (Buyer’s Market) (Seller’s Market) (Neutral Market)
1980 1983 1988 19901990 1993 1998 20002000 2003 2008 20102011 2013 2018 2020
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Paradoxes Shape M&A• M&A is more of a SPORT than a BUSINESS• Companies that NEED help the most are the least
WILLING to pay for it• A deal only STARTS once it had DIED three times• The LARGER the deal, the EASIER it is to close• The MORE you care about a deal the LESS likely it is
to close• Buyers BUY great businesses, but Sellers won’t SELL
great businesses• You can do EVERYTHING right yet still come up
EMPTY!
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Aggregating Niches (our machine shop)
1. Aim compelling value propositions at Navy ships
2. Become the one-stop repair service for each trade
3. Hire Guru’s for each of the trades
4. Then take over preventive maintenance as well
5. Look out world!
Result: VA status and financial independence
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Where Do We Go From Here?• Please listen to Midas Marketing• Clarify your goals … how important is financial
independence to you?• Do you want to become a Value Architect?• Join MidasNation.com• What else can you do?
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Thank You
Rob Slee
6201 Fairview Road
Suite 200
Charlotte, NC 28210
704-523-7888