In Search of the Midas Touch

Presented by Rob Slee, CBA, CM&AA, MA, MBA

2012 Robert T. Slee. All Rights Reserved. 1

In Search of the Midas Touch

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 humankinds history, everyone has access to the worlds communal resources What decides winners from losers? The math of IC leverage Maybe its time to get strategic

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In Search of the Midas Touch

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

An Aggregation Age of Paradoxes

Its 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 Rampsnetwork marketing on steroids
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In Search of the Midas Touch

What Business Age Are You In?

Information Age Left brain Tactical MBAs & wonks Checkers Conceptual Age Left and right brain Domestically strategic Designers/deliverers Chess Aggregation Age Right and left brain Globally strategic Value architects Risk

.story time
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In Search of the Midas Touch

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In Search of the Midas Touch

My name is Rob

and Im a Niche-aholic

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In Search of the Midas Touch

Becoming a Niche-aholic in Your Business

Incrementalism versus departurismdo 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. Testtesttestfailfailfail 6. Set-up the buffet and pull the customers to you 7. Rinse, lather, repeat

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In Search of the Midas Touch

Create a Niche Conglomerate

Seminars

Preach
Mentor

Write
Create
Advise Own Stuff

Books

Engr.

Innovate

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In Search of the Midas Touch

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.

VAs are the Maestro'sR&F example

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In Search of the Midas Touch

Capital Markets Overview

Sales
($millions)

150

500

1,000

Small Businesses

Lower

Middle M I d d l e M a r k e t

Upper

Large Companies

5.4MM
15%

300,000 40% 4-7x 8-9x 10-11x

2,000 45% >12x

2-3x

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In Search of the Midas Touch

The Middle Market Whats 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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In Search of the Midas Touch

Intermediated Value Gap

Middle Market Investments
Expected versus Realized Returns* Investments Expected Returns Realized Returns**

5 Year Venture capital

Mezzanine capital Private equity

10 Year -1.5%
2.3% 2.8%

20 Year 17.8%
6.7% 11.3%

38%
21% 30%

4.6%
2.7% 5.8%

*Thomson Reuters US Private Equity Performance Index (PEPI) **Realized returns are net to investors after management fees and carried interest.

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In Search of the Midas Touch

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 beversus 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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In Search of the Midas Touch

Do Most Owners Even Want to Create Entity Value?

No its about lifestyle for most. Whats wrong with this? What are the three most important things in real estate valuation? In business valuation? Lets play the transfer timing slots game

PERSONAL

BUSINESS

MARKET

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In Search of the Midas Touch

Private Market Timing

U.S. Ten Year Transfer Cycle

Deal Recession
(Buyers Market)

Prime Selling Time

(Sellers Market)

Uncertainty
(Neutral Market)

1980 1990 2000 2011

1983 1993 2003 2013

1988 1998 2008 2018

1990 2000 2010 2020

How to play this cycle?

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In Search of the Midas Touch

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 wont SELL great businesses You can do EVERYTHING right yet still come up EMPTY!
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In Search of the Midas Touch

Aggregating Niches (our machine shop)

1. 2. 3. 4. 5. Aim compelling value propositions at Navy ships Become the one-stop repair service for each trade Hire Gurus for each of the trades Then take over preventive maintenance as well Look out world!

Result: VA status and financial independence

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In Search of the Midas Touch

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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In Search of the Midas Touch

Thank You
Rob Slee 6201 Fairview Road Suite 200 Charlotte, NC 28210 704-523-7888 r.slee@midasnation.com

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