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CoolChip Technology Benefits from ZENeSYS Competitive Landscape Analysis Methodology

September 23, 2011 Leave a comment

On August 20th and 21st, 32 future management consultants from top Business Schools in India participated in a ZENeSYS Boot Camp. The objective of the  boot camp was to learn ZENeSYS Competitive Landscape Methodology and write the best analysis for CoolChip Technologies.

Winner of MIT clean energy award and recipient of a DARPA grant, CoolChip Technologies has perfected its patented technology for rapid heat removal from high performance computer chips. They are now ready for its next level of growth.

The participants in the Boot Camp were tasked with using the ZENeSYS Competitive Landscape Analysis (CLA) methodology to provide an unbiased assessment of CoolChip’s product features as compared to its competitors. Three teams from Boot Camp submitted their analysis in the final round which prompted the following response from William Sanchez CEO of CoolChip Technologies.

“We had the opportunity to benefit from their novel methodology for competitive landscaping. The ZENeSYS analysis will be very useful for CoolChip’s next stage of growth as we seek our next round of financing. In-depth understanding of the competitive landscape is curial for positioning our company. The ZENeSYS systematic framework provides a clear, concise mulch-dimensional presentation of the competitive landscape. The tool is a priceless piece of machinery for processing unwieldy amounts of information. The rapid report generation and high standard of quality make the market intelligence very valuable and a resource CoolChip will continue to use as we explore new market verticals and require comprehensive analysis on incumbents and new entrants.”

About ZENeSYS Competitive Landscape Analysis (CLA): A methodology that has been perfected over two years to get the most up-to-date snapshot of market conditions as it relates to a client’s specific product or service. The methodology uses a framework based on competitor goals and customer’s preferences to synthesize news, blogs, forums, white papers, patents, press releases, testimonials, product literature, industry reports, books, and journals to identify best practices and opportunity areas. Startups develop insights for growth and investors get an unbiased assessment of investment risk.

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The Great Liquidity Crunch – Private Equity Firms Re-invent Themselves

July 31, 2011 Leave a comment

By Vaibhav Gupta – ZENeSYS Certified Consultant, IIM Indore (2010-12 Batch). Vaibhav completed his B.Tech. in Mechanical Engineering from Delhi College of Engineering. Before his MBA, Vaibhav worked in Project Management for 4 years with Siemens Energy. Vaibhav intends to join the Management Consulting industry after his MBA.

Abstract: The liquidity crunch, tighter regulations and more control demanded by general partners is forcing the PE industry to re-invent itself.

The three key areas of transformation are:

  1.   More secondary deals – establishing the best valuations and finding the right buyers
  2.   Restructuring deals – creative ways of re-negotiating (past) unrealistic deals
  3.   Employing turnaround specialists – creating consultancy like capability for operational improvements

Over the last decade, uncharacteristic of what one might think, the private equity industry has gone through an economic cycle just like the stock market does – up and down. The up phase of the PE market started around 2003 and it continued to boom till 2007-2008 or just when the financial crisis kicked in.

During the up phase, which started after the telecom burst in 2002, the PE industry saw the largest leveraged buyout (LBOs) taking place in history. In the year 2006, PE firms had bought more than 650 US companies for a figure of $375 Million, which was around 18 times the transactions, closed in 2003 [ref 1] alone.

The LBO movement was fueled by decreasing interest rates, low lending standards and tight regulatory framework of owning a public enterprise (Sarbanes Oxley Act) [ref 2]. Consequently, it is one of the reasons why venture capitalists started relying on sales to strategic buyers for an exit.

The arrival of financial crisis in 2008 and the liquidity crunch brought about a quick halt to the LBO frenzy. The leveraged finance market almost stood still during and after the financial crisis. Not only that but as a result of this crisis, many deals were withdrawn or had to be re-negotiated [ref 3].

PE industry is measured with help of two metrics – fund raising and investment activities. The fund raising refers to the money, investors have committed to PE funds in a year. That fund raising activity had fallen to $150 Billion globally in 2009 from $450 Billion in 2008. Coincidentally, the 2009 figure is the lowest since 2004. The lack of debt in the following year of 2010 meant no hope of any speedy recovery.

The other metric, investment activity, which represents the financing of businesses, had fallen from $181 Billion globally in 2008 to just over $90 Billion in 2009. It 2010, it picked up to $110 Billion [ref 5]. This minor jump could possibly be attributed to increased investments in Small & Medium Enterprises and emerging markets such as Brazil, China and India.

Since PE funds acquire firms so that they could be sold at a profit later, life becomes difficult for them during an economic slowdown. Especially more so, where there is a liquidity crunch factor in addition. This was apparent from the total value of PE exit transactions. They fell from $151 Billion in 2008 to $81 Billion in 2009.

From here on to the next five years till 2016, over $800 Billion in loans extended on committed deals would become due or will have to be refinanced [ref 6]. This $800B is distributed almost equally between bank loans and high-yield bonds. To add further complication in hiving off these assets the US government has passed a bill that would require any PE firm which has more $150 Million in assets under management to register with SEC.

The implications are public disclosure of risks, business activities names of the personnel involved, assets owned, amount owed to each creditor, performance metrics, debt and defaults [ref 7].

According to estimates [ref 9], there is one trillion dollars worth of dry powder in PE funds globally. However, LPs are now demanding more control and requesting more information about their investments. The LPs want to keep track of the draw-down capital so that GPs don’t overdraw their limits [ref 8]. This in effect has created a liquidity crunch of sorts, within the PE community itself.

This puts PE funds in a tight spot. How should they service their existing debts and acquire new assets? The solution for servicing debts is to look for different options such as secondary markets, restructuring the deal or employ turn-around specialists to improve valuations. For acquiring new assets, they must look harder in the marketplace or find greener pastures in emerging markets.

Hence, turn-around specialists are in demand nowadays. PE firms are turning away from traditional leveraged deals and looking into investing in distressed companies. They feel it is better to restructure deals based on a change in strategy rather than to take money out and pursue matter in courts.

Turn-around is becoming more and more important as top lines (revenues) are shrinking. Even vendors have stopped extending favorable credit terms. Hence the success of any PE acquisition is down to operational excellence. This means improved management, optimizing expenditures, and rooting out inefficiencies such as overcapacity created in high growth years.

Interestingly, PE firms have identified a new gap in the market – companies, which do not have the means to hire expensive management consultants, are now finding this as a welcome opportunity to bring aboard high quality leadership.

Emerging markets such as Brazil, China and India are still attractive and PE firms need to find ways of entering them. China and India are the two fastest growing economies even during the recession and they need to develop infrastructure to support the high growth. Brazil is set to hold 2014 World Cup and 2016 Olympics.

With increasing pressure from the regulators, lack of liquidity, and tighter control demanded by general partners, future PE deals would need to be financed and executed with better insights and strategic planning. This means deeper research before deals are struck, awareness of best practices in target markets for operational excellence and market intelligence for finding the right buyers quickly and at the best price.

This article has been written as a part of a research project undertaken by one of our certified consultants. All information and content has been derived from secondary research and insights gained from recent projects at ZENeSYS for the PE industry. Credits have been provided in the references for text and data. ZENeSYS provides Market Research and Market Intelligence services to Private Equity Industry on a regular basis.

References:

  1. http://www.washingtonpost.com/wp-dyn/content/article/2007/03/14/AR2007031402177.html
  2. http://www.nytimes.com/2006/12/01/business/01regs.html
  3. http://www.economist.com/finance/displaystory.cfm?story_id=9566005
  4. http://www.thecityuk.com/media/179004/private%20equity%202010.pdf
  5. Wharton PE Report 2010
  6. http://www.freshfields.com/industries/reports/new_normal/assets/new_normal.pdf
  7. A Closer look at “Dodd-Frank Wall Street Reform and Consumer Protection act – Impact on Advisers to PE Funds” – a report by PwC May 2011
  8. http://blogs.wsj.com/privateequity/2011/06/10/limited-partners-talk-about-tightening-the-screws/
  9. http://www.cfo.com/article.cfm/12958163/c_12931795?f=TodayInFinance_Inside

Harvard India Conference this weekend!

March 25, 2011 Leave a comment

In these lean times we are all making hard decisions where to spend our money and time. There is an abundance of networking events and conferences and its hard to make a judgment. To do my share of “honest” review I can say that judging by last years event, this one is worth going to.

Attendance make sense of course if India happens to be somehow relevant to your business success. In other words anyone who is an investor or doing business with India, a person of Indian origin or simply someone who likes to follow India.

Last year’s event was well planned and the individual break out sessions were charged with emotional discussions. There was never a dull moment. Judging by the agenda and the line up of speakers and  panelists, I am pretty sure we are going to get a repeat performance. The lunch box from Taj Boston should be definitely be an improvement, if there is at all an area of improvement I could have suggested. I am keeping my fingers crossed for a Chiken Tikka Sandwich!

I know this is a last minute thing here and weekends are precious for most of us to compromise. This one is well worth it if you can manage to go. The conference starts tomorrow at 2.30pm and is scheduled to continue all day on Sunday. Here is a link to the website.

They have even setup google moderator to collate attendee questions in advance. Its even better than eVite – we will know what guests will be talking about!

Our own Competitive Analysis

March 8, 2011 Leave a comment

If you are in need of custom market research, competitive analysis, or data analytics, here are your options:

  1. ZENeSYS – A virtual, scalable network of certified management consulting resources
  2. Guru/Elance – A host of other portals for engaging freelance consultants
  3. Big Firms – The big name firms like Gartner, IDC, Yankee, Forrester, & Big 4
  4. Client – You could do it yourself

So how do we stack up?

While we are relatively unknown, our unique model of using a network of our own certified consultants has two powerful advantages:

  1. Virtual Consultants meaning lower cost, faster engagements, diverse expertise
  2. Assurance of quality from ZENeSYS core team

Our consulting certification process is a result of developing unique course ware and assessment methodology for over three years. The result – all our past clients are willing to act as our references.

How to get acquired as a startup

February 19, 2011 Leave a comment

I love to speculate what the future will bring when this long recession is finally over. I do subscribe to the popular belief that there will be a new normal. Small business will rule. At the same time the big guys will go on an acquisition spree to play catch-up. Here are seven tips for startups planning to get acquired as their exit planning.

  1. Qualified and Passionate: The founders and leadership team should have a background that indicates not just capability but the ability to sustain ups and down.The casual and the un-passionate will not be able to face the “startup demons”.
  2. Be aware of the competition: Earth calling. Are we the only intelligent life on this universe? Others may be light years ahead. Either change course or do something to leap frog.
  3. Prove the model: Get paying customers and show that the business model works and is sustainable. This seems to be a standard litmus test for any potential investor or acquirer.
  4. Build Credibility: Have referencible customers and link up with well recognized partners. This is one part of assessing  barrier to new entrants.
  5. Get Noticed: Build a good online presence through a well laid out website and a social media marketing plan. When acquires come window shopping, they need to see an audit trail.
  6. Hit the milestones: Show a steady progress on your accomplishments. This is the second factor for building a barrier to new entrants. New entrants need to play catch up.
  7. Prove your uniqueness: Patents may not fully protect the IP but it gives instant credibility and gives investors a sense of assurance that a startup in on to something unique. The third barrier to entry factor.

A unique strategy by a Digital Media PE fund

February 12, 2011 Leave a comment

Buyout PE funds are at an all time high since year 2005. Despite this, the amount of “dry powder” or unallocated committed capital in the buyout funds is above 50% for the last three years according to AARMCORP who track and benchmark PE funds . Too much money chasing not-so-plenty a deals.

Furthermore, a peer set comparison of buyout funds shows that funds under 500M in assets who are investing in Technology and Communications buyouts have reported less than 10% IRR in the last three years. Despite these two negative indicators, there is unabated interest in technology buyout funds due to the promise of high returns in a relatively short term.

The good news is that it can still happen. Provided, there is a capable management team with the right connections, a smart deal identification mechanism, a creative makeover process, and secured exit planning. Enter Michael Connolly and David Silver of Atlas Digital Media Opportunity Fund who have what it takes to take on the challenge in delivering the heady 40% IRR limited partners expect.

Their highly successful deals EldercareLink, BuyerZone, Big City Doctors, Med Trak Alert and Atehena East, has given them a rich ecosystem of deal selection expertise. They have already identified two Internet properties with interested buyers as suitable target firms. Zane Tarrence, an adviser to the Fund, maintains a large database of potential buyers and together with the Managing Partners who have relationships with both strategic and financial buyers; for example, QuinStreet, Internet Brands, The Health Central Network, and BankRate among many others. In all cases their criteria is to seek out fragmented private companies at a discount to their multiple much higher than what other private or financial buyers would pay.

Unlike other funds, Atlas Digital will examine potential investments with an emphasis on who the potential buyers of the portfolio company will likely be prior to the Fund acquiring a controlling interest so there is no delays in cashing out in a timely manner. The partners management consulting backgrounds has been instrumental in creating valuable “reusable know-how” from re-restructuring Internet property deals such as ElderCare Link and Big City Doctors.

Applying tried and tested methodologies to fix Internet properties gives them an edge over others who are failing to derive efficiencies in their asset management operations. This is a significant edge for Atlas over other funds of similar size. Not only are they able to make more deals but they can also manage them with a lower operating cost.

There are hundreds of Internet businesses with a value just below the transaction size threshold of what strategic buyers are looking to buy, leaving an opportunity for Atlas Digital to identify, acquire, restructure and exit by leveraging their connections, methodologies and pre-appointed exit deals. Email mic@atlasdigitalpartners.com for more information.

Both, Atlas Digital Partners and AARMCORP are past clients of ZENeSYS.

Saving ourselves from Analysis Paralysis

February 1, 2011 Leave a comment

Yesterday, we were working late into the night trying to figure out an approach for tackling a very unusual assignment. Unlike math problems. consulting problems  can take days or weeks – just figuring out an approach. Once an approach is created, its just a case of putting it t work.

We created a comprehensive set of initial hypothesis and conducted enough secondary research to figure out the main issues that we needed to tackle. Then came the challenge of how to get the answers for the selected issues. Several ideas on approach were considered but none seemed right or viable for one reason or another.

Those who are in consulting will know that this condition is known in the inner circles as “analysis paralysis”. “Let the solution come to you” are words in the McKinsey Way Book as an answer to this malady in a very serenely philosophical tone. But that can take some time.

Here is how we solve the analysis paralysis problem at ZENeSYS. We state the problem on our forums and let the crowds in our network of “smart thinkers” do the mulling on it. This morning the solution came in. It was brilliantly simple.

Sometimes, you just have to let the power of teamwork help you find a way out.