Focus on Family Businesses

Calabasas Capital is a boutique firm focused on lower middle-market private companies. The firm specializes in sell-side and buy-side mergers and acquisitions, as well as private equity and debt capital. David Bonrouhi co-founded the firm in 2009, after serving as president at Blue Line Capital. He began his investment banking career with Merrill Lynch and previously was a CPA at PricewaterhouseCoopers. 

Have larger firms’ bets on AI influenced investments into your own firm’s tech?

We are just starting to evaluate how to use AI. Most likely we will initially use it to build buyer lists and also sell-side prospect lists.

Any plans to hire technology professionals? What are your expectations for entry-level analysts in regard to AI or coding proficiency?

No.

The likelihood of an interest rate drop by the end of the year continues to decline. How have your plans adjusted in the past month to meet the new language coming from the Federal Reserve?

We have seen a dramatic increase in deal flow since Q4 2023, when the Fed stopped raising rates. As long as the Fed doesn’t increase rates, lower middle market M&A (especially deals sub-$100 million in value, which is where we focus) will be fine.

We’ve seen private capital investment banking practices raise substantial funds amid a difficult fundraising environment. How have you adjusted your alternative credit products to meet the market’s demand?

The significant growth in the private credit markets has been very favorable for our clients looking to raise capital for acquisitions or refinancings, since the increased competition among credit funds leads to more favorable pricing and flexible structures.

There was a lot of M&A leadership shuffling from some of the largest firms last year. How did this affect the boutique, middle-market landscape of investment banking?

In some ways it is helpful, as we can try to recruit those folks, However, if they form new firms or join competitors, that would not be as favorable to us. Most of those folks, however, do not have the entrepreneurial background and many do not have a book of business, so in that sense where they land would not impact us at all. 

Which industries do you see leading the eventual thawing of the M&A and IPO markets?

For our market, idiosyncratic characteristics specific to each company drive deal flow more so than macro factors, so, ultimately, aging Baby Boomers with no succession plans is really what impacts our business across multiple industries. We focus on representing family businesses looking to sell that have $10 to $100 million in revenue. 

What does the next year hold for the company?

Our pipeline is as full now as it was in 2021, and overall our deals on average have been increasing in size. We are very well positioned as a firm in our niche for the foreseeable future. 

Bullish on Personal Care

The Sage Group provides corporate financial advice and transaction support to consumer brands and retail companies. Founded in 2000 by Mark Vidergauz, the firm has since aided in notable brand mergers including Guess’s acquisition of Rag & Bone, as well as Liz Claiborne’s purchase of Juicy Couture. Andrew Dunst heads the firm’s e-commerce vertical. The Sage Group is No. 26 on the Business Journal’s investment bank list.

The likelihood of an interest rate drop by the end of the year continues to decline. How have your plans adjusted in the past month to meet the Fed’s new language?

In general, M&A markets are operating as if rates will hold throughout the year.  Both buyers and sellers are beginning to adjust to a “new normal” – even if the Fed drops rates, it will take a long time (if ever) to return to a near-zero interest rate environment.

We’ve seen private capital investment banking practices raise substantial funds amid a difficult fundraising environment. How have you adjusted your alternative credit products to meet the market’s demand?

We are seeing significant activity in the private credit markets, including from business development companies.  

While more expensive than traditional lenders, private credit provides flexibility in a more challenging environment, helping complete transactions. What industries do you see leading the eventual thawing of the M&A and IPO markets?

Beauty/personal care is performing well, and we believe it will continue to propel the recovery of mergers and acquisistions in 2024 and beyond.  

‘Tech Will Lead the Rebound’

Downtown-based Greif & Co. positions itself as the entrepreneur’s investment bank. Founded in 1992 by Los Angeles native Lloyd Greif, the firm now serves a wide range of industries, from aerospace to food and beverage. One third of its mergers and acquisitions, as well as its private-placement transactions, are cross-border, with clients in Asia, Europe and Latin America.

Have larger firms’ bets on AI influenced investments into your own firm’s tech?

The barriers for smaller firms like ours to adopt AI have diminished in recent years. We can and are deploying “off-the-shelf” AI products and solutions, leveraging the advancements made by tech giants who were first movers in the space. You no longer need large IT departments or external consultants to unlock the benefits of AI – size is no longer the barrier it once was.

Any plans to hire technology professionals? 

Yes, the Southern California region continues to have a healthy representation of a broad spectrum of technology companies, from hardware to software, medtech, HCIT, biotech, fintech, etc. You can never have too many tech-skilled and focused bankers.

What are your expectations for entry-level analysts in regards to AI or coding proficiency?

AI isn’t coming, it’s here. To ignore this technology is to fall behind the competition, so it is a requirement that all incoming analysts be proficient in AI capabilities and use it as appropriate and necessary to the job – with the requisite precautions to ensure data accuracy.

The likelihood of an interest rate drop by the end of the year continues to decline. How have your plans adjusted in the past month to meet the new language coming from the Federal Reserve?

Delaying acquisitions or investments waiting for interest rates to drop is putting your future in another’s hands. We’re moving full speed ahead on bringing M&A and corporate financing transactions to market based on the capital markets conditions that exist today, not some uncertain “tomorrow” that may be a 2025 reality vs. a 2024 reality. Middle-market M&A is relatively consistent across economic environments – entrepreneurs are more resourceful, agile and nimble than “corporate America.”

We’ve seen private capital investment banking practices raise substantial funds amid a difficult fundraising environment. How have you adjusted your alternative credit products to meet the market’s demand?

This is a more challenged environment that requires hybrid, creative deal structures, investment vehicles and debt terms – more convertible preferred stock and debt securities, more deferred consideration, contingent payments and earnouts, more emphasis on downside protection. All-cash-at-the-close M&A deals are getting done, but other deals where there is a gap between seller expectations and buyer capabilities require cash plus enhancements including seller paper and earnouts. Balloon payments on debt instruments are more common, as are equity kickers such as warrants. And preferred securities and debt instruments are carrying high single-digit/low double-digit dividends or interest.

There was a lot of M&A leadership shuffling from some of the largest firms last year. How did this affect the boutique, middle-market landscape of investment banking?

The leadership changes and downsizing at the largest investment banks have created an opportunity for smaller firms to attract top talent and grow their M&A advisory businesses. Capital markets go in cycles, and many boutique investment banks are betting that a boom in M&A activity is on the horizon. We’re positioning ourselves to capitalize on it by selectively bringing on experienced dealmakers from larger banks. This shift in talent should allow smaller firms to gain more market share and compete more effectively with the bulge-bracket banks for M&A mandates, especially if the larger banks continue to struggle with the mega-M&A slowdown and continue to shed seasoned personnel.

What industries do you see leading the eventual thawing of the M&A and IPO markets?

Tech deals are beginning to thaw out and should lead the upcoming market rebound, particularly generative AI as companies scramble for market share in this explosive market. Noncyclical consumer, including food and beverage, will continue to be strong, as will nonfood consumables like skincare and cosmetics. Health care, medical technology and biotech should also be strong, helped by demographic trends of an aging Baby Boomer population. Finally, industrial manufacturing and distribution, including building products, should be strong as interest rates gradually begin to recede from their current heights next year.

What does the next year hold for the company?

More of the same – only more of it. Although transactions still get done in choppy deal markets like we’re experiencing presently, they take longer, increased effort and more skill to get to the finish line. So, I would expect a pickup in transaction volume and the pace of deals next year. What goes up, must come down – and what goes down, must go up.

Ready for a Tech IPO Boom

Vineet Asthana leads the technology and business service vertical for Kroll’s merger and acquisition practice. The New York-based firm is the 11th largest investment bank in Los Angeles by headcount this year – a drop from last year’s No. 4 spot after more than a dozen licensed bankers were let go. Kroll went through a slew of its own acquisitions in the past few years, rebranding from its original Duff & Phelps name as it expanded its market intelligence platforms and financial advisory capabilities.

The likelihood of an interest rate drop by the end of the year continues to decline. How have your plans adjusted in the past month to meet the new language coming from the Federal Reserve?

An interest rate drop will be a boost to the M&A activity. Lots of buyers have been sitting on the sidelines for the rates to adjust, so that (the) cost of borrowing could be lower, which will enhance their returns on investments. The plan is to pursue sectors such as technology and industrials, which can benefit from the Fed’s decision.

There was a lot of M&A leadership shuffling from some of the largest firms last year. How did this affect the boutique, middle-market landscape of investment banking?

The past two years have been a challenging dealmaking environment for most investment banking firms. The inflation, the higher interest rate environment coupled with lack of quality assets coming to market, had really slowed down the M&A activity. Large banks were also cutting down on senior-level M&A staff, thus, there was a lot of movement among the established boutiques, which saw an opportunity to hire key talents as the market improved.

What industries do you see leading the eventual thawing of the M&A and IPO markets?

Technology and health care will see a significant boom as the markets improve. The technology IPO market hasn’t had any significant IPO since the past few years. We (expect) that sector to come back strongly as the sentiments in the public markets improve.

What does the next year hold for the company?

The year-end elections could dictate the tone for 2025. In addition, if there is reduction in interest rates, the housing market, the capital markets as well as the M&A market could potentially see similar levels of activity that we witnessed post the pandemic for two years.

Banking On a Happy Market

DelMorgan & Co. is a Santa Monica- based firm that covers a broad gamut of transaction services — including hostile shareholder takeovers and unsolicited acquisitions. Neil Morganbesser co-founded the firm with its chair Rob Delgado in 2011. Since then the firm has advised on transactions for companies including The Walt Disney Co., PayPal and AT&T.

The likelihood of an interest rate drop by the end of the year continues to decline. How have your plans adjusted in the past month to meet the new language coming from the Federal Reserve?

Nothing that has come from the Federal Reserve in the last year has been surprising or unexpected to us, and we have not had to make any adjustments to our plans. 

What has surprised us is the resilience and enthusiasm in the equity market, which continues to bode well for our existing pipeline and for future deal flow.

There was a lot of M&A leadership shuffling from some of the largest firms last year. How did this affect the boutique, middle-market landscape of investment banking?

Some of the largest name-brand firms have been adversely affected by internal restructuring, external pressures and changes in their compensation structure and practices. 

While the legacy firms continue to have many strong practice areas, the general tumult in the investment banking industry has opened up new opportunities for the few quality boutiques (like ourselves at DelMorgan & Co.) that can offer the unique combination of bulge-bracket quality personnel and expertise with hands-on, client-dedicated senior-banker deal execution.

What industries do you see leading the eventual thawing of the M&A and IPO markets?

A rising tide lifts all boats. 

We are seeing it really across the board – a happier capital market environment leads to more transaction opportunities across almost all sectors, from super-attractive tech and biotech companies to early-stage innovative start-ups, from “bread-and-butter” industries like CPG and B2B services to “recently out-of-favor” industries such as legalized cannabis, in the U.S. and abroad.

What does the next year hold for the company, and what are your main goals?

A continuation of our successes in 2022 and 2023: More high-quality deal execution for more clients, with more of an impact on the potential for success of some very exciting growth companies. 

Emphasis on Bespoke Funding

Jeff Raich co-founded New York-based Moelis & Co. with former UBS and Credit Suisse investment banking lead Ken Moelis in 2007. The firm has advised on more than $4 trillion of transactions to date. According to last year’s fiscal earnings, the firm aggressively expanded its managing director headcount, betting on the resurgence of mergers and acquisitions this year. However, its reported headcount for Los Angeles remained the same, with 64 licensed bankers in the county.

Have larger firms’ bets on AI influenced investments into your own firms’ tech?

Client relationships will always remain at the core of our firm, and we don’t anticipate that AI will change that aspect of our business.

Any plans to hire technology professionals? What are your expectations for entry-level analysts in regard to AI or coding proficiency?

We hire high-caliber professionals who are the best at what they do, and we have built the business to take an innovative approach to help clients navigate their complex decisions and opportunities.

The likelihood of an interest rate drop by the end of the year continues to decline. How have your plans adjusted in the past month to meet the new language coming from the Federal Reserve?

While it’s difficult to predict when the M&A environment will fully rebound, we’re seeing signs of an improvement in sentiment as market participants have adjusted to the current cost of capital. Our pipeline continues to build as the Fed’s messaging has eliminated the tail risk of future rate hikes.

We’ve seen private capital investment banking practices raise substantial funds amid a difficult fundraising environment. How have you adjusted your alternative credit products to meet the market’s demand?

The growth of private credit has allowed more companies to access bespoke financing, and we have a strong capital markets team that can help clients structure and execute customized financing solutions. Moelis’s deep relationships across a spectrum of alternative capital providers enable us to offer a broad range of solutions when traditional avenues of financing are closed or limited.

There was a lot of M&A leadership shuffling from some of the largest firms last year. How did this affect the boutique, middle-market landscape of investment banking?

Moelis & Co. was built during a period of significant dislocation in the financial markets, and the recent dislocation has allowed us to add exceptional talent to the firm and strengthen our advisory offering as we continue to support clients through all phases of the business cycle.

What industries do you see leading the eventual thawing of the M&A and IPO markets?

We expect a broad range of industries to benefit from financial sponsors who are sitting on a backlog of companies that need to be monetized to return cash to LPs. Sponsors will likely be a catalyst to the full resurgence of the M&A market.

What does the next year hold for the company?

Our outlook for the deal environment remains positive and we look forward to continuing to deliver trusted, resourceful and quality advice to our clients as we guide them through some of their most complex decisions and opportunities.