An interview with Sandy Garrett, Partner in the United States.
From IBM to Wall Street to ONEtoONE
I’m uncomfortable being comfortable. After Columbia University, I went on to IBM and worked on developing many technological firsts while pursuing an advanced degree in computer science. I then transitioned to Wall Street, working as an analyst and later chief risk officer for the tech sector in several firms. Following this, I founded Venlease Associates (The Garrett Group), providing debt capital to emerging companies. Since selling this business, I have pursued M&A and encountered ONEtoONE, a highly ethical company that puts the interests of the client before self.
At ONEtoONE, we are all accomplished in our own right and can create the right team to optimize our performance for each mandate. As an example, an entrepreneur was referred to me with the goal of acquiring a specific target using an ESOP to gain a bidding advantage in what he expected to be a competitive auction. At the time, I knew nothing about ESOPs applied to M&A. Using the ONEtoONE platform I reached out, found a partner well versed in this matter. Prior to ONEtoONE, I would have passed on taking the transaction. Similarly, I have been able to put together different ad hoc, high quality teams to help complete mandates I could not have otherwise accepted.
M&A opportunities in tech sectors
We’re now well into the throes of the knowledge revolution. Creative destruction abounds; there are sky high valuations due to the confluence of strong global economic growth, booming global consumer confidence, and exceptional global liquidity. Now is clearly the time to be a seller.
Much of our role in ONEtoONE, including mine, is to advise our clients how best to position themselves to be attractive to lenders and/or optimize valuations. This applies to fund raising, non-controlling investments, or acquisition. However, at the same time, we provide them with an objective perspective regarding the investor community.
The future of tech: biotech, renewables, high tech, and semiconductor
Successful early middle market companies have a well-defined, albeit sometimes narrow, focus that can cause them to miss opportunities. In biotech, many companies look at large markets, but lose sight of the economics and reimbursement issues behind, for example, personalized medicine, particularly in immunotherapy. Finding a strategic partner sooner, rather than later, may cause entrepreneurial management to miss unicorn status, but may also prevent a technology from hitting a stone wall while seeking funding for Phase II or Phase III.
Government support to renewables is finicky, creating risks and lowering valuations. However, as some products become sustainable without subsidies, growth capital and M&A capital are becoming highly prevalent. Projects that have reached the performance stage of long-term cash flow such as PPAs are increasingly in demand. ESG investing is getting out of the nascent stage and ever larger funds are coming together creating an extraordinary capital raising and M&A global opportunity for biotech, healthcare related services and renewables.
Low capital investment opportunities favor tech. Software, IT services, logistics, data analytics, to name a few, command values no longer based on EBITDA or revenue, but rather on future potential related to synergies and roll-ups. AI and Block Chain are just now creating their own revolution destroying many businesses and creating many new ones. Companies that don’t have the resources to play the game need to seek acquirers that do. Companies that do have the resources need to move and grow faster, raising capital, merging with complementary partners, and/or making acquisition.
The semi industry has matured and has become cash flow positive. While still requiring extraordinary technical expertise and capital investment to participate, there is so much talent available; most products are evolutionary and commodity-like in nature. Supply chain and time-to-market may be more important factors in survival than raw technology. This suggests targeted strategic alliances and intelligent acquisitions rather than simply additional fund raising for growth. Size is not the issue as Broadcom’s unfriendly bid for Qualcomm demonstrates and Qualcomm’s friendly bid for NXP.
Cross-border opportunities between US-EU-ASIA in tech sectors
Business today is global. Upstream and downstream opportunities abound cross border. The rise of the middle class in India and China and record low unemployment and high consumer confidence in the US are giving rise to a consumer related bonanza for many companies. This is putting further pressure on all the sectors I follow for middle market companies to grow faster and/or develop strategic alliances.
China and India strategies are musts to survival. India has become the fastest growing country in Asia. China is still targeting GDP growth in excess of 6% in the coming years. Chinese and Indian companies are beginning to expand globally and making investments and acquisitions everywhere, especially Europe and Africa. China wants to lead the semiconductor and high tech industries and is rapidly moving up the value chain. India is a highly fertile ground for biotech, health related services, and software development.
Current tech mandates
I am currently leading two main mandates. The first is an outstanding specialty chemical distribution company in India, accelerating its emergence as a manufacturing company and looking at prospective 4X revenue and 10X EBITDA in five years. Additionally, I mentor the initiator of venture debt in India that created the dominant (over 60% market share) provider of venture debt not only in India, but China and SEA as well. They recently left to start their own fund with a first close from Indian investors. We are working on raising a second close from LPs outside India.
I am also participating, but do not lead, mandates on an outstanding event planning company in Europe and the leading Spanish travel agency for winter and ski related vacations. Given my strong connections to global banks and lenders through my years of semiconductor financing, I am looking into collaborating with many of my partners on real estate transactions requiring both debt and equity.