It’s a Small Cap World (for Now) – Russell 2000 Index Up nearly 18 Percent for Year

Graphic courtesy of Russell Investments


The stock market finally “took a breather” on Monday of this week, as the Wall Street Journal characterized it. The resilient bull market of 2013 has seen only four sessions in May that had a decline in the Standard & Poor’s 500-stock index and Monday was one of them. This year’s bull market rally has recently been across the board–Asian markets have been up, European markets turned up, and market watchers are anxiously waiting for tomorrow, Wednesday, May 22, when Federal Reserve Chairman Ben Bernanke is scheduled to testify to Congress and the Fed releases the minutes from its last public policy-setting meeting. Will Bernanke offer up any clues about his next steps?

Most importantly for Smallcap World, the Russell 2000 index, which tracks the performance of smallcap U.S. equities, climbed above the 1,000 level for the first time Monday, a metric that MarketWatch considers “psychologically important” for smallcap stocks. As of Monday morning, May 20, the Russell 2000 was up 17.9 percent for the year-to-date, according to FactSet (The Associated Press reported the Russell 2000 up 17.5 percent for the year).

The conventional wisdom is that small caps stock are doing well because they are more U.S. focused than the large caps, which tend to be multi-national. And the U.S. economy is recovering as opposed to other economies around the world. But many large caps are doing well, too,

You don’t have to look far to find small cap stocks at 52-week highs, even “all time highs.” Of course the question always is, how much higher can these stocks go? Buy now or wait for the correction that so many experts have been predicting is right around the corner for months now?

We’ve selected a few stocks we know are at all-time or 52-week highs, and others we’ve covered lately that seem to be on the upswing.

Calabasas, CA-based National Technical Systems * (Nasdaq: NTSC, is a relatively unknown smallcap stock but also the world’s largest independent engineering services and testing company. It’s biggest markets include aerospace and defense, but also works in the automotive and telecommunications markets, among others. NTSC closed at an all-time high of $13.09, up 94 cents on May 21, with a market cap now of about $150 million. NTSC is lightly traded, only about 7,500 shares a day, although that is trending up. 

Northville, MI-based Gentherm * Incorporated (Nasdaq: THRM, is a global developer and marketer of thermal management technologies for a broad range of heating and cooling and temperature control technologies. Best known for its Climate Control Seat systems that actively heat and cool seats in more than 50 vehicles made by the world’s leading automobile manufacturers, Gentherm (formerly called Amerigon) has branched out into heated and cooled bedding systems, cupholders, storage bins and office chairs. THRM also reached a 52-week high of more than $18 this week, then closed May 20 at $17.78, down 33 cents for the day. Its market cap is now $594 million. As recently as last July THRM was trading at just above $10.

We recently featured Cincinnati-based LSI Industries (Nasdaq: LYTS, , a company that offers a different take on an LED lighting company. LYTS creates LED video screens and LED specialty lighting for sports stadiums and arenas, digital billboards and entertainment companies. It closed April 29 at $7.09 with a market cap of $170 million. LYTS closed May 21 at $8, up 1 cent for the day, with a market cap now of $192 million.

Analysts at CRT Capital recently upgraded Atlanta-based Beazer Homes USA (NYSE: BZH,, a company that builds and sells single-family and multiple-family homes in 16 states in the U.S., to a “Buy” with a $29 price target. BZH also acquires, improves and rents homes. The company operates through commissioned home sales counselors and independent brokers. As recently as last Sept. 14 BZH was trading for $3.77. It closed March 20 at $16.86 with a market cap of $410 million. BZH closed May 21 at $21.75, down 98 cents for the day. Its market cap is now $538 million.

San Jose, CA-based SunPower Corp. (Nasdaq: SPWR,, like many solar stocks, have been on the upswing lately. SPWR closed May 8 at $15.36, down 6 cents for the day, with a market cap of $1.8 billion. It closed May 21 at $21, down $1.70 for the day but got up to $23.76 just last week. Its 52-week trading range is now $3.71-$23.76.

Fremont, CA-based Procera Networks (Nasdaq: PKT, works with mobile and broadband network operators providing intelligent policy enforcement solutions for managing private networks. PKT’s products are sold under the PacketLogic brand name to more than 600 customers in North America, Europe and Asia. PKT’s 52-week trading range is $10.12-$25.99. At mid-day May 2 it was trading at $11.22, with a market cap of $229 million. At market close May 21 PKT was trading at $13.89, down 3 cents for the day, with a market cap of $282 million.

* Denotes client of Allen & Caron Inc., publisher of this blog.


Nick Galluccio on Economic Recovery Outlook for 2013, Equity Valuations, Sectors to Watch

Nicholas F. Galluccio is President and CEO of Teton Advisors, Inc. (, based in Rye NY, which runs a family of listed mutual funds under the family name of TETON Westwood, and representing a range of investment strategies. Teton Advisors is itself listed under the ticker “TETAA.” It is affiliated with GAMCO Investors, Inc. (NYSE: “GBL”), a large and well-known diversified asset manager and financial services firm (

Nick was a journalist early in his career, starting as a staff writer at FORBES, and moving into the financial services business as a semiconductor analyst at Lehman Brothers Kuhn Loeb. He and I first met during the 25 years he spent at Trust Company of the West, where he was Group Managing Director and headed smallcap value and midcap value funds. Seven years after TCW was acquired by Societe Generale, he joined Teton Advisors, and has built the platform to $1.2 billion in assets under management (AUM). Today he is at the helm of Teton, and runs the TETON Westwood SmallCap Equity Fund.

I asked Nick before the national election if we could talk after the election in broad strokes about the state of the economy, the vigor of the recovery, his outlook for 2013, and generally about which sectors he finds most promising going forward. He agreed, and we met shortly after Thanksgiving at his offices in Rye.

JA: To start off, I wonder if you have some thoughts you could share about the overall economy, the fiscal cliff or other issues, and what your crystal ball says about 2013.

NFG: We think the US economy will get stronger as we go through 2013. Capital spending was constrained during the extended campaign as business managers and investors put off spending until the outcome of the elections was known. And of course there was a long-running debate over the fiscal cliff. Now we believe that the pent-up need for capital expenditure, which had been delayed during the campaign, will begin to be implemented, which will have a positive effect on the economy.

We are seeing a recovery in housing, underscored not only by the builders themselves, but by good results from companies like Home Depot (NYSE: HD), which had strong comps up 4.3%, and Lowes (NYSE: LOW); both of those are riding at 52-week highs.

The tech sector has been impacted by slow spending by consumers and a slight inventory build throughout the supply chain, but we think that spending will be stronger in 2013. And we think that the Christmas season will show good retail sales comps this year, better than it has been in many years.

It’s important to recognize that the European economic situation has been a drag on the US economy, as consumption of US products by Euro-zone consumers dropped. We believe the biggest declines from the downturn in the European Community are now behind us, which may not be much of a plus, but it will be less of a minus or a drag on the economy.

Finally we are seeing a very accommodating Federal Reserve, with all signs pointing to QE3, which will actually expand the capacity of the Fed’s balance sheet. We’re speculating that Chairman Bernanke may be replaced by someone like Janet Yellen, current Vice Chair of the Fed and head of the San Francisco Fed. If she were to succeed Chairman Bernanke, we believe her leadership would continue to foster the accommodative monetary policy established over the past several years under Bernanke.

JA: Does that mean you see a strong recovery in 2013?

NFG: We believe we will see a somewhat stronger economy, with growth improving from sub-2% to better than 2%. That still represents a rather anemic economic outlook, which will change for the better when we get some major tax and entitlement reform, which would instill the confidence among business leaders necessary for them to jumpstart capital spending. And let’s not forget that the consumer needs to believe the country is on the right path. We need exemplary leadership from both our President and his Republican counterparts.

JA: Do you think Washington will come up with a solution for the fiscal cliff? Will they just kick the can down the road?

NFG: My gut says that they will do something this time. The Tea Party was partially discredited in the election, and that means that the extreme right wing of the Republican party may lose some clout, with the likelihood being that the Republicans will regroup right of center. It behooves the Republicans to work out a compromise with the Democrats. On the other hand, Obama only won by a margin of 2.4% of the popular vote, not what you’d call a mandate. He wants to leave behind a legacy, and will move from far left to just left of center, in order to get things done. He has to make some changes, and I believe he will. He hasn’t shown the kind of leadership that Clinton and even Bush did. If he wants to leave a legacy in four years, he is going to have to cross the aisle toward compromise.

JA: And Grover Norquist and the tax pledge?

NFG: Outdated.

JA: What is it going to do to the market?

NFG: We have been in a bull market since the bottom in about March of 2009, Since then the market is up over 100%. We have had a correction since the election, and that correction has discounted a lot of the negatives. If we make any progress toward resolution of the fiscal cliff, we will enter the next phase of the  bull market in 2013. I believe we are in a secular bull market. It is ironic that as the market moves up on relatively low volume, retail investors have continually sold equities. Retail investors have had net redemptions every month of 2012, even with the market moving higher. Over the past five years, domestic equity mutual funds have had $500 billion of net redemptions. At some point the retail investor will come back to the market and money will start to move back into equities. That would be a driver of the next phase of the bull market.

For several years, money has been flowing out of the equities and into the bond market. Money keeps coming into fixed income, and at some point that will turn. As rates move up, investors at the lower rates will get burned, and many will move back to equities. Many fixed-income investors are actually losing money, adjusted for inflation. If rates were to move back above 2-1/2%, there would be many reasons to be bullish on equities. Overall sentiment among retail investors is still bearish, but valuations are very cheap, at decades-low levels. The S&P is selling at 14 times earnings and smallcaps are at 8 to 12 times earnings. Even though retail investors don’t yet have an interest in small caps, it is a great opportunity for contrarian-minded investors.

JA: Would this be a second leg of a bull market then?

NFG: Coming out of a recession, small caps usually lead the market higher. Small caps get sold down hardest in a downturn, and then they gain faster coming back out of a downturn. We believe that in 2013 we could have a credible strong fundamental underpinning to surge in small caps, because their valuations have fallen further than large caps. And when liquidity comes back into the market, it acts as a slingshot with small cap equities.

JA: What sectors would be the most interesting if that happened?

NFG: The hardest-hit sectors have been industrials and technology, because they are the most sensitive to economic changes. Likewise,  as car companies and auto parts companies had a good 2010 and 2011, inventories built up. After we exited 2011 we had a destocking of inventory, but now those inventories have come back into balance. With housing picking up, the economy will begin to restock in earnest, which will create the next leg up in the cycle. Stocks have already discounted a weakened economy, so valuations are very good for buyers.

In the industrial sector we like suppliers to the commercial aircraft industry. The global aircraft industry has designed more fuel-efficient planes, which the airlines badly need. The buyers, however, are both the aircraft leasing companies and the airlines, which have restructured over the last several years with some big bankruptcies. The backlogs of Boeing and Airbus show a growth in demand for many years. Remember that the international carriers are healthier. The order book is full, and no one wants to drop out of the queue because it is hard to get back in line. We own Woodward Inc (NYSE: WWD), Hexcel Corp (NYSE: HXL), Moog Inc (NYSE: MOG.A and MOG.B), Carpenter Technology (NYSE: CRS), and the smallest market cap of the group, AAR Corp (NYSE: AIR).

JA: Any other sectors?

NFG: Energy is very interesting, particularly oil and natural gas. We believe there is great promise in horizontal drilling, as well as in hydraulic fracturing, both of which will be essential to move the US to be the largest fossil fuel energy producer in the world by 2035. Fraccing may have problems state by state, but overall there is too much national need for it to get stopped. We believe it will go ahead in Ohio, Pennsylvania, upstate New York, Wyoming, Montana. In the energy space we own Patterson-UTI Energy (Nasdaq: PTEN), which is a major high-tech horizontal driller that is hired by energy majors and independents. On the E&P side, we own Energy XXI Ltd (Nasdaq: EXXI), which is a beneficiary of Exxon divesting energy assets in the Gulf of Mexico. We also own Approach Resources (Nasdaq: AREX), a natural gas exploration company with properties in the Permian Basin in West Texas. And we own Comstock Resources (NYSE: CRK), which has most of its assets in the Gulf of Mexico, Texas and Louisiana. We believe that natural gas will be the energy of the future.

JA: How about one more?

NFG: Financial services. We have about 14% of our portfolio in regional community banks that are primarily home and small-business lenders. Most of  the charge-offs in that industry have already been taken, so going forward the provisions will decline and the bottom lines will improve. We see a pickup in demand, both from small businesses and from homeowners. These banks will see profits from mortgage origination, mortgage servicing, and mortgage refinance, even if the mortgages themselves are securitized and sold to others. In addition, these smaller banks will be making car loans, home equity loans, and small business loans.

I read the FDIC reports, and a few quarters ago we saw the first pickup in several years in loan demand, although that pickup was rather small, in single digits.

In that area we like ViewPoint Financial (Nasdaq: VPFG), an over-capitalized Texas bank that has a balance sheet that needs to be converted to loan volume. We also own Washington Trust Bancorp (Nasdaq: WASH), a clean Rhode Island-based bank that has a significant trust department and an attractive lending franchise in the corridor including Connecticut and Massachusetts. We also own Oriental Financial Group (NYSE: OFG) which, in spite of its name, is the best-capitalized bank in Puerto Rico.

JA: So I take it you believe there will be a meaningful step taken on the fiscal cliff before Santa Claus gets here?

NFG: We think there will be a first step toward a solution before the end of the year, yes. Even so, investors are braced for the worst, which is reflected in their redemptions from equity funds, and the bears that caused the correction after the President was re-elected. Since then all indications are that both sides are willing to compromise.

JA: Many thanks for your time and for sharing these thoughts with us, Nick.

Editor: None of the companies mentioned in this interview is a client of Allen & Caron, the publisher of this blog.  We do not make recommendations with regard to investments; please do your own research. 

From Worst Quarter Since 2008 to Best First Quarter Since 1998

Last Oct. 4 we filed a blog post based on the closing of the worst quarter since 2008. We were talking about the third quarter of 2011 that ended Sept. 30. The Dow Industrial Average dropping another 240 points on the final day to close out at 10,913.

The dismal quarter prompted  a predictable outpouring of dire predictions from bears bemoaning  the state of the economy, the lack of job growth and the unfortunate future that lay ahead. In our post, we tended to take a longer view more in line with veteran analyst Otis T. Bradley (then of ICM Capital Markets, now with Gilford Securities), a relentlessly optimistic bull who has insisted for some time that, while we may have been in the midst of a correction back then, we are in the middle of the “Greatest Bull Market of All Time.”

Things have certainly changed in six months time much as Bradley predicted. Granted, the fourth quarter is typically a good one for stocks, and particularly for the technology sector. But the Dow has now climbed over 13,000 and has been there for some time. Stocks have been buoyant almost since the day we filed that post. Is Wall Street now in the middle of a bull market, as Bradley has long suggested? Market watchers say the first quarter of 2012 is the best first quarter since 1998.

New York Times correspondent Paul J. Lim, who is also a senior editor at Money magazine, offered some evidence on March 24 that it is ( Among his key points:

  • Small cap stocks typically lead a bull rally, with the larger caps following only after bull markets mature. That is certainly the case. The Russell 2000 index has gained 36 percent during the past six months.
  • Economically sensitive stocks like techs and consumer discretionary stocks have been outpacing the broad market, another sign of early bull markets.

Back when we filed our Oct. 4, 2011 post we highlighted four small cap stocks chosen from the Thomas Weisel Partners Asset Management LLC fund, which invests heavily in small caps in technology and healthcare and the consumer and service sectors. We promised we’d report back, so here they are and have a look at what has happened to them:

Atlanta-based Internap Network Services (Nasdaq: INAP,, a provider of Internet services to help with cloud-based applications, closed Oct. 3 at $4.48, down 16 cents on the day with a market cap of $240 million. At mid-day on March 29, INAP was trading at $7.37, down 6 cents so far on the day, with a market cap now at $377 million.

Mountain View, CA-based Map Pharmaceuticals (Nasdaq: MAPP,, which develops drugs for a variety of ailments including diabetes, asthma and migraines, was apparently a big part of the Weisel fund’s holdings (not sure if that is still true). Back on Oct. 3, MAPP closed at $13.76, down 86 cents on the day, but the stock had been on an upswing. Back in early August it was down as low as $11.17. At mid-day March 29, MAPP was trading at $15.35, down 85 cents so far for the day. It so happens that MAPP reported its fourth quarter, year-end results on March 29, showing a fourth quarter loss and a financial restatement.

Wilmington, NC-based TranS1 Inc. (Nasdaq: TSON, develops minimally invasive instruments and transplants for degenerative disc diseases and is another stock in which the Weisel fund had a large position. TSON closed Oct. 3 at $2.73, down 27 cents. At mid-day March 29, TSON was trading at $3.24, down 3 cents on the day.

Mountain View, CA-based Hansen Medical (Nasdaq: HNSN, develops robotics for controlling catheters and medical devices and was yet another big part of the Weisel fund. HNSN, which was above $5 in late July, closed Oct. 3 at $3.05, down 25 cents that day. At mid-day March 29, HNSN was trading at $2.97, down 2 cents so far on the day.

Get Ready for Fundraising: Find an Investment Bank

We are most likely starting the second leg of a bull market, even though it seems as though we are slogging sideways (  If that is so, we should be preparing for a shift next year when the larger-cap stocks are fully valued and investors turn their focus to smaller stocks, which have a history of outperforming big stocks in bull markets.   For investors, that may mean picking favorite segments (healthcare is always the biggest, but network/telcom,  entertainment/media/games, and greentech/alt-energy are looking strong). 

Small companies and entrepreneurs should be preparing for a time when capital may be available on better terms and shorter leadtimes.  This article is directed at CFOs and CEOs of small companies who may need financing over the next 12 months (and one of the immutable truths of small companies is that almost all of them need financing).  Or to those who simply want to strike while the iron is hot.

Not long ago you could almost put all the hot small-cap investment banks on single-digit speed-dial because there were not very many.  But many of the old guard (H&Q, Montgomery, Robertson Stephens) are merged into megabanks now and chasing after larger targets.  The range of good new firms is fairly broad, but most are not even trying to be dominant across the board, picking their segments and sticking to them.  That means there are more banks to talk to, but they will tend to be narrower in their focus.

They basically fall into 4 categories: (1) small boutiques; (2) smaller broker/dealers with investment banking operations; (3) musclebound get-it-done banks, and (4) larger investment banks with a real interest in smaller companies. 

Small boutiques

Small boutique investment banks tend to be formed by experienced investment bankers who either get fed up with red tape, or who find themselves standing on the wrong side of the door in an economic downturn such as the one that we have beenn living through for the last 2+ years.  They tend to be composed of a small number of professionals with impressive resumes and lots of hands-on knowledge, but very little in the way of extended organizational capabilities.  These firms can be very strong in the conceptual side of financing, and they frequently have good connections formed over years of bigger-bank experience.  But their ability to put together deals is often restricted to private deals (PIPEs, private placements, etc), and many have no ability to provide support in the aftermarket. 

The best part of the small-boutique experience for most entrepreneurs is that they provide one-stop shopping, and the same bankers can often work on equity, warrants, commercial debt, M&A.  They may have no formal internal committees to clear, and they may be able to offer engagement terms very quickly.  The client almost always ends up dealing with an experienced banker with “gray hair” (whether it actually is or not — it’s a way of speaking).   Their ability to canvass large groups of potential investors may, however, be fairly narrow, and they may be averse to sharing an assignment with another bank. 

There are many small boutiques that offer a startling amount of expertise, but there are also many that will take a fee and have trouble delivering.  Referrals and references are super-important in finding and choosing a boutique.  Boutiques tend to form and re-form, change names and partnerships, and it would be a fool’s errand to try to list the best ones because there are too many.  A good IR firm can direct you to a bunch.

On the side of caution, boutiques may lack research analysts, or if they have analysts, they may lack effective distribution (meaning nobody reads the reports).  They may not have brokerage licenses, which means they may not have the ability to trade shares or to affect market-making.  Usually their deals are put together with relatively few players who can become uncomfortably big shareholders when the deals are done.  They may create “overhangs” as they restrict the sale of common stock sold in private placements for 6 months, a year, or longer.  These overhangs can make overall gains in stock value more difficult to achieve, and since the boutique probably does not have a trading desk, the overhanging stock may well fall like hail on the market when the restrictions expire.

Middle Market Brokers with investment banking groups

Most free-standing broker-dealers have investment banking departments.  The very large broker-dealers have very large investment banking groups, and they tend to do deals for very large clients.

Smaller companies who are looking for investment banks may want to keep in mind that the “younger” broker-dealers may be the most aggressive ones, and they may be willing to work on smaller deals.  I put “younger” in quotes meaning broker-dealers whose investment banking groups are comparatively recently formed (or re-formed, given the number of mergers and de-acquisitions/spin-outs).  With the churn of Wall Street companies being bought, sold and spun out  over the last 10 years, some of these “younger” firms may well have older names on the door: Cowen, Piper Jaffray, Morgan Joseph, Stephens, Morgan Keegan, Wedbush, Janney, RW Baird, Stifel Nicolaus. 

Some may have fairly unknown names: some may have been formed by alumni of other banks.  Many entrepreneurs may not recognize Signal Hill, Revolution Partners, Think Equity, Merriman & Company, Madison Williams, JMP Securities, Roth Capital, Stonegate Securities, or Leerink Swann.  But they are doing deals every day and gaining strength and top-of-head awareness.

The investment banks in this category tend to have higher admission threshholds than the boutiques do.  Although there are no “magic numbers” in this group, you might assume that if you do not have a bona fide use of proceeds for $30 million or more, these banks may not be able to get their machinery in gear for you.  Sex appeal changes everything, of course.  If you have a property that they can’t resist (an AIDS vaccine, demonstrable cold fusion, carbon-free fuel, etc), you may be able to name your own terms.  Because they are club members (FINRA, SIPC et al) most of them have the ability to do your deal publicly or privately, and to help you through the aftermarket quagmires, possibly providing research, nondeal roadshows, etc. 

Getting a commitment from these banks is likely to take a good bit longer than getting a commitment from a boutique, simply due to internal committee structures.

Smaller Middle Market Investment Banks

There is a hard-to-define category of smaller investment banks that are more concentrated on corporate finance than they are on standard broker-dealer trading and accounts.  These hard-edged investment banks survive on the deals that other banks either don’t want or can’t do, and many of them are not well-known names.  They typically have a sales force that is part institutional and part retail (sometimes largely retail), but concentrated in a few offices, often concentrating on New York. 

These banks can get deals done, but their flexibility in designing deals may often be limited to what their financing sources like.  So an entrepreneur or small company may find that one talks about equity credit lines, while another shakes his head and says something about deep discounts to the market price. 

In fairness, if the deals were easy to do, someone up the food chain would do them.  Fees at these investment banks may tend to be higher — but basically they belong to the same “club” as the bigger investment banks, are SIPC, FINRA members, watchdogged by all kinds of regulators.  The ones that survive for a long while are tough — and they can slam home deals that other firms might well not be able to do.  For the best in this category, a commitment to do a deal may not be as good as cash in the bank, but it can be pretty close, and that, as the man says, ain’t all bad. 

Investment banks in this category might include Maxim Group, B Riley, Midtown Partners, Mid-Market Securities, Dinosaur Securities, CK Cooper and lots of others.  Some, like Brooks Houghton or Ascendiant, may have their own capital available to invest.  Many have research departments that are somewhat pared-down compared to the larger banks, but their research is real and updated regularly.  Deal sizes vary, and the range of deal sizes may go from single-digits to upwards of $30 million or so, depending on the use of proceeds and the general market enthusiasm for the sector. 

Muscle Banks with an Interest in Smaller Companies

This is the smallest category as to the number of players.  Mostly like goes with like — and larger investment banks like to do large deals.  But there are large and/or muscle banks that have a cultural bias toward newer, smaller companies, and there are some investment banks with enough sheer power to whack deals out of the park on a daily basis.

These firms generally have a full range of services, and enough tombstones to cover the walls of many conference rooms.  Based on its quite extraordinary dominance of the small PIPE market in general (and increasingly of the small IPO market as well), one of the first names that comes to mind is Rodman & Renshaw.   Some might put the smallcap side of JP Morgan into this group, especially in healthcare.  And, although it is less clearcut, Jefferies could be in this group.  Other names here would include Canaccord Genuity, UBS and Deutsche Bank.   Oh, and Lazard Freres.

What to do?

The task is to sift through the banks, deciding which ones might be interested and which ones have the right combination of expertise and experience for a specific small company in a specific industry segment. 

Many companies opt for what Wall Street calls, alternatively, either a “beauty pageant” or a “bake-off.”  When a company chooses this path, a knowledgeable consultant or IR firm will canvass the investment banks, provide a list of candidates, and then make appointments for the company to present to a list of 5 to 10 banks, usually within the space of a week or so, and always using the same presentation materials.  Shortly thereafter, the company or the consultant will request draft engagement letters from the banks in the pageant, and the company can either elect to look further, or to accept one of the letters proferred to it after the pageant process. 

Our firm, Allen & Caron, has been doing such pageants for the last 30 years, but law firms, management consultants and accountancies are sometimes willing to manage a process like this.  It is best to embark on the process at least 6 months before you will “need” the financing, because if you begin to run low on cash, terms stiffen up, buyers become more gnarly and difficult, and bankers begin offering less attractive terms.

In the next installment of this series, we’ll tell you about some things to keep in mind, some things to avoid, and some things to be super-careful about when you set out to raise money.  — JA