On June 17, 2008, The Central Valley Fund, in conjunction with UC Davis, The Golden Capital Network, and Hamilton Lane, will host the first annual "New 100" Conference at the UC Davis Mondavi Center.  The conference is designed to honor the top one hundred companies in the Central Valley, including the fifty fastest-growing firms. 

In California, the last one hundred years of economic growth has largely occurred within the Bay Area and Los Angeles.  Many believe, if California is going to continue to be the world's eighth largest economy, the new economic growth in the state must be driven by the Central Valley region -- spanning across the eighteen counties from Redding to Bakersfield.  Over the next 20 years, this region is predicted to triple in size, but has historically been overlooked by many corporate and financial professionals.

This conference will focus on the potential for private equity capital to drive growth in some of the Central Valley's key industries: Healthcare, Agriculture, Clean-Tech, Information Technology, Retail/Consumer Products, and Manufacturing/Industrial Products.  Leading CEOs and private equity partners will discuss the region's positive attributes and the economic drivers they believe will move the region forward in years to come.  The conference is a must-attend for any business owner seeking to raise capital and learn more about the latest developments in his or her business sector. 

The conference will be held June 17, 2008 from 7AM-9PM at the Mondavi Center at UC Davis.  Registration starts at 7AM on the 17th, and the conference will begin at 7:30AM. Lunch is included in the registration cost and will be held from 12:00-12:50PM.  The conference will conclude with a networking reception from 5:15-6:30 PM.  An optional dinner will be held immediately afterwards to induct the Central Valley Business Hall of Fame inaugural class. The cost to register is $195 to attend the conference only, or $300 to attend the conference and dinner. To register, please visit www.goldencapital.net.

Acquisitions are a unique mechanism to grow a company's operating platform.  An accretive acquisition can introduce a company into new markets and product lines, while avoiding the execution risk associated with organic growth - building a brand, staffing, scale production, etc.

In a recent study, prior relationships are shown to be an important leading indicator of a successful acquisition or merger. The idea being that if the acquirer knows the target well, then there are less unknown factors associated with the due diligence, valuation and ultimate performance of the target. Prior relationships enable the convergence of two principal factors, due diligence risk and valuation, and lead to more successful business combinations (i.e. acquisitions or mergers).

The study continued by citing six different business relationship scenarios under which acquirers may gain a unique informational advantage.  These informational advantages reduce target acquisition risk and afford a premium valuation to the combined company in the future.  The various business relationship scenarios are: 1) Supplier; 2) Customer; 3) Competitor; 4) Complementary products/services (i.e. tennis balls for a manufacturer of tennis racquets); 5) Current or former business partner (alliance, joint Venture, etc.); 6) Received prior investment from potential acquirer.

The results of the study, summarized in the table below, demonstrate the strongest statistical relationships between each possible combination of prior business relationships highlighted above.  The "exit price" of the combined company five years following the combination is used as the metric to evaluate the success of an acquisition relative to the exit price of similar companies.  After evaluating numerous transactions, the authors concluded that an exit price premium afforded to a combined company can be partially explained by the existence of at least one type of prior business relationship.

The study's results indicate some important conclusions for one to consider in whether to expand one's own business versus undertaking an acquisition.  To illustrate, Combo #5 highlights that a deeply embedded strategic relationship between the acquirer and target will account for over 50% of the exit price variation.  If one can identify some of these powerful prior relationships, independent of other variables, this increases the likelihood of a successful acquisition with an inherent valuation premium.

During the Private Equity boom seen in the markets over the last five years, mezzanine capital became a forgotten source of financing.  This asset class became almost irrelevant as senior banks stretched their lending appetite well beyond historical norms.  With that stretch, senior banks closed the gap that mezzanine capital is meant to fill.

However, with the credit crisis and sub-prime mortgage blow-up, mezzanine capital is suddenly a very relevant class of financing.  Deals that were priced at 10x EBITDA were seeing up to 8x EBITDA in senior bank financing.  Those deals are now only seeing 2-3x EBITDA in senior bank financing, leaving a 5-6x EBITDA gap that must be filled for the transaction to be completed.  This is being filled in three ways:

1. An increase in equity dollars coming into deals (roughly 30-40% of total capital as opposed to the 20% seen at the height of the PE boom in early 2007).

This trend toward mezzanine financing is expected to continue for the next several years.  Goldman Sachs recently raised a $20B mezzanine fund - the largest ever.  A recent article in the Sacramento Business Journal highlighted that the same trend is occuring in the lower end of the middle market in California.  CVF completed three transactions in Q1-08 for a total of $10M, after completing the same amount in all of 2007.  We expect this significant uptick in activity for mezzanine capital to continue for the foreseeable future as the senior bank capital well remains dry.