Mergers & Acquisitions Report
Masson Slants Advisory Efforts for Private Equity Shops
By Mark Cecil
December 15, 2003
Restructuring specialist Masson & Co. is now getting called in to sniff around balance sheets before any takeout deal is signed.
After a rough year for private equity returns, Masson has secured three assignments this year for private equity clients wanting not to make the same mistake twice. The New York-based firm is now meeting with management teams and looking over balance sheets on behalf of would-be buyers.
Charlie Masson spent 14 years at Salomon Brothers and ran its financial restructuring group. He left in 1993 for McCloud Partners where he stayed until founding Masson & Co. in 1998. With just three professionals, Masson favors advising companies with $50 million to $100 million in debt and $250 million in sales. It offers balance sheet restructuring and interim management services.
Lately, Masson said, clients have asked the firm to perform quick checks-over a matter of days-of potential targets for anything that looks like it could turn sour.
Masson and partner, Hugh Rovit, provided Mergers & Acquisitions Report with the names of two private equity players, both in New York, which signed up for Masson's services before an investment but did not want the names released. Rovit said the assignments generated only nominal fees but allowed firms to "try out" Masson for larger assignments. Such an engagement can also lead to a board seat at the target company, he said.
At press time, only one of Masson's assignments was complete, while two were underway. In the one case where Masson evaluated the target, the review "solidified their notion that the company was worthy" of a bid, he said. The target opted for another buyer, though.
"I think spending a little money up front and saving a lot on the back end is a good trade-off," said one of Masson's clients, a partner at a private equity shop. Currently, his firm is evaluating an acquisition of a U.S.-based manufacturer. The partner said he wants Masson and Rovit to determine if the company, which faces stiff competition from Chinese manufacturers, may go under.
The partner added that caution is a prerequisite in a private equity environment he called "often less than ethical." Competition among buyers is ferocious, and "there is a pressure on the sell side not to always do the right thing," he said.
Evaluating targets, Masson assesses the following potential problem areas: no budget development process or a lack of concern about making and meeting budget expectations, an overconcern with EBITDA, as opposed to actual cash generation, a chief executive constantly deferring to his chief financial officer on finance matters rather than understanding finances on his own and an absence of job descriptions. Companies should also be on top of new technology for improving business, said Rovit.