INTEREST FROM INDIA, CHINA PERKS UP VENTURE CAPITALISTS
Crains Detroit Business
By Tom Henderson
The sale of Ann Arbor-based HandyLab Inc. in October, for what was reported to be $300 million, went a long way to help local venture capitalists forget what a tough year it’s been.
That sale, and what promises to be a flurry of investments in coming weeks by the local VC community, made for smiling faces at the recent annual awards night of the Michigan Venture Capital Association.
And it’s a turnabout from a year ago, when most venture capitalists and investment bankers looked ahead to another year of recession and a lack of deals.
Investment bankers are buoyed, too, by what they say is a swarm of serious buyers from India and China who have been kicking the tires in the auto supply chain for a long time and have started to spend their money on acquisitions and ramp-ups.
“It seems like we see someone from India or China in our office every week. Twice a week. They are swarming all over major assets in this town,” said Charles Chandler, partner at Birmingham-based Amherst Partners L.L.C.
The HandyLab deal, and others like it, are giving a perception boost to those in the Michigan finance world.
Jim Adox, partner in the Ann Arbor office of Wisconsin-based Venture
Investors L.L.C., helped found HandyLab when he was with Ann Arbor-based EDF Ventures. He said its sale, as well as that of Ann Arbor-based HealthMedia
Inc. to Johnson & Johnson last October, will help all local VCs as they seek outside VC partners to help fund local deals or as they try to raise their own investment funds.
“Every exit like this helps,” said Adox.
The HandyLab sale to Massachusetts-based Becton, Dickinson and Co., a publicly traded company, made headlines on national Web sites devoted to VC and private equity, which raises awareness of a state long referred to as a fly-over state.
“When you see two exits like this happening in Ann Arbor in a year where there’s tough times, when no one is having an exit, nationally, it stands out even more. It shows companies here can attract investors, and, more important, it answers the things that outsiders often ask: “Can you build a company here? Can you attract management here? Can you attract employees?’ That deal was 300 million yeses.”
Lindsay Aspegren, general partner of Ann Arbor-based North Coast
Technology Partners L.P., an investor in early stage companies, tempered his enthusiasm over the HandyLab deal.
“It’s a terrific deal and it’s terrific to have stories like this to tell. And it will have a limited positive impact,” he said.
“Although the GDP numbers might lead one to conclude that the recession is over, the credit crisis of 2008 is still here. All businesses still have limited access to capital, and the impact will last for months.”
Aspegren expects limited VC fundraising success next year.
“In 2007, VCs raised $36 billion in the U.S. In 2008, it was $26 billion. In the first nine months this year, it was $8.4 billion,” he said. “There are still huge national macro issues to deal with.”
Some Michigan VCs did close on investment rounds recently, including North Coast, Ann Arbor-based RPM Ventures and Kalamazoo-based TGap Ventures; the state got its $95 million Venture Michigan Fund and $109 million 21st Century Investment Fund fully deployed; the Detroit Renaissance VC fund raised $40 million; and the state’s Invest Michigan program has much of its $300 million left to invest.
“It’s total Charles Dickens,” said Aspegren. “It’s the best of times; it’s the worst of times.”
Chandler said Amherst Partners has engagements from three Asia buyers looking for auto suppliers in the U.S., Canada or Mexico, and has proposals out to three other Asian buyers.
He said that while deal valuations are still off by an average of 40 percent from where they were early in 2008, “on the positive side, six months ago, who would have expected to see the Dow hit 10,000 this year? For the first time, people are saying, “I can look past the end of my nose.’ “
He said that while deals will require more equity and less leverage to get done, “there are a lot of opportunities in the market.”
Brian Demkowicz, the managing partner at Detroit-based Huron Capital
Partners L.L.C., the most active private-equity firm in the state in recent years, said that the pace of deals slowed down dramatically this year but shows signs of heating up. The firm had three deals in the first nine months, announced one early in November and hopes to close on a fifth by the end of the year.
Last year, it did nine deals; it did 14 in 2007.
Demkowicz said he expects a busier 2010, but is more cautious than many of his peers.
“I’m not sure there will be strong growth. I’m certain it won’t be a V-shaped recovery. It won’t be off the charts, but there will be improvement,” he said.
Demkowicz said one driver for improved deal-making is that a lot of companies that might have been on the market in normal conditions have sat on the sideline. Meanwhile, they have fixed their balance sheets, have taken a lot of costs out operating expenses and will be much more attractive when they enter the market.