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Why is Bison Investments, Inc., a 12 year old buyout firm, diversifying into consulting?

I have spent a lot of time thinking about this question and the answer. Since 1996 there has been a continuous train of both entrepreneurial executives as well as seasoned, mature industry corporate executives who have sought our counsel. Those meetings have usually varied from hours long to several days. On a number of occasions Bison Investments, Inc. has received some kind of opportunity, whether that be a chance to invest in a new venture, a chance to finance a venture, or a chance to purchase a firm outright. While time consuming, the exercise has always been viewed in our office in terms of the old adage, “what comes around goes around.”

While not all the advise meted out has resulted in success for the person seeking it, the majority of the feedback has been that things have worked out and the “fix” offered had the desired effect. There have also been a number of cases where the advice was to change direction entirely. Or, given the position and age of the advice seeker, take some risk. There the results have been breathtaking. In most cases the advisee has realized a dream, or equally as important, has gotten a dream out of his system.

In 2003 there was a profound change in the buyout business. It matured, and due to something one of my acquaintances, John Silvia, an economist at Wachovia Bank calls “efficiency,” returns went down. This was caused by two things: 1) a huge increase in the number of capital rich buyout firms, and 2) a simultaneous environment of very low cost debt at remarkable terms. The latter has certainly contributed to the tough market conditions we find in our financial arena today. “Efficiency”, defined another way, is the wringing out of returns as more and more smart people better factor in the upside in a transaction and pay up to get the opportunity. Here at Bison we were proving remarkably unsuccessful in the newest aspect of the buyout market, the “controlled auction” of companies. Our models of value, honed over almost 30 years of doing buyouts, didn’t change but the market did. Firms that used to sell for 3-5 times the time tested factor called EBITDA suddenly seemed worth 6-9+ times EBITDA. It seemed like a time to sell our portfolio. And sell we did. Whether the valuations will drift down to our models remains to be seen. What is for keeps is that the easy credit days have ended, probably for a generation, and I suspect the concept of “efficiency” will be less so going forward.

This brings me back to the why in the original question. Bison Management Solutions has terrific head of knowledge and decades of experience. The train of executives seeking our counsel continues. The time commitment is such that we feel we can give the advice, but we can do that better by being involved more intensively in the business. In order to make that work we have to get paid for the advice, it’s that simple. We still believe that immense good can come of our advice and that incentives beyond time related charges are a great way to incent our Managing Directors for the time that they spend helping that train move forward. We also believe that on occasion a great investment will pop up in a client.

Now something about this blog and why it is here for you and is, I hope, the first entry of many to come. To entertain and educate is the true meaning of human interaction. Shakespeare knew that and so do we. The education is what we aim to do. Over the next months you will see pieces on all aspects of business. You will learn, we hope, about the business experience in our firm in a way that makes it work for you, and that advice is still free, at least the written part.

Please give us feedback: write to info@bisonmgmt.com