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IPO talk revs up for Tesla Motors

November 24, 2009 by Steven R. Gerbsman

Sounds to me like Tesla is going public. Here is some coverage on the topic from The GreenBeat blog at WSJ Online.

“Rumors are swirling today that Tesla Motors is seriously considering an initial public offering sometime soon. The talk has been tracked to two anonymous sources, who say the six-year-old company could cash in big on the battery-powered car trend before electric and hybrid models from companies like General Motors, Mitsubishi and Nissan make it to market.

Tesla has officially denied the prediction, calling the IPO chatter “rumor and speculation.” That said, going public in 2010 would give the San Carlos, Calif. company several distinct advantages. First, it would solidify its position as the electric car player to watch. It’s already been casually anointed as the leader by industry observers and the Department of Energy, which granted it $465 million in stimulus funds in its first round of low-interest loans for advanced transportation projects. Second, it could use the sale to raise money to get its hotly anticipated Model S sedan out the door by its 2011 due date.

Tesla is one of several cleantech companies anticipated to go public as soon as next year. When A123Systems shocked the market with its blockbuster IPO in late Sepember (its share price jumped 50 percent on opening day), many analysts, including the Cleantech Group, said that the biggest public offerings in 2010 will probably come out of the green sector. In addition to Tesla, solar system maker Solyndra — which received $535 million in loan guarantees from the DOE in March — and smart grid communications provider Silver Spring Networks have also been named as likely candidates.”

Read the full article here.

GigaOm also covers this topic saying:

“Last Friday, buzz about an imminent IPO for electric car startup Tesla Motors hit the Interwebs, courtesy of two anonymous sources familiar with the plans who spoke with Reuters. As in several previous stories about its possible plans for a public offering, the company has declined to comment.

But if and when Tesla goes through with its long-discussed goal of going public, it could be the biggest and possibly the first public offering for a U.S. car company since Ford Motor’s IPO more than 50 years ago. The event will also offer a glimpse at the role IPOs will play in the nascent green car market — is the classic venture capital model (invest early and find a big exit in the form of an acquisition or an IPO) viable for this sector, or will a green-car IPO be more about feeding big capital needs and branding?

Hopes for a Google-like moneymaker in cleantech (Google took only $25 million in venture capital to make millionaires of 1,000 employees and billionaires of its two co-founders in a wildly successful IPO) have already started to fade for some in the sector. Stephan Dolezalek, managing director of VantagePoint Venture Partners, which has invested in Tesla, told Reuters in September that public offerings now serve more as “financing events” for alternative energy and other cleantech startups rather than a way for investors and founders to cash in on equity.”

Read their version here.

Posted in Board Of Intellectual Capital, Business models, Economy, Gerbsman Partners, Investments, IPO news, Market research, Strategy, Technology, Venture Capital, Venturebeat | Tagged , , , , , , , , , , , , , , | Leave a Comment »

The Coming Deficit Disaster

November 23, 2009 by Robert Tillman

Here is an article from Wall Street Journal worth reading.

“President Barack Obama took office promising to lead from the center and solve big problems. He has exerted enormous political energy attempting to reform the nation’s health-care system. But the biggest economic problem facing the nation is not health care. It’s the deficit. Recently, the White House signaled that it will get serious about reducing the deficit next year—after it locks into place massive new health-care entitlements. This is a recipe for disaster, as it will create a new appetite for increased spending and yet another powerful interest group to oppose deficit-reduction measures.

Our fiscal situation has deteriorated rapidly in just the past few years. The federal government ran a 2009 deficit of $1.4 trillion—the highest since World War II—as spending reached nearly 25% of GDP and total revenues fell below 15% of GDP. Shortfalls like these have not been seen in more than 50 years.

Going forward, there is no relief in sight, as spending far outpaces revenues and the federal budget is projected to be in enormous deficit every year. Our national debt is projected to stand at $17.1 trillion 10 years from now, or over $50,000 per American. By 2019, according to the Congressional Budget Office’s (CBO) analysis of the president’s budget, the budget deficit will still be roughly $1 trillion, even though the economic situation will have improved and revenues will be above historical norms.

The planned deficits will have destructive consequences for both fairness and economic growth. They will force upon our children and grandchildren the bill for our overconsumption. Federal deficits will crowd out domestic investment in physical capital, human capital, and technologies that increase potential GDP and the standard of living. Financing deficits could crowd out exports and harm our international competitiveness, as we can already see happening with the large borrowing we are doing from competitors like China.”

Read the full article here.

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What should we be doing to fully take advantage of a recovery?

November 19, 2009 by Steven R. Gerbsman

Here is an article from Rich D’Amaro, Chairman and CEO of Atlanta-based Tatum LLC, the nation’s largest executive service firm focused primarily on the Office of the CFO, has developed a list of six tips which should serve as a basic guide for financial executives in the coming months.

1. Identify and Maintain Your Strengths, and Your Best Customers

Identify the strengths that have enabled your success to date, and those that will be important in the future. Which capabilities and skills are most critical? What distinguishes your ability to serve customers effectively? Identify your highest-margin customers, and understand what you are “doing right” for them. Develop a game plan to protect and build on the strengths that have allowed you to be indispensable to these customers. Rather than cutting costs across the board, think about how you can shift resources to retain these high-margin customers, and attract more customers like them.

2. Capture Market Share: Consider Opportunistic Acquisitions

Recessions reshape industries faster than good times do, creating opportunities for those with the vision and ability to seize them quickly. Studies have shown that companies have twice the opportunity to change their relative position in an industry during a recession compared to growth times. Keep an eye on competitors, and stand ready to capture market share as other players allow cost cutting to damage their service and quality, or fail outright. Market valuations are still down for strong and weak companies alike, and companies with resources to acquire complementary rivals will earn higher returns than they can with internal, organic growth. Of course, acquire only companies that support your ability to be the best in the world at what you do, and work aggressively to capture synergies. New opportunities may also exist to gain new alliance partners, to move into adjacent markets, to adopt new pricing models, or to enter new channels. Some of these opportunities may be created by the failure of competitors, and some may be created by a new customer appetite for solutions that show measurable ROI or reduce risk.

3. Manage Liquidity As Closely As Profitability

Your company has been dealing not only with negative growth but also with liquidity constraints. During good times you may not have obtained sufficient lines of credit to sustain your company through economic adversity. Trying to maintain liquidity on a smaller revenue base can be crippling. Every balance sheet dollar has to be turned over faster to contribute to working capital. Maximize cash flow by matching inventories to sales and collecting from customers faster. Take advantage of increased supplier willingness to share risk and to provide favorable terms.

4. Keep Core Activities In-House, and Outsource Everything Else

Build and protect those “core” capabilities that differentiate you, while aggressively outsourcing anything non-core. Depending on your business, non-core activities may include IT maintenance, human resources administration, benefits and payroll, accounts receivable and payable, manufacturing, distribution or sales. You’ll get the benefit of service provider expertise and economies of scale, and will pay only for services you need. The biggest benefit of outsourcing, however, is that it shifts your focus, resources and capital toward serving your clients’ higher value needs and building your competitive advantage.

5. Create New Metrics and Manage by Them

Tight economics put a premium on your ability to understand and model the relationships between revenues, costs and margins. Think about metrics that focus on the building blocks of revenue and sustaining market share, including sales pipeline, customer satisfaction, pricing and market penetration. Metrics should look beyond core financials to provide management with insight into market dynamics such as market share trends. The good news is that the enhanced metrics you need during challenging times will help you manage more profitably and efficiently in good times as well.

6. Communicate and Reenergize!

A downturn is a scary time for all your constituencies. You now need to begin the process of re-energizing your employees and creating new trust among all your constituencies. Frequent and honest communication will go a long way toward maintaining a calm and motivated workforce. Create regularly scheduled forums to listen to concerns, and to update employees on the state of the company and on their roles in achieving new company objectives. Studies show that employees are motivated far more by a sense of shared purpose than by compensation. Create that shared purpose and reinforce it daily. Lead your company out of the recession with realistic confidence, candor and a renewed sense of direction.

About Tatum, LLC

Companies turn to Tatum when critical business challenges arise because we immediately deliver financial and technology operational expertise via solutions tailored to the Office of the CFO. We understand the urgency of NOW and we leverage nearly 1,000 executives and consulting professionals nationwide to accelerate results to create more valueâ„¢. For more information, visit http://www.tatumllc.com.

 

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The worst is yet to come: Unemployed Americans should hunker down for more job losses

November 18, 2009 by Robert Tillman

Here is realitycheck article from NY Dailynews.

“Think the worst is over? Wrong. Conditions in the U.S. labor markets are awful and worsening. While the official unemployment rate is already 10.2% and another 200,000 jobs were lost in October, when you include discouraged workers and partially employed workers the figure is a whopping 17.5%.

While losing 200,000 jobs per month is better than the 700,000 jobs lost in January, current job losses still average more than the per month rate of 150,000 during the last recession.

Also, remember: The last recession ended in November 2001, but job losses continued for more than a year and half until June of 2003; ditto for the 1990-91 recession.

So we can expect that job losses will continue until the end of 2010 at the earliest. In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back.

There’s really just one hope for our leaders to turn things around: a bold prescription that increases the fiscal stimulus with another round of labor-intensive, shovel-ready infrastructure projects, helps fiscally strapped state and local governments and provides a temporary tax credit to the private sector to hire more workers. Helping the unemployed just by extending unemployment benefits is necessary not sufficient; it leads to persistent unemployment rather than job creation.”

Read the full article here.

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Compensation 2010

November 17, 2009 by Steven R. Gerbsman

By Ronald C. Coelyn – Founding Principal of The Coelyn Group and Gerbsman Partners Board of Intellectual Capital Member.

Earlier this week I read an article in “Agenda,” a publication specifically for Corporate Directors of public companies, called “What’s in Store for 2010 Compensation” written by Josh Martin that I thought might be particularly helpful as executive management turns it thoughts to the upcoming year. The article follows:

Compensation committees at leading corporations are taking a tough stance on executive pay packages, reflecting uncertainty over the economic recovery and concerns that large pay increases could prompt more government regulation as well as shareholder anger.

According to the results of Agenda’s “Directors and Officers Outlook: Q4” survey, 55.7% of independent directors expect to see either no changes in CEO total direct compensation or compensation increases of less than 5% in 2010.  However, there are signs of optimism: More than 66.5% do expect some kind of compensation increase to be approved. (Total direct compensation includes base salary plus annual incentives plus long- term incentive present value, based on value at date of award.)

The low rates of increase reflect the slowness with which the U.S. is moving out of the recession. “Compensation packages reflect the state of the economy,” says R. Charles Moyer, a director on the board of King Pharmaceuticals. “It’s tough to argue for pay increases amid layoffs. Most sensible managers understand this.”

Some directors, especially in industries under scrutiny, point out that the reluctance to give larger pay increases is driven by the new political landscape in which companies operate. “If we gave large raises, regulators would not look on it favorably,” says Lowell Hare, an independent director serving on both the audit and compensation committees at First State Bancorporation.

But there are a number of executives who expect to be rewarded for enabling their company to successfully weather the recession.

A recent poll of 150 CEOs conducted by the ExpertCEO blog site shows that, as a group, they anticipate a bounce of nearly 7% in 2010 total compensation above 2009 levels. The largest increases in CEO pay are expected in the technology sector, where top management is anticipating an 8% growth in total compensation. This is roughly double the average rate of increase forecast by the 131 independent directors participating in the Agenda survey.

The gap between managements’ and boards’ expectations could create some conflict as 2010 pay packages are being finalized. However, boards have a distinct advantage in designing compensation plans that hold the line on increases: In a weak economy, management arguments that pay increases must be given to retain talent carry far less weight.

“You have to be willing to let someone go if you can’t satisfy their pay expectations,” says Paul Rowsey, a director on the board of Ensco International.

Rowsey adds that directors will be “much more deliberative and analytical in reviewing 2010 compensation packages. “They’re doing more research,” he says. “And they’re requiring consultants to do more, too.”

A Checklist for 2010

Consultants themselves are developing proactive strategies to meet the challenges of designing the 2010 executive compensation packages. Mercer, for example, developed a “10 for 2010” list of key actions compensation committees can use to effectively improve the pay packages. These points include:

Reexamine total rewards strategies to ensure their alignment with business strategy.

Make pay for performance meaningful, incorporating new performance measures as needed, to further align performance with business strategy.
Rethink the mix of compensation vehicles, in particular to ensure a balance between pay vehicles, performance time horizons and risk.
Carefully review any compensation actions made during the economic downturn in 2008-2009 to determine which remain relevant and should stay in effect for 2010.

The LTI Factor

Much attention will be paid to the largest area of executive compensation: long-term incentives.
“The current economic climate has made all boards and comp committees rethink all factors that determine incentive pay,” says Hare. “You’re not going to see significant pay increases until [management] stabilize their companies and the general economy strengthens.”

In the face of mounting pressure from management as the economic recovery continues, boards are looking to adjust LTI packages.

Some directors question the growing use within LTI of new pay vehicles, such as performance shares, in lieu of options or restricted shares. “Performance shares do have a place [in LTI packages],” says Moyer. “But there’s nothing you can’t do with other instruments.”

Nevertheless, Rowsey notes that LTI will likely emerge as the area where differences in board- designed pay packages and management’s expectations are reconciled. “Boards will offer performance-based LTI,” he says, adding a caveat: “There will need to be more validation over time for any such increases.”

Tightness Across the Board

The same approach applied to LTI is being developed for bonuses. “We have flexibility to reward outstanding work or give less to those who underperform,” says a CEO who is also a board member. But he adds, “In the current economic environment, even if an executive outperforms, getting a salary increase is not a slam dunk.”

“There’s always difficulty in structuring short-term and long-term incentives,” says Moyer. “There’s no magic formula.”

Directors know they face a unique challenge as they design executive compensation packages for 2010. They need to decide whether to restore last year’s cuts and changes to their compensation programs or carve a new path going forward. In some ways, there is little choice: Activist legislation, regulation recently put in place and an uncertain economy make any “business as usual” approach untenable.

Warmest regards,

Ronald H. Coelyn


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