Roger Valdovinos, founder and managing director of the Blue Beacon Capital investment bank, started his firm in 2004 in Los Angeles, and last year relocated to 3,000 square feet at 23 Orchard Road in Skillman, the former home of Computer Associates. Central Jersey, he says, offered him the chance to reconnect with old colleagues, an impressive pool of talent, and a great place to raise his two children, who are seven and eight.

Blue Beacon Capital targets customers in the telecommunication, media, and technology sectors, with clients ranging from early-stage to middle-market companies.

You could say Valdovinos went into the family business, because his father also worked in the finance sector. He was comptroller for Estee Lauder, a senior financial executive at a Fortune 500 healthcare company, and chief executive officer of a PC manufacturer, and he encouraged his son’s interest in finance. “My dad was very important in providing me with advice and mentoring me with my career,” says Valdovinos.

Valdovinos grew up on both coasts and knew as early as high school that he did not want to be a doctor, attorney, or architect, but rather a businessman. He studied economics at Stanford University, graduating in 1991, and then received an MBA from the Kellogg School of Management at Northwestern University, where he focused on finance, accounting, and management strategy.

After college Valdovinos wanted to get into the entertainment industry and sent his resume to the major studios, landing an offer from Disney, where he learned the nuts and bolts of accounting and finance.

In 1996, with master’s degree in hand, he got a job in the telecommunications group of Bear Stearns in New York City and has this to say about the near-bankruptcy of the firm where he worked until 2000: “It was unfathomable as to what happened. It was a great institution, a great culture, and it was very saddening.”

At Bear Stearns Valdovinos learned the core skill set of investment banking and mergers and acquisitions: financial statement analysis; interacting with executives; and leading transactions, that is, “the everyday blocking and tackling from the client management perspective.” Valdovinos adds that one of the key selling points for his clients at Blue Beacon Capital is his own involvement in this day-to-day analysis. He contrasts this the workings of a large firm, where the senior banker is responsible for bringing clients into the firm and only gets involved on key transactional issues.

Valdovinos left Bear Stearns as a vice president in its telecommunications group when he was recruited by the emerging telecommunications group of Credit Suisse First Boston in New York, which he co-led for a year and a half. He then joined a client, Broad River, as interim chief financial officer. To explain the nature of his business, Valdovinos describes the process Blue Beacon Capital follows for a client interested in acquiring another company.

The first step is identifying companies that fit the client’s criteria. Whereas companies typically know about their competition, they may not have considered buying a company whose product or service is outside of their core business, says Valdovinos, and that’s where Blue Beacon Capital can be particularly helpful. If the client wants to investigate acquiring a particular company, Blue Beacon Capital will contact the potential target to see whether they are interested in selling.

A nondisclosure agreement is then drawn up, and the exchange of information begins. This information includes revenue, profitability, number of customers, and details about products or services. If the client is still interested, Blue Beacon Capital hosts a conference call between the two companies’ management teams.

“From the target company’s side,” says Valdovinos, “the best time for them to negotiate terms is at the beginning. Terms never get better for a target company.” The likelihood is that issues will come up during the due diligence period that follows the signing of a letter of intent. The acquiring company, for example, may find accounts not paid on time or receivables past due, and this could lower the amount it is willing to pay.

If all is in order, a letter of intent is drawn up. This agreement initiates a period of exclusivity during which the target company cannot go to another potential buyer. It also starts a period of due diligence, which averages 60 days, during which Blue Beacon Capital further investigates the company, trying to uncover potential issues.

During this period of time Blue Beacon investigates financial aspects of the potential acquisition. First it will look at the quality of its revenue streams. “Certain components of revenue are, generally speaking, worth more than other components,” says Valdovinos. Business customers, for example, are generally preferable to residential customers. They tend to have more money behind them and to pay on time, hence the revenue from business customers is considered to be of higher quality.

The cost structure of the target company is also critical, including its overhead and its cost to sell and market its services annually. Blue Beacon looks for synergies, says Valdovinos. The big question is where there will be reductions in cost because of duplications between the two companies. There are almost always overlaps in personnel, and there are often redundancies in capital expenditures, leases, and sales.

While due diligence unrolls, attorneys are drafting a definitive agreement that spells out in detail the actual terms of the transaction and the acquiring company is securing financing.

To secure the money it needs to make the acquisition, the buyer can either raise money or offer the target company stock in the combined company. To help its clients raise money, Blue Beacon Capital puts together marketing materials and contacts venture capital and private equity funds with which it has a relationship as well as commercial banks.

Borrowing from a commercial bank is less expensive than going to the private equity community, says Valdovinos. But banks are also less willing to take risks. Banks provide the funding Valdovinos clients need in about fifty percent of cases.

Blue Beacon Capital advised Communication Management Services, a provider of outsourced network management and monitoring for telephone companies, during its October, 2007, acquisition by Shared Technologies, a supplier of converged and Internet protocol telephony technology.

The firm also advised LatiNode Communications, a provider of voice over Internet protocol services (VoIP), on a $25 million investment from Elandia, a Stanford Financial Group company, in March, 2007. Another client was Speakeasy, an independent provider of broadband voice, data, and information technology that was acquired in March, 2007, by Best Buy’s Best Buy For Business unit.

Valdovinos always wanted to start his own company. Once he had developed the necessary skill set, he put together a business plan. “I tried to offer services and a strategy I thought would be compelling and differentiated in the marketplace,” he says.

Because of his past experience with Bear Stearns and Credit Suisse Valdovinos started with a good initial base of past clients and many industry contacts, both with companies and with funds. “I wasn’t doing cold calling,” he says.

Valdovinos started Blue Beacon Capital with just two employees and today he has six, one who came with him from Los Angeles, and two from New Jersey. The others are telecommuting.

He is hoping to grow to 10 to 15 employees over the next year, and plans to add a New York office.

So far, so good. Says Valdovinos: “We are in a growth mode, as opposed to our competitors who are laying people off.”

— Michele Alperin

Blue Beacon Capital, 23 Orchard Road, Suite 350, Princeton 08558; 908-281-9900; fax, 908-281-7900. Roger Valdovinos, founder and managing director. Home page: www.bluebeaconcapital.com.

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