Talking Deal Prices: GP finds a portfolio company at a Las Vegas card table

In the face of painfully high LBO prices, Live Ventures, the publicly traded holding company backed by Isaac Capital Group, goes out of its way to keep from overpaying.

While many GPs and other private market acquirers say they avoid traditional sales processes involving investment bankers, Live Ventures managed to truly source a deal outside an auction.

Live Ventures CEO Jon Isaac met the CEO of his most recent portfolio company on a trip to Las Vegas, according to an executive at the firm.

There he was, playing poker with Rodney Spriggs, who happened to be CEO of a videogame retailer, Vintage Stock.

A poker-tournament pro who has played on the circuit since 2007, Spriggs is listed as number 3,122 in individual game world rankings by the World Poker Rank website.

“Rodney Spriggs is a professional poker player on his leisure time, and Jon Isaac is a great poker player as well and plays once in a while,” said Armando Soto, managing director of Isaac Capital.  “They meet at a poker table making small talk which led to this acquisition.”

The conversation eventually resulted in a written agreement between the two. They handed it off to the lawyers, who drew up the $60 million acquisition of Vintage Stock, as announced on Nov. 7.

“Isaac Capital looked into Vintage Stock, and then it signed a letter of intent on a piece of paper and then the lawyers gave them a final draft,” Soto said. “The deal closed in less than 90 days.”

While Spriggs may have an appetite for risk at the poker table, his company is operating in a solid business boosted by traditional retail sales of computer-gaming software, Soto said.

With online databases of players’ software frequently attacked by hackers, gamers have each lost thousands of dollars of videogames.

This has led to sustained demand for shrink-wrapped copies of computer-game software displayed on sales racks of brick-and-mortar stores like GameStop. Videogamers have also won a battle with electronics makers to include a disk drive in their newer consoles, as an alternative to downloading games.

“People like to buy and trade and sell their games,” Soto said. “They get a game and then the store buys it back for a store credit.”

Live Ventures used low-to-moderate leverage for the Vintage Stock acquisition, with financing from Texas Capital Bank and Capitala Group.

Live Ventures said it expected the acquisition of Vintage Stock to help it increase its assets to more than $100 million, with annual sales of $160 million and net income of $20 million.

The acquisition of Vintage Stock marked the largest yet by Live Ventures, Soto said. Isaac became CEO of Live Ventures in 2012. In 2015, Isaac turned the company’s focus toward acquiring profitable and growing companies.

Live Ventures avoids using heavy leverage and always looks for value, Soto said. Last year, the company bought Marquis Industries, a carpet and specialty yarn maker.

For now, Isaac Capital and Live Ventures continue to search for more portfolio companies in the middle market. In the effort, they’re taking a cue from Warren Buffett’s Berkshire Hathaway.

“We don’t participate in auctions — the prices out there are outrageous,” Soto said about Live Ventures. “We’re looking for private transactions with no auction process involved.”

Corporates remain in the mood to mingle for deals

With a lively fourth quarter for M&A, GPs looking for discount prices would do well to avoid deals attracting cash-flush corporations with access to a plentiful pool of credit and eager to buy growth by acquiring smaller companies.

EY’s Global Capital Confidence Barometer, which comes out every six months, showed that 75 percent of U.S. executives plan to pursue an M&A transaction in the next 12 months. That’s the highest reading in the roughly seven-year history of the survey, which polled 445 senior executives. In past surveys, only about half of execs expected to buy something.

These often cash-flush players in the M&A game are also looking into the middle market for deals. Ninety-eight percent of U.S. executives are shopping for tactical deals of less than $1 billion, the survey said. More than half expect deals between $250 million and $1 billion.

Bill Casey, vice chair of transaction advisory services for EY, said this bullish view on M&A could drive prices higher, depending partly on the economic view of businesses that put themselves on the selling block. The survey showed that 79 percent of executives believe the economy is stable or improving.

“If you’re a seller, you’ll price a bullish view into the deal,” Casey said. “Some private equity firms may not have the same view in terms of where the strength of the economy is. That may play into the valuation gap as well.”

Sylvain Loosli, 26, a poker professional originally from Toulon, France, but now residing in London, competes during the final table of the World Series of Poker $10,000 buy-in no-limit Texas Hold ‘Em tournament at the Rio Hotel & Casino in Las Vegas on November 4, 2013. Photo courtesy REUTERS/Las Vegas Sun/Steve Marcus