DH Capital works with both buyers and sellers on a wide range of transaction types and sizes.

by Jeff Goldman [August 30, 2006]

Founded in 2001, DH Capital is a New York-based partnership. The seven partners have backgrounds ranging from private equity to corporate banking to entrepreneurship, and the firm works with all kinds of Internet companies: as managing director Paul Stapleton puts it, "at the end of the day, it's about businesses with recurring revenue over the network."

The services DH Capital provides to those businesses, Stapleton says, cover three key areas. "We advise or represent buyers, we represent sellers, and we provide advice on assembling capital," he says.

DH Capital 1350 Avenue of the Americas, Suite 1145, New York, NY 10019 Voice: (212) 774-3720 mailto: info@dhcapital.com

Stapleton says the firm is open to working on transactions of just about any size. "We've been involved in half a million dollar private placements with friends and families we're familiar with, and we've been in involved in $50 million private placements coming from a single private equity source—and everything in between," he says.

And the firm finds opportunities in areas far beyond the typical ISP or hosting company. "We do a lot in online lead generation—call it online marketing, online advertising," Stapleton says. "We're working with clients who are creating more efficient ways to link buyers and sellers, because at the end of the day, think of the three biggest platforms to come out of the 'net—Amazon, eBay, and Google—and all they are is efficient ways to link buyers and sellers."

Enabling transactions
Stapleton says the process of working with a seller begins with the completion of an extremely detailed information request list. "It is, for a closely held small company, somewhat invasive—because you're 'opening up the kimono,' as they say," he says. "But we sign non-disclosure agreements, and we adhere to them. We've been around a long time, and all we have at the end of the day is our reputation, even more so than our analytics."

The information gathered is then packaged into an offering document that's designed to show the business to potential buyers in the best possible light, while also including all appropriate supporting data. "If you do that up front, it makes your conversations with interested parties go more easily," Stapleton says.

A large part of DH Capital's expertise, Stapleton says, goes towards helping to determine the best match between buyer and seller—and advising sellers on how to make that decision. "A lot of our clients are closely held small businesses, and their priorities are not often the same as an institutionally managed board of directors," he says. "Sometimes a closely held business has a preference about who to sell to that's not primarily dictated by price."

Getting it done
All of DH Capital's fees, Stapleton says, are based on a percentage of the transaction itself. "We're completely success based, unless it's what we call a 'troubled' situation—a bankruptcy situation where we're being asked to advise," he says.

Structuring fees that way, he says, is a good self-regulator. "We don't take on projects that we don't think we can get done, because we have no interest in collecting a bunch of small fees that haven't really gotten our clients where they want to be," Stapleton says. "We'd rather collect a big fee for getting them where they want to be."

Much of DH Capital's work, Stapleton says, takes place long after a company's first contact with the firm. "Companies that are interested in selling at a great price probably enter into a conversation with us years in advance—so we're regularly or at least periodically having conversations about how the balance sheet's looking, how the income statement's working," he says. "The more we know about where you want to take your business, the more we can serve up ideas."

Still, once the decision to sell has been made, Stapleton says it rarely takes long. "A shareholder decision to activate a process to sell the business—i.e. let's talk to buyers—one should think about that as a 60, 90, 120 day process, maybe a 180 day process, but years in the making," he says. "It's like that old adage: an overnight success after 10 years of hard work."

Experience in the industry
For any firm, industry expertise and relationships with buyers are both important—but it's crucial to remember that relationships aren't everything. "I've seen competitors go to potential clients and say, 'We know who the buyers are, we lunch with the buyers,'" Stapleton says. "Well, DH Capital lunches with the buyers too, but I've noticed along the way that if you have a nice product to sell, you can cold call someone and get them on the phone to talk about it—and if you have a junky product to sell, it doesn't matter how many times you've picked up the tab at lunch."

Ultimately, Stapleton says DH Capital's strengths are extremely straightforward. "We're focused, the partners do the work, and the seven partners combined probably have over 100 years of experience in doing media and communications deals," he says. "And we know how to talk to the private equity guys, and we also know how to talk to the guy who's built a great business starting in his mom's basement—and I don't think there's a lot of folks out there that can do both."

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