The CEO of TBG Holdings talks with the Opportunist’s Managing Editor Leslie Stone about his career successes, why he prefers smaller cap companies and how investment in this market segment can help the U.S. economy.
Neil Swartz is the chairman and CEO of TBG Holdings, Inc. TBG Holdings has served more than 200 clients, created new revenues exceeding $1 billion, and helped finance companies with more than $250 million. TBG is trying to redefine the relationship between private equity and small cap companies. The company focuses on deal structuring, market growth strategies and capital recruitment for companies in the nano- to small-cap sector.
Opportunist: Please tell us your background.
Swartz: I’m a CPA by trade. I worked for the Big 8—now known as the Big 4— public accounting firms before going out on my own in the 1980s and starting a software gaming company.
Opportunist: How did you get into the business of taking companies public?
Swartz: I took my software company public in the 1990s, and I learned the good, the bad and the ugly of being public. I saw that when taking a company public, management essentially has two companies to manage: 1.) the operating business and 2.) the public entity. When I sold that company, I decided to focus on helping other companies find liquidity events, which include raising capital, being public and merger and acquisition. They need to become successful. That is what I have been doing for the last 15 years.
Opportunist: Why do you prefer working with small-cap companies?
Swartz: I know what it’s like to be in the CEO seat when you’re trying to take a company public. I have always found, particularly in the micro-cap or nano-cap markets, that companies tend to go public prematurely.
Opportunist: Why do you suppose that is?
Swartz: It could be the fault of the people who took them public or simply that they don’t have enough capital to go forward. A lot of promoters are in it for one reason—I won’t say to pump and dump—but to get the stock trading. Unfortunately, they don’t have as much concern about the underlying company. Our philosophy is we work hand in hand to help management create value. When a company goes public, management forgets what made them successful, because they got blinded when all of a sudden, the stock is trading at whatever it’s at and they’re calculating what the company is worth instead of just focusing on the business.
What I’ve seen, from my own experience before I grew my software business from zero to 50 games on the market, is that once you go public—and we did a full IPO, not a reverse merger—the role of the CEO changes. When you are a public company there is suddenly incredible pressure. You have an investment banker that says “We need big news…go do something!” That’s not always the best thing for the company to do to continue to grow. The management team changes when they go public—whether it’s a reverse merger or an IPO—and they lose sight of what made them successful.
Opportunist: How does your company handle things differently?
Swartz: We step in and say, “Hey, we will become your arm so you can focus on what you do well.”
We restructure companies and help them find that missing ingredient, whether it’s a bridge loan or liquidity or cleaning up the public vehicle, in addition to supporting growth of their business.
Opportunist: What qualities do you look for in the companies you take under your wing?
Swartz: We look for businesses with a product or service that is generating revenues or ready to go to market. We are very selective with clients we take under our wing; otherwise, things would get too watered down. When we go into a company we might provide only one aspect of our services because they are already on the right track and just missing an ingredient, which TBG can provide to help them succeed.
The ideal company to me is one that is beyond the R&D stage. Something is holding them back. It could be the capital structure of the company, the beat up stock or just bandwidth to get the company to the next level.
Opportunist: Tell us more about TBG Holdings.
Swartz: I have two other partners in the company. Tim Hart, our CFO, also has an accounting background. His expertise is extremely important because many clients might have gone public without a support staff, with their stock beaten up and management is just trying to survive. Financial reporting and capital structure are usually the first to go. My other partner, Attorney Larry Rutstein, has a Harvard law degree and has done an incredible amount of transactions over the years—both inside and outside the company. He had a huge success with a railroad company, where investors got a 40 to 1 return.
We have a staff of about 15 people. Some work with our client companies in the CFO role, or in helping to restructure and so forth, and the others are communicators who really convey information to the outside world. We have two offices: one in Hollywood, Fla., and our headquarters in Fort Lauderdale. Our team—finding talent and being able to offer that talent to make our clients’ probability of success much higher—is the key to our success.
Opportunist: Where do you find the companies you work with?
Swartz: A lot of our business is word of mouth—from people who know what we’ve done in the past and what we are doing right now. People will call and say “so and so told me that you could help us out of this spot,” for example. Another way people find us is through investors who bought a stake in a company early on and the stock is dead and they ask if we can do anything with it. We utilize the public markets and find investors who want to participate in a venture capital company and are willing to take the risk to make high returns.
We have a group of what I call shareholder-investors who have invested and been involved in our deals. Some did very well. Some still have question marks because they cannot seem to get off the hump because management wasn’t able to do the plan. We are able to bring essential people into the different deals that we are working on, which, hopefully, will help these companies move forward. We are starting to have regular shareholder call-in meetings to bring everyone up to date.
Opportunist: What trends are you seeing in the market?
Swartz: I do not really pay attention to the overall market. The market is secondary to me; my focus is on the companies and ensuring they are operating properly and that news gets out. I pay attention to the portfolio companies that we have because our whole team believes in them 100 percent. If everybody around the table of the companies that we have does their job everybody will be happy and the product or service will be in the hands of the consumer.
The trends I am seeing are: First, investors are a lot more leery than they were in the past—especially with the bigger companies, which has way of tricking down to the smaller companies. As such, many people don’t want to invest the way they used to. Second, many investors believe that—even in the larger cap companies—the rate of return isn’t going to be that great. But they want to make up for lost value or slow growth and the way to do it is with small cap companies. With small cap companies, we have to work harder to prove the legitimacy of the company and its management team. We see more people wanting to invest in these small ventures or micro-cap companies and Pink Sheet companies as a way to increase the return of their portfolio.
Opportunist: Can you share companies you are currently working on?
Swartz: We are currently working with two companies that needed some corrective measures, so to speak. One is Airborne Security & Protective Services (ABPR), which has been a leader in the private contract security industry for over 80 years. When the company went public two or three years ago, the CEO was like a deer in the headlights and essentially relying on investment bankers to handle the public side. His underlying business was and still is profitable, but he simply lacked the tools to grow the business. He didn’t have access to capital because his stock got killed. The stock was trading in the 50-cent range initially, but by the time we stepped in and bought a piece of it the shares had dropped to .00005. The price was way too low and the capital structure was way out of hand. In a situation like that, we step in and help put up the money for the public side—to give the CEO the necessary runway of support to start growing the company again.
Global Beverage Solutions Inc. (GBVS) is another company in our portfolio. If you look at the stock it’s at .0007 right now, but the company has good management and good beverage products. They currently manage sales for several beverage brands and consumer products in key U.S. markets, such as Florida, California, Texas and New York. They also have the export rights to AriZona Iced Tea for some parts of the Caribbean and India. GBVS is a great incubator for a beverage to get to market. I think that, once we get the rust off of it and get the stock cleaned up, it will be a tremendous opportunity.
We are also involved in a company called Alternative Fuels Americas, Inc. (AFAI). This company was doing lots of tests in Costa Rica to turn plants into biofuels. We packaged the company to bring in new investors, took it public in a reverse merger, and introduced them to project financing to expand operations in Central and South America. Now the company is positioned to grow and management has the runway to succeed.
Opportunist: Do you have an opinion on the Facebook IPO and what investors might learn from it?
Swartz: Facebook is an interesting entity in and of itself. But their stock certainly started off at too high a valuation for what they had under the hood. But, again, the key guys who made money weren’t the guys investing. It was the investment bankers around the table. Any entrepreneur I talk with who thinks he can make a lot of money is usually the guy who doesn’t make it. It’s the guy who thinks he has the best product or service in the world that I can help become successful. Facebook thought the stock was going to continue to go up and lost sight of the fundamentals of that business. It’s a great company no doubt, but maybe not the valuation at which it went public.. Not to disparage investment bankers, but it seems they really blindside management with their goal to bring short-term value to the company versus long-term value to shareholders. We should strive to have the relationship between the two and make sure we can work hand in hand with the public market while operating the business. Sometimes it’s difficult to bring those two things together.
Opportunist: What are your thoughts on the U.S. economy?
Swartz: Well, the economy makes it tougher to do what we do. There are lots of people who, maybe five to seven years ago, felt they were rich with equity in the company but no longer feel this way. Another hurdle, due to the economy, is that investors who were classified as accredited—with a net worth of at least $1 million—as recent as two years ago are no longer classified as accredited. In talking with a lot of people, I am hearing and seeing that investors are opening their eyes and looking to markets they might not have before. People are always looking for the right opportunities, provided they are structured properly and there is transparency in that investment. If those standards are in place, people are still willing to roll the dice on Pink Sheet Companies and micro-cap stocks.
Opportunist: What do you enjoy most about your work?
Swartz: Working with companies that maybe look bleak at first glance but have potential, and getting them back on the right path. That, and knowing that shareholders who believed enough to invest are making money along the way, is exciting to me.
Opportunist: What is your greatest career accomplishment?
Swartz: Finding a software product that was successful in the past but was dying. Taking this product and building a company around it–not only raising money to grow the business, but also seeing the product on shelf. The success of taking a company public while learning an important lesson shows me how I can help other entrepreneurs succeed.
Opportunist: What is a typical day in the life of Neil Swartz?
Swartz: Every day has a little bit of difference. I talk to all the portfolio companies every day to make sure we are all moving in line. It’s almost like being a concert director; there is always something new and intriguing that falls on my desk. I do work long hours. We all do. It’s just part of this business. When something has to get done it has to get done.
Opportunist: Where do you see yourself—and TBG Holdings—in five years?
Swartz: I am hoping to do be doing the same exact thing I am doing now, although perhaps with more bandwidth. We will likely have a larger staff and a larger portfolio of companies and more successes along the way.
Visit TBG Holdings Online – www.tbgholdings.com
Leslie Stone is an award-winning writer/editor with more than two decades of experience covering business, finance and lifestyle issues for newspapers, magazines and online publications. Originally from Virginia, she currently resides in the Orlando area.