Alliance of Merger and Acquisition Advisors Third Annual Symposium
May 10-12, 2011
Thank you for the kind introduction. I am delighted to be here in London for this very important symposium.
I bring you greetings from President Barack Obama and Secretary of Commerce Gary Locke who are working hard to insure that all businesses have a chance to Win Their Future through creating a level playing field around the world. I would like to introduce you to our head of business development for the Minority Business Development Agency, Mr. Alex Done’ who has joined me here – Alex please stand. Alex has spent his career as an investment banker on Wall Street and he is currently leading our national effort to support economic expansion of minority-owned firms in the United States through merger, acquisition, joint venturing and strategic partnerships.
Within every market there are hidden and often undervalued opportunities that support both market entry and the potential for outsized profit. One of these hidden opportunities within the United States is called the minority business community. This sector of the U.S. economy represents $1 trillion of economic output. And if measured against the size of countries around the world, this sector would be the 17th richest nation on the earth.
The minority business sector also has the greatest growth dynamics in the U.S. economy growing at 56 percent in terms of gross receipts according the recent Census data. For those of you who are not familiar with the history of the United States, the concept of “minority business” as a separate economic sector may sound a bit strange, but in the United States this concept is both powerful and important to understand.
The history of America is unique in that the fabric of our country is laced with the influence of immigration policy. Excluding the Native Americans – early in the life of the nation, the vast majority of people who came to the United States emigrated from Europe. As the United States grew from 13 small colonies to 50 industrial and service-based states, substantial numbers of immigrants came to American from other parts of the world. Some of these immigrants came by force – shameful part of American history. Others came to the United States seeking a better life, but immigration patterns and how they were viewed by established societies led to recognition of people along ethnic lines and the broad classifications into minority and non-minority subgroups.
Today, minorities in the United States are officially divided into Asian-Americans, Hispanic Americans, African-Americans, Native-Americans, Alaskan Natives, and Pacific Islanders – but these classifications serve to support the reality that Americans truly come from around the world. Americans come from China and India, Mexico and El Salvador, Nigeria and Barbados. And these groups have created 5.8 million companies and a collective population that possesses over $2.46 trillion in total annual purchasing power.
But how is it that minority-owned firms represent an under-utilized asset? Why do minority-owned firms offer international investors above average return prospects? And why are minority-owned firms a powerful market entry vehicle both into the United States and into countries around the world?
I would like to take a moment and answer these very important questions. The first reason that minority-owned firms represent a under utilized asset is that they are increasingly obtaining access to the global supply chains of America’s Fortune 500 corporations as a targeted group.
Every year large corporation in the United States purchases billions of dollars worth of products and services from minority-owned firms and other diverse businesses. This desire to spend with these firms is driven by the increased understanding of the innovation that minority-owned firms bring to the market place. The growing power that minority communities have in the U.S. economy. And growth in political clout, as well as the increase in the number of minorities that serve on corporate boards.
Today, about 15 percent of board seats are held by minorities. Thus, corporations, particularly those that sell to U.S. governmental entities or produce consumer products are interested in increasing their business spend with minority-owned firms. A good example is AT&T. Tim Harden, President of AT&T supply chain and fleet operations has set a goal to spend 21.5 percent of total procurement dollars with diverse businesses or $26.4 billion annually. Currently AT&T spends about 6 percent or $6.9 billion annually.
Another example is Marriott Corporation. Last year, Marriott set an internal record by spending $500 million with diverse firms. Recently, they announced that they have tasked an aggressive young senior executive – Jimmy Pascal – to double that annual amount, over the next five years. And Honda, Dell, Avis-Budget Group, Boeing, General Electric and eight other companies spend a minimum of $1 billion per year with minority-owned firms while many more corporations are on the cusp of reaching the billion-dollar threshold.
While these numbers are small in terms of the total spending by Fortune 500 corporations, they are growing rapidly. However, of the 5.8 million businesses only about 2 percent have the infrastructure to participate in the domestic and global supply chains of these corporations. Thus, those minority firms that have the capacity to service supply chains effectively operate in a captive environment that has in it, an ever-increasing share of large corporate procurement dollars.
For the foreign company looking to gain access to the United States market and who may desire to gain access to the global supply chains of large U.S. –based corporations, minority-owned firms represent a less noticed but highly value-added strategic partner.
The second reason that minority-owned firms present an undiscovered competitive opportunity is that minority-owned firms are twice as likely to export as non-minority owned firms. Some minority-owned firm are owned and operated by U.S. citizens who where born outside the United States and who still have families in their home country. This afford their companies clear competitive advantages in the global markets such as language skills, knowledge of local business practices and most important relationships in the local market.
These competitive advantages give minority owned firms a leg-up even though they are essentially American companies. Three examples of this phenomenon are Solomon Chan and David Segura and George Ortega. Solomon Chan is a Taiwanese-born American who founded Supreme Communications – a company with over $400 million in revenue and who is the largest producer of cell phone accessories in the United States. When he decided to open operations in China, the landscape was not foreign to him saving him thousands of dollars and tons of headaches in getting his operation established.
David Segura, President of Vision IT, a $500 million in revenue technology company, is Mexican American. He not only has operations in the United States but he also operates in Mexico and other Latin American countries. His language skills and cultural knowledge was a plus when he entered these markets. It did not guarantee him success, but when he marketed his capabilities to local companies he was able to tell jokes in Spanish that were understood from a cultural perspective…discuss different types of food from a family perspective and offer stories based upon a shared history even though he grew up in the United States.
At a procurement event in Philadelphia, I met George Ortega…the CEO of a $30 million in revenue company that leased heavy equipment for construction projects. I asked him where does he do business? He said, “Most of my business is in the State of Pennsylvania and in Costa Rica. I said, why Costa Rica? He said, well, this is where I was born and my family still lives there. I opened an operation there because it is home.
I have heard this same story over and over whether the entrepreneur came from Angola or Argentina. As companies try to gain access to highly competitive foreign markets, the natural competitive advantages of U.S. minority-owned firms is an under-utilized asset. Thus, partnering with a U.S. minority-owned firm and leveraging not just the firm’s U.S. market presence but the “Made in America” brand may be a winning proposition for a new entrant to a foreign market. This again is a hidden opportunity that only exists with minority-owned firms.
The third reason that minority-owned firms are an undervalued asset is their ties to the buying power of the minority population in America. These populations combined represent nearly 40 percent of the U.S. population and a tremendous consumer market.
Allow me to give you a few statistics: The Native American community has over $64.7 billion in annual spending – bigger than the GDP of Ecuador. The Asian American community has over $508 billion in annual spending –bigger than the GDP of Poland. The African American community has over $910 billion in annual spending– bigger than the GDP of Turkey. And the Hispanic community has over $978 billion in annual spending – about the GDP of Mexico. These communities represent huge consumer markets and many of these consumers would prefer to purchase from minority-owned businesses – all things being equal.
As such, buying an interest in a U.S. minority-owned firm is a way to gain access to the growth sector of the U.S. consumer market. I might add that according to the U.S. Census, by the year 2042, the minority populations will represent over 50 percent of the total US population. Indeed, in the United States, the minority population is the population of the future.
So to conclude: Minority-owned businesses are an undervalued asset within the American economic system. They represent the fastest growing job sector and the fastest growing economic sector in the nation. They also represent an opportunity for margin expansion and global access for international investors.
So how do you access these firms? By partnering with my agency, the Minority Business Development Agency. MBDA is the only agency in the federal government focused on this key market sector. We possess a national network of 50 business development centers and regional offices that provide technical assistance to these companies to help them grow.
Over the last two years, we have helped minority-owned firms gain access to nearly $7 billion in contracts and capital and we are taking a leadership role in helping these companies export. We also maintain a robust database of companies that we believe can participate in mergers and acquisitions.
MBDA is here to act as a strategic partner to help you identify and gain access to minority-owned and operated businesses. But the global demand for above market returns will, in time eliminate the market opportunity that minority-owned firms companies represents and we are seeing signs of this today. MBDA is receiving more inquires for reverse trade missions so that companies from other countries can come to the U.S. to meet with minority-owned firms. We are also seeing more minority-owned firms seeking to build relationships with non-U.S. corporations.
Still, time is on your side and we are looking forward to assisting you in learning about the tremendous economic opportunity called the U.S. minority business community.
Again, we look forward to working with you!