Bill Snow, profile picture
Uploaded byBill Snow
PPT, PDF595 views

M&A For Executives

This document outlines an investment banking presentation on mergers and acquisitions (M&A). The presentation covers the basics of investment banking and the M&A process. It discusses what investment banking is, common misconceptions about buying and selling companies, and how to hire an investment banker. It then walks through the typical M&A process and key steps, including preparing for sale, creating a target list, indications of interest, due diligence, and closing a deal. It also covers valuation methods and factors that can enhance or detract from valuation. The presentation aims to educate business owners on navigating M&A deals and working with investment bankers.

Embed presentation

Downloaded 46 times
Jordan, Knauff & Company INVESTMENT BANKERS Fall 2016
Before We Begin: Smartphones © Jordan, Knauff & Company. Proprietary and Confidential. 2
Jordan, Knauff & Company INVESTMENT BANKERS Introduction: Bill Snow Investment banker Speaker Author © Jordan, Knauff & Company. Proprietary and Confidential. 3
Jordan, Knauff & Company INVESTMENT BANKERS Today’s Agenda  Part I • What is investment banking? • Buying and selling companies • Misconceptions • Hiring an investment banker  Part II • The M&A process  Part III • Valuation  Part IV • The team • Documents • Negotiating  PartV • Managing expectations • Report card • Are you prepared? © Jordan, Knauff & Company. Proprietary and Confidential. 4  Special bonus: A liberal sprinkling of anecdotes
Part I What is investment banking? Misconceptions Buy and selling companies Hiring an investment banker © Jordan, Knauff & Company. Proprietary and Confidential. 5
–Prepare –Control –Frame –Define © Jordan, Knauff & Company. Proprietary and Confidential. 6 Understanding the M&A Process
What is Investment Banking? Broker? Role reversal Shopping cart Thesis © Jordan, Knauff & Company. Proprietary and Confidential. 7
© Jordan, Knauff & Company. Proprietary and Confidential. 8
M&A is not nebulous © Jordan, Knauff & Company. Proprietary and Confidential. 9 A huge universe of business owners Retaining i-bankers, you know, just in case Buyer Buyer Buyer Buyer Buyer Buyer Buyer Something happens Done deal! Investment banker Hanging around, waiting for a fee if something happens
Jordan, Knauff & Company INVESTMENT BANKERS M&A is a Process Business owner © Jordan, Knauff & Company. Proprietary and Confidential. 10 Investment banker Handles the process, the materials, business terms Private equity firm Corporate buyer PE backed company Typical consultants include: Lawyer Legal terms Accountant/auditor Inventory, Quality of Earnings, Bank Reconciliation The Client The QB The Buyers The buyer is the new owner, makes all decisions. The investment banker is persona non grata The Sudden Stop
Common Misconceptions  Easy  Knowing buyers  Industry experience  Magic words  Ask price  Commodity work  Realtor © Jordan, Knauff & Company. Proprietary and Confidential. 11
Jordan, Knauff & Company INVESTMENT BANKERS Buying and Selling – Often Counterintuitive  Typical misconceptions © Jordan, Knauff & Company. Proprietary and Confidential. 12  Selling is difficult Buying is easy!
Jordan, Knauff & Company INVESTMENT BANKERS The Reality of Buying & Selling © Jordan, Knauff & Company. Proprietary and Confidential. 13 Easy, Straightforward Selling a company Contacting buyers Really easy Finding a buyer “interested” in doing a deal Difficult Buying a company Contacting sellers Difficult Buying a company Really, Really Difficult Closing a deal that makes sense for the seller
Jordan, Knauff & Company INVESTMENT BANKERS Buyers – What NotTo Do!  The perfect target…for me  Harvard Seal © Jordan, Knauff & Company. Proprietary and Confidential. 14 Let’s take a look an example - Exhibit 1
Jordan, Knauff & Company INVESTMENT BANKERS Anecdote – Pushing a Deal  Packaging company  NewYears Eve  Pay off letter  Sideways © Jordan, Knauff & Company. Proprietary and Confidential. 15
Jordan, Knauff & Company INVESTMENT BANKERS Picking an M&A Investment Banker © Jordan, Knauff & Company. Proprietary and Confidential. 16 What we think is important Knowing a lot of buyers Industry experience “Magic words” Determining the right “ask” price Low cost provider What is actually important How the buyers list is created What is actually important How the buyers list is created Ability to “clear the market” What is actually important How the buyers list is created Ability to “clear the market” Techniques to enhance value What is actually important How the buyers list is created Ability to “clear the market” Techniques to enhance value Handling the “ask” price question What is actually important How the buyers list is created Ability to “clear the market” Techniques to enhance value Handling the “ask” price question Negotiating prowess
Anecdote – Are you experienced? Really? © Jordan, Knauff & Company. Proprietary and Confidential. 17 LOST BROKER
An Investment Banker is not a Realtor © Jordan, Knauff & Company. Proprietary and Confidential. 18
Jordan, Knauff & Company INVESTMENT BANKERS Fees • Monthly retainer • Success fee  Expenses © Jordan, Knauff & Company. Proprietary and Confidential. 19 Warning! – Willingness to work without a monthly retainer
Jordan, Knauff & Company INVESTMENT BANKERS Techniques to Pick the Right Advisor  Chemistry  Negotiating prowess  The process  Enhancing valuation  Check references © Jordan, Knauff & Company. Proprietary and Confidential. 20
Jordan, Knauff & Company INVESTMENT BANKERS Checking References © Jordan, Knauff & Company. Proprietary and Confidential. 21 Remember: Ask questions that give you usable data Instead of asking “What did they charge?” “How long did it take?” “Do they know a lot of buyers?” “Did they get the highest price?” “Did they do a good job?” You should ask “Based on the end result, was their work worth what you paid?” You should ask “Based on the end result, was their work worth what you paid?” “Did they do what they said they’d do?” You should ask “Based on the end result, was their work worth what you paid?” “Did they do what they said they’d do?” “Did they attend all meetings with buyers? If not, why?” You should ask “Based on the end result, was their work worth what you paid?” “Did they do what they said they’d do?” “Did they attend all meetings with buyers? If not, why?” “Did the buyer try to re-trade the deal? How did your banker handle it?” You should ask “Based on the end result, was their work worth what you paid?” “Did they do what they said they’d do?” “Did they attend all meetings with buyers? If not, why?” “Did the buyer try to re-trade the deal? How did your banker handle it?” “Could you have done this without them, on your own?”
Jordan, Knauff & Company INVESTMENT BANKERS Anecdote – Efficacy of Questions How many miles to the nearest Blockbuster? © Jordan, Knauff & Company. Proprietary and Confidential. 22
Jordan, Knauff & Company INVESTMENT BANKERS Lurking Problems  Quality of Earnings  Inventory  The “ask price” question  Owner succession  Rent and accrued vacation  Absent key team members  Deal “re-trade”  Working capital adjustment - Exhibit 2 © Jordan, Knauff & Company. Proprietary and Confidential. 23
Jordan, Knauff & Company INVESTMENT BANKERS Anecdote – Working Capital • Packaging distributor • Just-in-Time (JIT) • Sales • Working capital © Jordan, Knauff & Company. Proprietary and Confidential. 24 How to calculate average working capital?
© Jordan, Knauff & Company. Proprietary and Confidential. 25 Part II Coming Up! The M&A Process
Jordan, Knauff & Company INVESTMENT BANKERS Part II:The Step by Step M&A Process © Jordan, Knauff & Company. Proprietary and Confidential. 26
Jordan, Knauff & Company INVESTMENT BANKERS Page 27 Preparing For a Sale  Owner…make thyself expendable  Fix up the balance sheet  Cut dead weight  Increase sales  The add-back machine
Jordan, Knauff & Company INVESTMENT BANKERS Page 28 Avoid Serial for Breakfast  Parallel, not serial  Advisors  Chain of command
Jordan, Knauff & Company INVESTMENT BANKERS Process Overview 1. Create a Target List 2. Make Contact 3. Send the Teaser 4. Assure Confidentiality 5. Send the Deal Book 6. Obtain Indications of Interest (IOI) © Jordan, Knauff & Company. Proprietary and Confidential. 29 7. Meet With Buyers 8. Obtain Letters of Intent (LOI) 9. Undertake Due Diligence 10. Draft a Purchase Agreement 11. Close the Deal 12. Handle Post-Closing Events
Jordan, Knauff & Company INVESTMENT BANKERS Page 30 Step 1:TheTarget List Sell Side • Suspects • Prospects • Collaborative Process • Approval Buy Side • What does target get? • Criteria
Jordan, Knauff & Company INVESTMENT BANKERS Page 31 Step 2: Contact! Buyers want to be contacted! Sellers, meh Auction? Alchemy Screeners
Jordan, Knauff & Company INVESTMENT BANKERS Page 32 Step 3:TheTeaser Anonymous executive summary Just enough info to “tease” recipient Be careful!
Jordan, Knauff & Company INVESTMENT BANKERS Page 33 Step 4: Confidentiality Sign a Confidentiality Agreement (CA) Buyer agrees to keep quiet No harm
Jordan, Knauff & Company INVESTMENT BANKERS Page 34 Step 5:The “Book” Various names Security Huge amount of info Enough to make an offer Staggered release
Jordan, Knauff & Company INVESTMENT BANKERS Page 35 Step 6: Indication of Interest Dating phase – can see others Valuation range Non-binding Exclusivity? No
Jordan, Knauff & Company INVESTMENT BANKERS Page 36 Step 7: Management Meeting “Wizard of Oz” Seller provides update Facilities visit Sandbox
Jordan, Knauff & Company INVESTMENT BANKERS Page 37 Step 8: Letter of Intent (LOI) Getting engaged Firm offer Exclusivity?Yes Binding? No Pick the “best” one
Jordan, Knauff & Company INVESTMENT BANKERS Page 38 Step 9: Due Diligence Kimono time Full disclosure…mostly Confirmatory only!
Jordan, Knauff & Company INVESTMENT BANKERS Page 39 Step 9: Due Diligence, cont. Send in the cavalcade of consultants Secure online data room
Jordan, Knauff & Company INVESTMENT BANKERS Page 40 Step 10: Purchase Agreement Marriage license Final document Binding! Fairness Same time as due diligence Red line ping-pong
Jordan, Knauff & Company INVESTMENT BANKERS Page 41 Step 11: Closing Wedding day Flow of funds Sign this… …and sign that Mere formality
Jordan, Knauff & Company INVESTMENT BANKERS Page 42 Step 12: Post Closing Stuff Announcement Collect final payments Integration Continued involvement
© Jordan, Knauff & Company. Proprietary and Confidential. 43 Coming up, Part III Valuation
Jordan, Knauff & Company INVESTMENT BANKERS Valuation is a complex mathematical formula… © Jordan, Knauff & Company. Proprietary and Confidential. 44 …that largely depends upon what side I’m representing
What isValuation? Confluence of cash flow and time Some methods include –EBITDA basis –Contribution margin –Asset value –Multiple of gross profit –Multiple of revenue –Discounted cash flow © Jordan, Knauff & Company. Proprietary and Confidential. 45
Jordan, Knauff & Company INVESTMENT BANKERS Valuation = Multiple X EBITDA © Jordan, Knauff & Company. Proprietary and Confidential. 46 Business Owner POV Simple Straightforward… …and not the full story!
Jordan, Knauff & Company INVESTMENT BANKERS Anecdote – Form of Consideration • Marketer of medical data • Accepted $33M deal • Lower offers were better, why? © Jordan, Knauff & Company. Proprietary and Confidential. 47
Jordan, Knauff & Company INVESTMENT BANKERS Valuation = (Multiple X adjusted EBITDA) + cash – debt +/- working capital adjustment © Jordan, Knauff & Company. Proprietary and Confidential. 48 Investment Banker POV Obviously better
Jordan, Knauff & Company INVESTMENT BANKERS Valuation = (Multiple X adjusted EBITDA) + cash – debt +/- working capital adjustment + enhancers - detractors © Jordan, Knauff & Company. Proprietary and Confidential. 49 Valuation – Fuller Perspective
Jordan, Knauff & Company INVESTMENT BANKERS Revenue – bigger is better Growth – faster is better Profits – $1M EBITDA, $3M EBITDA, $5M EBITDA, $10M EBITDA EBITDA margin – 10% usually very good, 15% outstanding Minimal CAPEX Strong, capable management team – “not going anywhere” Customer relationships – Long term, no concentrations Simple and understandable business model Design skills Quality accounting systems & procedures Buying/sourcing/pricing expertise © Jordan, Knauff & Company. Proprietary and Confidential. 50 Enhancers to Valuation Include: Inventory management – Just in TIME (JIT) – Presell orders Fragmented industry Large market ($1B+) Expansion opportunities – Geographic – Customers/markets – Products Barriers to entry Limited cyclicality Low regulatory risk Unique expertise – Intellectual Property (patents, trade secrets) – Sales/marketing approach Use of Technology Facilities/warehouse/distribution center
Jordan, Knauff & Company INVESTMENT BANKERS © Jordan, Knauff & Company. Proprietary and Confidential. 51 Detractors to Valuation Include: A “motivated” seller Owner viewed as integral to success Management – Lack of bench strength/managers about to retire – Lack of succession plan Market is declining/out of favor Lack of profits Low margins Declining revenues Customers – Concentration – Financial weakness  Large CAPEX needs Poor labor/union relations Unproductive employees Poor systems Excessive bad debt Unsellable inventory Low barriers to entry Overly complex product Long sales cycle Seasonality Small market Market dominated by large player(s) Bad reputation for quality Dirty, unorganized facility/offices
Jordan, Knauff & Company INVESTMENT BANKERS Valuation – Is That All There Is? © Jordan, Knauff & Company. Proprietary and Confidential. 52
Jordan, Knauff & Company INVESTMENT BANKERS Valuation = (Multiple X adjusted EBITDA) + cash – debt +/- working capital adjustment) + enhancers - detractors + pro-forma benefit of combined entities © Jordan, Knauff & Company. Proprietary and Confidential. 53 Pro-forma Valuation
 Is paying 15X for a $5M EBITDA company reasonable? © Jordan, Knauff & Company. Proprietary and Confidential. 54 Pro-forma Ice Bucket Challenge
Jordan, Knauff & Company INVESTMENT BANKERS Combined 100,000$ 50,000 50,000 40,000 10,000$ Kate & Zuzu's Bait Shop & Sushi Imporium Pro-forma Example © Jordan, Knauff & Company. Proprietary and Confidential. 55 If Kate acquired Zuzu, what multiple makes sense? Kate's Bait Shop Zuzu's Sushi Imporium Rev 50,000$ 50,000$ COGS 25,000 25,000 GP 25,000 25,000 Expenses 20,000 20,000 EBITDA 5,000$ 5,000$ Pro-forma 105,000$ 48,000 57,000 37,000 20,000$
Jordan, Knauff & Company INVESTMENT BANKERS Anecdote – Nurses’ Scrubs Pro-forma © Jordan, Knauff & Company. Proprietary and Confidential. 56  Seller • Sales decline • Marketing miscues • Losing money ($3M)  Buyer – PE backed – Profitable Buyer paid $13M – why?
Exhibit 3© Jordan, Knauff & Company. Proprietary and Confidential. 57 Valuation Presented In A Pitch
Jordan, Knauff & Company INVESTMENT BANKERS © Jordan, Knauff & Company. Proprietary and Confidential. 58 EBITDA Multiple Risk Profile Characteristics 1 High Risk Business out of control / Failure likely. Crisis Management is the norm. 2 Risky Small margins, depends very much on owner relationships, owner not staying on. Not growing - status quo. 3 Acceptable Risk Market risk but acceptable. Below average margins. Other risks concerning marketability, owner staying, no growth, etc. Gives market share and sustainable future cash flows. 4 Low Risk Growing, average profits, good client base and some management. Not dependent solely on owner. Management stays. 5 Minimal Risk Growing, above average profits, diverse client base, management plan, processes, procedures, etc. Management stays. 6 Slam Dunk Risk Profile 4 and 5 plus management has shown propensity to grow firm, good solid profits, lots of growth potential, and management stays Quantifying Valuation – Buyer’s POV
Jordan, Knauff & Company INVESTMENT BANKERS Anecdote – Facilities EnhancedValuation © Jordan, Knauff & Company. Proprietary and Confidential. 59  Seller had (maybe) ~$2M EBITDA  Buyer paid $17.5M  Why?
Jordan, Knauff & Company INVESTMENT BANKERS Anecdote – Systems EnhancedValuation © Jordan, Knauff & Company. Proprietary and Confidential. 60  Seller less than $1M EBITDA  Big concentration  Buyer paid nearly 5X  Why?
Jordan, Knauff & Company INVESTMENT BANKERS SolvingValuation Differences Earn out Seller note Using stock Less than 100% © Jordan, Knauff & Company. Proprietary and Confidential. 61
Jordan, Knauff & Company INVESTMENT BANKERS Net Proceeds Calculator Exhibit 4 © Jordan, Knauff & Company. Proprietary and Confidential. 62
Part IV is next! © Jordan, Knauff & Company. Proprietary and Confidential. 63  The Team,  Documents  Negotiating
Jordan, Knauff & Company INVESTMENT BANKERS TheTeam Typical consultants include –Legal –Accounting/auditing –Wealth management –Investment banker © Jordan, Knauff & Company. Proprietary and Confidential. 64
Jordan, Knauff & Company INVESTMENT BANKERS Anecdote –The Wrong Advisor • Lawyer with no M&A experience. © Jordan, Knauff & Company. Proprietary and Confidential. 65
Benefits of an Intermediary © Jordan, Knauff & Company. Proprietary and Confidential. 66
Jordan, Knauff & Company INVESTMENT BANKERS Investment Banker vs Business Broker  Deal size  Business type  Staff and resources  Sophistication  Involvement © Jordan, Knauff & Company. Proprietary and Confidential. 67
SundryTeam Members – depends on deal – Marketing – IT/Database – Environmental © Jordan, Knauff & Company. Proprietary and Confidential. 68
Chain of Command Poor communication Establish Chain of Command Pick up the phone! © Jordan, Knauff & Company. Proprietary and Confidential. 69
M&A Documents  Indication of Interest IOI - Exhibit 5  Letter of Intent (LOI) - Exhibit 6  Purchase Agreement - Exhibit 7 © Jordan, Knauff & Company. Proprietary and Confidential. 70
Keys to Negotiating Success  Weak or strong hand  Remember the goal  Decision maker  Rollercoaster ride  ABC – Always Be Closing© Jordan, Knauff & Company. Proprietary and Confidential. 71
Anecdote: How Strong isYour Hand? Drink dispensing equipment Buyer “re trade” Inventory $1.6M on due diligence © Jordan, Knauff & Company. Proprietary and Confidential. 72 What was the result?
NegotiatingTechniques  How do Buyers make a bid?  Term sheet – Exhibit 8  What motivates/scares other side? © Jordan, Knauff & Company. Proprietary and Confidential. 73
Jordan, Knauff & Company INVESTMENT BANKERS Anecdote – Find (the other side’s) Motivation  Buyer • Made numerous offers © Jordan, Knauff & Company. Proprietary and Confidential. 74  Seller • Son-in-law - doubled business • Liked his independence What got the deal done?
NegotiatingTechniques (cont’d) Successful tactics Common negotiating mistakes Good faith Sideways © Jordan, Knauff & Company. Proprietary and Confidential. 75
PartV - Concluding © Jordan, Knauff & Company. Proprietary and Confidential. 76 Managing expectations Report card Are you prepared?
Jordan, Knauff & Company INVESTMENT BANKERS Managing Expectations • Tax preparation • Wealth planning • Hockey stick • Trust the process © Jordan, Knauff & Company. Proprietary and Confidential. 77 Where we are today Where we know you can take the business after you buy it
Anecdote – Bird in Hand; NoTax Plan • Light industrial staffing • The “yeah yeah yeahs” © Jordan, Knauff & Company. Proprietary and Confidential. 78
Jordan, Knauff & Company INVESTMENT BANKERS Report Card forYour Business  Are you prepared to sell? • Revenue • Growth • EBITDA • Owner • Margin • Audits • CAPEX • Providing documents • Secret sauce © Jordan, Knauff & Company. Proprietary and Confidential. 79  Are you prepared to buy? • Money • Targets • Thesis
Jordan, Knauff & Company INVESTMENT BANKERS Opportunity Knocks  Contacted by Buyer • Not unique • Meeting protocol • Proprietary – who benefits? © Jordan, Knauff & Company. Proprietary and Confidential. 80  Contacted by Seller • Good and bad • Bake off
Jordan, Knauff & Company INVESTMENT BANKERS Last Anecdote –Your Reputation Buyer Unsuccessful acquisition attempts Insular industry “Lookers but not serious.” © Jordan, Knauff & Company. Proprietary and Confidential. 81
Jordan, Knauff & Company INVESTMENT BANKERS Thank you! If you have any questions, please feel free to contact me at your convenience: William R. Snow Managing Director Jordan, Knauff & Company 200W. Madison St. Suite 980 Chicago, IL 60606 312-254-5904 wsnow@jordanknauff.com https://www.linkedin.com/in/billsnow © Jordan, Knauff & Company. Proprietary and Confidential. 82

More Related Content

PDF
M&A Presentation to VISTAGE CEO Group
byrickfocus
 
PDF
Acquisition Candidate Analysis
byJohn Mecke
 
PDF
ATENA CAPITAL Presentation
bypfontesfalcao
 
PDF
Madison street capital presentation
byMuzamil Quadir
 
PDF
PIPEs Conference Panel
byEspen Robak
 
PDF
Representing Asset Purchasers in Bankruptcy (Series: Bankruptcy Transactions ...
byFinancial Poise
 
PDF
ICP General Presentation
byIris Capital Partners LLC
 
PDF
European & Eurasian Division Presentation
byMikeCamp1
 
M&A Presentation to VISTAGE CEO Group
byrickfocus
 
Acquisition Candidate Analysis
byJohn Mecke
 
ATENA CAPITAL Presentation
bypfontesfalcao
 
Madison street capital presentation
byMuzamil Quadir
 
PIPEs Conference Panel
byEspen Robak
 
Representing Asset Purchasers in Bankruptcy (Series: Bankruptcy Transactions ...
byFinancial Poise
 
ICP General Presentation
byIris Capital Partners LLC
 
European & Eurasian Division Presentation
byMikeCamp1
 

What's hot

PDF
Houlihan Smith Asset Manager Brochure
bynyates
 
PDF
Merger and Acquisition Toolbox
byDominic Brault
 
PDF
Property matters uk
bysamponeill
 
PDF
Crédit Suisse introduction
byguestb1c425
 
PDF
Sale-leasebacks Investments
byNet Lease Investments
 
PPTX
Steven Weiss Presents Planning for a Liquidity Event at AM&AA Conference
byLevenfeld Pearlstein, LLC
 
PPTX
Business valuation imec7 22-14-final
byGlen Birnbaum
 
PPT
Entrepreneurial finance walnut venture
byKevin Yu
 
PDF
Red Relif Brochure
bygbedian
 
PDF
Corporate Overview
byjimikemo
 
PDF
Executing an MBO
bybemmins
 
PDF
Launchpad Agency Overview
byblakelbrooks
 
PDF
Merchant Banking Brochure
byCorporate Professionals
 
PDF
Chapter 1 alk
byAndi Fachri
 
PDF
Houlihan Smith & Company Global Healthcare Markets Group
byrmcgaugh
 
PDF
How to Measure Financial Efficiency: Five Tips for Assessing Your Small Busin...
byColleen Beck-Domanico
 
PDF
Goldman sachs mortgage report
byRexTrade
 
PPTX
IP valuation
byAnjana Vivek
 
PPTX
Firmex 9 20-11 sell-side m&a smart moves-deal killers
byFirmex
 
PDF
Granite Equity Partners: Introduction & Orientation
byUniversity of Minnesota
 
Houlihan Smith Asset Manager Brochure
bynyates
 
Merger and Acquisition Toolbox
byDominic Brault
 
Property matters uk
bysamponeill
 
Crédit Suisse introduction
byguestb1c425
 
Sale-leasebacks Investments
byNet Lease Investments
 
Steven Weiss Presents Planning for a Liquidity Event at AM&AA Conference
byLevenfeld Pearlstein, LLC
 
Business valuation imec7 22-14-final
byGlen Birnbaum
 
Entrepreneurial finance walnut venture
byKevin Yu
 
Red Relif Brochure
bygbedian
 
Corporate Overview
byjimikemo
 
Executing an MBO
bybemmins
 
Launchpad Agency Overview
byblakelbrooks
 
Merchant Banking Brochure
byCorporate Professionals
 
Chapter 1 alk
byAndi Fachri
 
Houlihan Smith & Company Global Healthcare Markets Group
byrmcgaugh
 
How to Measure Financial Efficiency: Five Tips for Assessing Your Small Busin...
byColleen Beck-Domanico
 
Goldman sachs mortgage report
byRexTrade
 
IP valuation
byAnjana Vivek
 
Firmex 9 20-11 sell-side m&a smart moves-deal killers
byFirmex
 
Granite Equity Partners: Introduction & Orientation
byUniversity of Minnesota
 

Viewers also liked

PPTX
M&a process
byGary Patterson
 
PPTX
CYH Pitchbook
byRichard Cao
 
PPTX
“Effects of changing business environment on business strategies and challeng...
bymikybhuvi
 
PDF
M&A Integration Strategies
byAjay Panandikar
 
PDF
Защита облаков в условиях комбинирования частных и публичных облачных инфраст...
byAleksey Lukatskiy
 
PDF
Какие виды информационных систем бывают в России?
byAleksey Lukatskiy
 
PDF
Можно ли обойтись без шифрования при защите персональных данных
byAleksey Lukatskiy
 
PDF
Какой могла бы быть дорожная карта повышения защищенности КИИ в РФ
byAleksey Lukatskiy
 
PDF
Крупные мероприятия по информационной безопасности на 2017 год
byAleksey Lukatskiy
 
PPT
Executive Summary Powerpoint Presentation
bySagren Pillay
 
PDF
пр про SOC для ФСТЭК
byAndrey Prozorov, CISM, CIPP/E, CDPSE. LA 27001
 
PDF
пр Спроси эксперта про прогнозы ИБ
byAndrey Prozorov, CISM, CIPP/E, CDPSE. LA 27001
 
PDF
«Вредоносные браузерные расширения и борьба с ними», Александра Сватикова (Од...
byOWASP Russia
 
PDF
«Android Activity Hijacking», Евгений Блашко, Юрий Шабалин (АО «Сбербанк-Тех...
byOWASP Russia
 
M&a process
byGary Patterson
 
CYH Pitchbook
byRichard Cao
 
“Effects of changing business environment on business strategies and challeng...
bymikybhuvi
 
M&A Integration Strategies
byAjay Panandikar
 
Защита облаков в условиях комбинирования частных и публичных облачных инфраст...
byAleksey Lukatskiy
 
Какие виды информационных систем бывают в России?
byAleksey Lukatskiy
 
Можно ли обойтись без шифрования при защите персональных данных
byAleksey Lukatskiy
 
Какой могла бы быть дорожная карта повышения защищенности КИИ в РФ
byAleksey Lukatskiy
 
Крупные мероприятия по информационной безопасности на 2017 год
byAleksey Lukatskiy
 
Executive Summary Powerpoint Presentation
bySagren Pillay
 
пр про SOC для ФСТЭК
byAndrey Prozorov, CISM, CIPP/E, CDPSE. LA 27001
 
пр Спроси эксперта про прогнозы ИБ
byAndrey Prozorov, CISM, CIPP/E, CDPSE. LA 27001
 
«Вредоносные браузерные расширения и борьба с ними», Александра Сватикова (Од...
byOWASP Russia
 
«Android Activity Hijacking», Евгений Блашко, Юрий Шабалин (АО «Сбербанк-Тех...
byOWASP Russia
 

Similar to M&A For Executives

PPT
M&A Process Oct 2015
byBill Snow
 
PDF
Front Office Investment Banking Process - Investment Banking University
bySvitlana Herlache
 
PPT
Ebit Buyer Presentation
bytcushing
 
PPTX
Valuation Mania: How Long Will Today's Seller Market Last?
byBill Snow
 
PDF
Mainstreet presentation book
byPatti Breitigam-Wenzel
 
PDF
Why should I use a business broker?
byPatti Breitigam-Wenzel
 
PPTX
BoSEU24 | Imogen Wethered | How to Sell a Business in a Decade
byBusiness of Software Conference
 
PPTX
Exit strategy planning ppt 6 6 11
byGerry Chadwick, CBI
 
PDF
IB Academy 2020 - Part 2 - MA Players and Process .pdf
byassanebenjaminsoulam
 
PDF
Investment Banking University - Front Office Investment Banking Process
bySvitlana Herlache
 
PDF
Essential Aspects to Know About M & A Investment Banking.pdf
byVedantDwivedi12
 
PPT
Buying an existing business in a country chapter 08
byssuser54a473
 
PDF
9 Step Business Sales Process
byJeff Swiggett, CBI, M&AMI
 
PDF
Investment Banking University - Front Office Investment Banking Process
bySvitlana Herlache
 
PPTX
IBBA - How Business Brokers Can Help Entrepreneurs Buy & Sell Businesses
byBizNexus
 
PDF
Insights of a Maverick Investment Banker_Sample
bySteve Preda Entrep Coaching
 
PDF
INFORMATIVE LETTER FOR GLOBAL CAPITAL RAISE
byDimitrios Shistohilis with 11.000 connections
 
PPTX
Buy A Business Begin A Dream
bybzstephens
 
PPTX
What Every Business Owner Needs to Know About Selling a Business
bygppcpa
 
PDF
Buy A Business Begin A Dream
bybzstephens
 
M&A Process Oct 2015
byBill Snow
 
Front Office Investment Banking Process - Investment Banking University
bySvitlana Herlache
 
Ebit Buyer Presentation
bytcushing
 
Valuation Mania: How Long Will Today's Seller Market Last?
byBill Snow
 
Mainstreet presentation book
byPatti Breitigam-Wenzel
 
Why should I use a business broker?
byPatti Breitigam-Wenzel
 
BoSEU24 | Imogen Wethered | How to Sell a Business in a Decade
byBusiness of Software Conference
 
Exit strategy planning ppt 6 6 11
byGerry Chadwick, CBI
 
IB Academy 2020 - Part 2 - MA Players and Process .pdf
byassanebenjaminsoulam
 
Investment Banking University - Front Office Investment Banking Process
bySvitlana Herlache
 
Essential Aspects to Know About M & A Investment Banking.pdf
byVedantDwivedi12
 
Buying an existing business in a country chapter 08
byssuser54a473
 
9 Step Business Sales Process
byJeff Swiggett, CBI, M&AMI
 
Investment Banking University - Front Office Investment Banking Process
bySvitlana Herlache
 
IBBA - How Business Brokers Can Help Entrepreneurs Buy & Sell Businesses
byBizNexus
 
Insights of a Maverick Investment Banker_Sample
bySteve Preda Entrep Coaching
 
INFORMATIVE LETTER FOR GLOBAL CAPITAL RAISE
byDimitrios Shistohilis with 11.000 connections
 
Buy A Business Begin A Dream
bybzstephens
 
What Every Business Owner Needs to Know About Selling a Business
bygppcpa
 
Buy A Business Begin A Dream
bybzstephens
 

M&A For Executives

  • 1.
    Jordan, Knauff &Company INVESTMENT BANKERS Fall 2016
  • 2.
    Before We Begin: Smartphones ©Jordan, Knauff & Company. Proprietary and Confidential. 2
  • 3.
    Jordan, Knauff &Company INVESTMENT BANKERS Introduction: Bill Snow Investment banker Speaker Author © Jordan, Knauff & Company. Proprietary and Confidential. 3
  • 4.
    Jordan, Knauff &Company INVESTMENT BANKERS Today’s Agenda  Part I • What is investment banking? • Buying and selling companies • Misconceptions • Hiring an investment banker  Part II • The M&A process  Part III • Valuation  Part IV • The team • Documents • Negotiating  PartV • Managing expectations • Report card • Are you prepared? © Jordan, Knauff & Company. Proprietary and Confidential. 4  Special bonus: A liberal sprinkling of anecdotes
  • 5.
    Part I What isinvestment banking? Misconceptions Buy and selling companies Hiring an investment banker © Jordan, Knauff & Company. Proprietary and Confidential. 5
  • 6.
    –Prepare –Control –Frame –Define © Jordan, Knauff& Company. Proprietary and Confidential. 6 Understanding the M&A Process
  • 7.
    What is InvestmentBanking? Broker? Role reversal Shopping cart Thesis © Jordan, Knauff & Company. Proprietary and Confidential. 7
  • 8.
    © Jordan, Knauff& Company. Proprietary and Confidential. 8
  • 9.
    M&A is notnebulous © Jordan, Knauff & Company. Proprietary and Confidential. 9 A huge universe of business owners Retaining i-bankers, you know, just in case Buyer Buyer Buyer Buyer Buyer Buyer Buyer Something happens Done deal! Investment banker Hanging around, waiting for a fee if something happens
  • 10.
    Jordan, Knauff &Company INVESTMENT BANKERS M&A is a Process Business owner © Jordan, Knauff & Company. Proprietary and Confidential. 10 Investment banker Handles the process, the materials, business terms Private equity firm Corporate buyer PE backed company Typical consultants include: Lawyer Legal terms Accountant/auditor Inventory, Quality of Earnings, Bank Reconciliation The Client The QB The Buyers The buyer is the new owner, makes all decisions. The investment banker is persona non grata The Sudden Stop
  • 11.
    Common Misconceptions  Easy Knowing buyers  Industry experience  Magic words  Ask price  Commodity work  Realtor © Jordan, Knauff & Company. Proprietary and Confidential. 11
  • 12.
    Jordan, Knauff &Company INVESTMENT BANKERS Buying and Selling – Often Counterintuitive  Typical misconceptions © Jordan, Knauff & Company. Proprietary and Confidential. 12  Selling is difficult Buying is easy!
  • 13.
    Jordan, Knauff &Company INVESTMENT BANKERS The Reality of Buying & Selling © Jordan, Knauff & Company. Proprietary and Confidential. 13 Easy, Straightforward Selling a company Contacting buyers Really easy Finding a buyer “interested” in doing a deal Difficult Buying a company Contacting sellers Difficult Buying a company Really, Really Difficult Closing a deal that makes sense for the seller
  • 14.
    Jordan, Knauff &Company INVESTMENT BANKERS Buyers – What NotTo Do!  The perfect target…for me  Harvard Seal © Jordan, Knauff & Company. Proprietary and Confidential. 14 Let’s take a look an example - Exhibit 1
  • 15.
    Jordan, Knauff &Company INVESTMENT BANKERS Anecdote – Pushing a Deal  Packaging company  NewYears Eve  Pay off letter  Sideways © Jordan, Knauff & Company. Proprietary and Confidential. 15
  • 16.
    Jordan, Knauff &Company INVESTMENT BANKERS Picking an M&A Investment Banker © Jordan, Knauff & Company. Proprietary and Confidential. 16 What we think is important Knowing a lot of buyers Industry experience “Magic words” Determining the right “ask” price Low cost provider What is actually important How the buyers list is created What is actually important How the buyers list is created Ability to “clear the market” What is actually important How the buyers list is created Ability to “clear the market” Techniques to enhance value What is actually important How the buyers list is created Ability to “clear the market” Techniques to enhance value Handling the “ask” price question What is actually important How the buyers list is created Ability to “clear the market” Techniques to enhance value Handling the “ask” price question Negotiating prowess
  • 17.
    Anecdote – Are youexperienced? Really? © Jordan, Knauff & Company. Proprietary and Confidential. 17 LOST BROKER
  • 18.
    An Investment Banker isnot a Realtor © Jordan, Knauff & Company. Proprietary and Confidential. 18
  • 19.
    Jordan, Knauff &Company INVESTMENT BANKERS Fees • Monthly retainer • Success fee  Expenses © Jordan, Knauff & Company. Proprietary and Confidential. 19 Warning! – Willingness to work without a monthly retainer
  • 20.
    Jordan, Knauff &Company INVESTMENT BANKERS Techniques to Pick the Right Advisor  Chemistry  Negotiating prowess  The process  Enhancing valuation  Check references © Jordan, Knauff & Company. Proprietary and Confidential. 20
  • 21.
    Jordan, Knauff &Company INVESTMENT BANKERS Checking References © Jordan, Knauff & Company. Proprietary and Confidential. 21 Remember: Ask questions that give you usable data Instead of asking “What did they charge?” “How long did it take?” “Do they know a lot of buyers?” “Did they get the highest price?” “Did they do a good job?” You should ask “Based on the end result, was their work worth what you paid?” You should ask “Based on the end result, was their work worth what you paid?” “Did they do what they said they’d do?” You should ask “Based on the end result, was their work worth what you paid?” “Did they do what they said they’d do?” “Did they attend all meetings with buyers? If not, why?” You should ask “Based on the end result, was their work worth what you paid?” “Did they do what they said they’d do?” “Did they attend all meetings with buyers? If not, why?” “Did the buyer try to re-trade the deal? How did your banker handle it?” You should ask “Based on the end result, was their work worth what you paid?” “Did they do what they said they’d do?” “Did they attend all meetings with buyers? If not, why?” “Did the buyer try to re-trade the deal? How did your banker handle it?” “Could you have done this without them, on your own?”
  • 22.
    Jordan, Knauff &Company INVESTMENT BANKERS Anecdote – Efficacy of Questions How many miles to the nearest Blockbuster? © Jordan, Knauff & Company. Proprietary and Confidential. 22
  • 23.
    Jordan, Knauff &Company INVESTMENT BANKERS Lurking Problems  Quality of Earnings  Inventory  The “ask price” question  Owner succession  Rent and accrued vacation  Absent key team members  Deal “re-trade”  Working capital adjustment - Exhibit 2 © Jordan, Knauff & Company. Proprietary and Confidential. 23
  • 24.
    Jordan, Knauff &Company INVESTMENT BANKERS Anecdote – Working Capital • Packaging distributor • Just-in-Time (JIT) • Sales • Working capital © Jordan, Knauff & Company. Proprietary and Confidential. 24 How to calculate average working capital?
  • 25.
    © Jordan, Knauff& Company. Proprietary and Confidential. 25 Part II Coming Up! The M&A Process
  • 26.
    Jordan, Knauff &Company INVESTMENT BANKERS Part II:The Step by Step M&A Process © Jordan, Knauff & Company. Proprietary and Confidential. 26
  • 27.
    Jordan, Knauff &Company INVESTMENT BANKERS Page 27 Preparing For a Sale  Owner…make thyself expendable  Fix up the balance sheet  Cut dead weight  Increase sales  The add-back machine
  • 28.
    Jordan, Knauff &Company INVESTMENT BANKERS Page 28 Avoid Serial for Breakfast  Parallel, not serial  Advisors  Chain of command
  • 29.
    Jordan, Knauff &Company INVESTMENT BANKERS Process Overview 1. Create a Target List 2. Make Contact 3. Send the Teaser 4. Assure Confidentiality 5. Send the Deal Book 6. Obtain Indications of Interest (IOI) © Jordan, Knauff & Company. Proprietary and Confidential. 29 7. Meet With Buyers 8. Obtain Letters of Intent (LOI) 9. Undertake Due Diligence 10. Draft a Purchase Agreement 11. Close the Deal 12. Handle Post-Closing Events
  • 30.
    Jordan, Knauff &Company INVESTMENT BANKERS Page 30 Step 1:TheTarget List Sell Side • Suspects • Prospects • Collaborative Process • Approval Buy Side • What does target get? • Criteria
  • 31.
    Jordan, Knauff &Company INVESTMENT BANKERS Page 31 Step 2: Contact! Buyers want to be contacted! Sellers, meh Auction? Alchemy Screeners
  • 32.
    Jordan, Knauff &Company INVESTMENT BANKERS Page 32 Step 3:TheTeaser Anonymous executive summary Just enough info to “tease” recipient Be careful!
  • 33.
    Jordan, Knauff &Company INVESTMENT BANKERS Page 33 Step 4: Confidentiality Sign a Confidentiality Agreement (CA) Buyer agrees to keep quiet No harm
  • 34.
    Jordan, Knauff &Company INVESTMENT BANKERS Page 34 Step 5:The “Book” Various names Security Huge amount of info Enough to make an offer Staggered release
  • 35.
    Jordan, Knauff &Company INVESTMENT BANKERS Page 35 Step 6: Indication of Interest Dating phase – can see others Valuation range Non-binding Exclusivity? No
  • 36.
    Jordan, Knauff &Company INVESTMENT BANKERS Page 36 Step 7: Management Meeting “Wizard of Oz” Seller provides update Facilities visit Sandbox
  • 37.
    Jordan, Knauff &Company INVESTMENT BANKERS Page 37 Step 8: Letter of Intent (LOI) Getting engaged Firm offer Exclusivity?Yes Binding? No Pick the “best” one
  • 38.
    Jordan, Knauff &Company INVESTMENT BANKERS Page 38 Step 9: Due Diligence Kimono time Full disclosure…mostly Confirmatory only!
  • 39.
    Jordan, Knauff &Company INVESTMENT BANKERS Page 39 Step 9: Due Diligence, cont. Send in the cavalcade of consultants Secure online data room
  • 40.
    Jordan, Knauff &Company INVESTMENT BANKERS Page 40 Step 10: Purchase Agreement Marriage license Final document Binding! Fairness Same time as due diligence Red line ping-pong
  • 41.
    Jordan, Knauff &Company INVESTMENT BANKERS Page 41 Step 11: Closing Wedding day Flow of funds Sign this… …and sign that Mere formality
  • 42.
    Jordan, Knauff &Company INVESTMENT BANKERS Page 42 Step 12: Post Closing Stuff Announcement Collect final payments Integration Continued involvement
  • 43.
    © Jordan, Knauff& Company. Proprietary and Confidential. 43 Coming up, Part III Valuation
  • 44.
    Jordan, Knauff &Company INVESTMENT BANKERS Valuation is a complex mathematical formula… © Jordan, Knauff & Company. Proprietary and Confidential. 44 …that largely depends upon what side I’m representing
  • 45.
    What isValuation? Confluence ofcash flow and time Some methods include –EBITDA basis –Contribution margin –Asset value –Multiple of gross profit –Multiple of revenue –Discounted cash flow © Jordan, Knauff & Company. Proprietary and Confidential. 45
  • 46.
    Jordan, Knauff &Company INVESTMENT BANKERS Valuation = Multiple X EBITDA © Jordan, Knauff & Company. Proprietary and Confidential. 46 Business Owner POV Simple Straightforward… …and not the full story!
  • 47.
    Jordan, Knauff &Company INVESTMENT BANKERS Anecdote – Form of Consideration • Marketer of medical data • Accepted $33M deal • Lower offers were better, why? © Jordan, Knauff & Company. Proprietary and Confidential. 47
  • 48.
    Jordan, Knauff &Company INVESTMENT BANKERS Valuation = (Multiple X adjusted EBITDA) + cash – debt +/- working capital adjustment © Jordan, Knauff & Company. Proprietary and Confidential. 48 Investment Banker POV Obviously better
  • 49.
    Jordan, Knauff &Company INVESTMENT BANKERS Valuation = (Multiple X adjusted EBITDA) + cash – debt +/- working capital adjustment + enhancers - detractors © Jordan, Knauff & Company. Proprietary and Confidential. 49 Valuation – Fuller Perspective
  • 50.
    Jordan, Knauff &Company INVESTMENT BANKERS Revenue – bigger is better Growth – faster is better Profits – $1M EBITDA, $3M EBITDA, $5M EBITDA, $10M EBITDA EBITDA margin – 10% usually very good, 15% outstanding Minimal CAPEX Strong, capable management team – “not going anywhere” Customer relationships – Long term, no concentrations Simple and understandable business model Design skills Quality accounting systems & procedures Buying/sourcing/pricing expertise © Jordan, Knauff & Company. Proprietary and Confidential. 50 Enhancers to Valuation Include: Inventory management – Just in TIME (JIT) – Presell orders Fragmented industry Large market ($1B+) Expansion opportunities – Geographic – Customers/markets – Products Barriers to entry Limited cyclicality Low regulatory risk Unique expertise – Intellectual Property (patents, trade secrets) – Sales/marketing approach Use of Technology Facilities/warehouse/distribution center
  • 51.
    Jordan, Knauff &Company INVESTMENT BANKERS © Jordan, Knauff & Company. Proprietary and Confidential. 51 Detractors to Valuation Include: A “motivated” seller Owner viewed as integral to success Management – Lack of bench strength/managers about to retire – Lack of succession plan Market is declining/out of favor Lack of profits Low margins Declining revenues Customers – Concentration – Financial weakness  Large CAPEX needs Poor labor/union relations Unproductive employees Poor systems Excessive bad debt Unsellable inventory Low barriers to entry Overly complex product Long sales cycle Seasonality Small market Market dominated by large player(s) Bad reputation for quality Dirty, unorganized facility/offices
  • 52.
    Jordan, Knauff &Company INVESTMENT BANKERS Valuation – Is That All There Is? © Jordan, Knauff & Company. Proprietary and Confidential. 52
  • 53.
    Jordan, Knauff &Company INVESTMENT BANKERS Valuation = (Multiple X adjusted EBITDA) + cash – debt +/- working capital adjustment) + enhancers - detractors + pro-forma benefit of combined entities © Jordan, Knauff & Company. Proprietary and Confidential. 53 Pro-forma Valuation
  • 54.
     Is paying15X for a $5M EBITDA company reasonable? © Jordan, Knauff & Company. Proprietary and Confidential. 54 Pro-forma Ice Bucket Challenge
  • 55.
    Jordan, Knauff &Company INVESTMENT BANKERS Combined 100,000$ 50,000 50,000 40,000 10,000$ Kate & Zuzu's Bait Shop & Sushi Imporium Pro-forma Example © Jordan, Knauff & Company. Proprietary and Confidential. 55 If Kate acquired Zuzu, what multiple makes sense? Kate's Bait Shop Zuzu's Sushi Imporium Rev 50,000$ 50,000$ COGS 25,000 25,000 GP 25,000 25,000 Expenses 20,000 20,000 EBITDA 5,000$ 5,000$ Pro-forma 105,000$ 48,000 57,000 37,000 20,000$
  • 56.
    Jordan, Knauff &Company INVESTMENT BANKERS Anecdote – Nurses’ Scrubs Pro-forma © Jordan, Knauff & Company. Proprietary and Confidential. 56  Seller • Sales decline • Marketing miscues • Losing money ($3M)  Buyer – PE backed – Profitable Buyer paid $13M – why?
  • 57.
    Exhibit 3© Jordan,Knauff & Company. Proprietary and Confidential. 57 Valuation Presented In A Pitch
  • 58.
    Jordan, Knauff &Company INVESTMENT BANKERS © Jordan, Knauff & Company. Proprietary and Confidential. 58 EBITDA Multiple Risk Profile Characteristics 1 High Risk Business out of control / Failure likely. Crisis Management is the norm. 2 Risky Small margins, depends very much on owner relationships, owner not staying on. Not growing - status quo. 3 Acceptable Risk Market risk but acceptable. Below average margins. Other risks concerning marketability, owner staying, no growth, etc. Gives market share and sustainable future cash flows. 4 Low Risk Growing, average profits, good client base and some management. Not dependent solely on owner. Management stays. 5 Minimal Risk Growing, above average profits, diverse client base, management plan, processes, procedures, etc. Management stays. 6 Slam Dunk Risk Profile 4 and 5 plus management has shown propensity to grow firm, good solid profits, lots of growth potential, and management stays Quantifying Valuation – Buyer’s POV
  • 59.
    Jordan, Knauff &Company INVESTMENT BANKERS Anecdote – Facilities EnhancedValuation © Jordan, Knauff & Company. Proprietary and Confidential. 59  Seller had (maybe) ~$2M EBITDA  Buyer paid $17.5M  Why?
  • 60.
    Jordan, Knauff &Company INVESTMENT BANKERS Anecdote – Systems EnhancedValuation © Jordan, Knauff & Company. Proprietary and Confidential. 60  Seller less than $1M EBITDA  Big concentration  Buyer paid nearly 5X  Why?
  • 61.
    Jordan, Knauff &Company INVESTMENT BANKERS SolvingValuation Differences Earn out Seller note Using stock Less than 100% © Jordan, Knauff & Company. Proprietary and Confidential. 61
  • 62.
    Jordan, Knauff &Company INVESTMENT BANKERS Net Proceeds Calculator Exhibit 4 © Jordan, Knauff & Company. Proprietary and Confidential. 62
  • 63.
    Part IV isnext! © Jordan, Knauff & Company. Proprietary and Confidential. 63  The Team,  Documents  Negotiating
  • 64.
    Jordan, Knauff &Company INVESTMENT BANKERS TheTeam Typical consultants include –Legal –Accounting/auditing –Wealth management –Investment banker © Jordan, Knauff & Company. Proprietary and Confidential. 64
  • 65.
    Jordan, Knauff &Company INVESTMENT BANKERS Anecdote –The Wrong Advisor • Lawyer with no M&A experience. © Jordan, Knauff & Company. Proprietary and Confidential. 65
  • 66.
    Benefits of anIntermediary © Jordan, Knauff & Company. Proprietary and Confidential. 66
  • 67.
    Jordan, Knauff &Company INVESTMENT BANKERS Investment Banker vs Business Broker  Deal size  Business type  Staff and resources  Sophistication  Involvement © Jordan, Knauff & Company. Proprietary and Confidential. 67
  • 68.
    SundryTeam Members –depends on deal – Marketing – IT/Database – Environmental © Jordan, Knauff & Company. Proprietary and Confidential. 68
  • 69.
    Chain of Command Poorcommunication Establish Chain of Command Pick up the phone! © Jordan, Knauff & Company. Proprietary and Confidential. 69
  • 70.
    M&A Documents  Indication ofInterest IOI - Exhibit 5  Letter of Intent (LOI) - Exhibit 6  Purchase Agreement - Exhibit 7 © Jordan, Knauff & Company. Proprietary and Confidential. 70
  • 71.
    Keys to NegotiatingSuccess  Weak or strong hand  Remember the goal  Decision maker  Rollercoaster ride  ABC – Always Be Closing© Jordan, Knauff & Company. Proprietary and Confidential. 71
  • 72.
    Anecdote: How StrongisYour Hand? Drink dispensing equipment Buyer “re trade” Inventory $1.6M on due diligence © Jordan, Knauff & Company. Proprietary and Confidential. 72 What was the result?
  • 73.
    NegotiatingTechniques  How doBuyers make a bid?  Term sheet – Exhibit 8  What motivates/scares other side? © Jordan, Knauff & Company. Proprietary and Confidential. 73
  • 74.
    Jordan, Knauff &Company INVESTMENT BANKERS Anecdote – Find (the other side’s) Motivation  Buyer • Made numerous offers © Jordan, Knauff & Company. Proprietary and Confidential. 74  Seller • Son-in-law - doubled business • Liked his independence What got the deal done?
  • 75.
    NegotiatingTechniques (cont’d) Successful tactics Common negotiatingmistakes Good faith Sideways © Jordan, Knauff & Company. Proprietary and Confidential. 75
  • 76.
    PartV - Concluding ©Jordan, Knauff & Company. Proprietary and Confidential. 76 Managing expectations Report card Are you prepared?
  • 77.
    Jordan, Knauff &Company INVESTMENT BANKERS Managing Expectations • Tax preparation • Wealth planning • Hockey stick • Trust the process © Jordan, Knauff & Company. Proprietary and Confidential. 77 Where we are today Where we know you can take the business after you buy it
  • 78.
    Anecdote – Birdin Hand; NoTax Plan • Light industrial staffing • The “yeah yeah yeahs” © Jordan, Knauff & Company. Proprietary and Confidential. 78
  • 79.
    Jordan, Knauff &Company INVESTMENT BANKERS Report Card forYour Business  Are you prepared to sell? • Revenue • Growth • EBITDA • Owner • Margin • Audits • CAPEX • Providing documents • Secret sauce © Jordan, Knauff & Company. Proprietary and Confidential. 79  Are you prepared to buy? • Money • Targets • Thesis
  • 80.
    Jordan, Knauff &Company INVESTMENT BANKERS Opportunity Knocks  Contacted by Buyer • Not unique • Meeting protocol • Proprietary – who benefits? © Jordan, Knauff & Company. Proprietary and Confidential. 80  Contacted by Seller • Good and bad • Bake off
  • 81.
    Jordan, Knauff &Company INVESTMENT BANKERS Last Anecdote –Your Reputation Buyer Unsuccessful acquisition attempts Insular industry “Lookers but not serious.” © Jordan, Knauff & Company. Proprietary and Confidential. 81
  • 82.
    Jordan, Knauff &Company INVESTMENT BANKERS Thank you! If you have any questions, please feel free to contact me at your convenience: William R. Snow Managing Director Jordan, Knauff & Company 200W. Madison St. Suite 980 Chicago, IL 60606 312-254-5904 [email protected] https://www.linkedin.com/in/billsnow © Jordan, Knauff & Company. Proprietary and Confidential. 82

Editor's Notes

  • #3 Please refrain from looking at your phone. If you absolutely need to check messages, kindly step outside. Thank you!
  • #4 Managing Director, Jordan, Knauff & Company Middle market ($10M to $300M) investment banking firm Advise business sales, acquisitions, capital raises Author Mergers & Acquisitions For Dummies Networking Is A Curable Condition Venture Capital 101
  • #7 If you are prepared You’ll know what comes next instead of being surprised That allows you to control the proceedings Proactive vs. reactive Which allows you to frame the discussion The other side will be responding to you Enabling you to define the value proposition The other side isn’t going to make your case
  • #8 What is investment banking? Rather poor name, we do nothing with investments, we’re not a bank. Investment banking is a catch-all term that means the buying and selling of companies. Another term is M&A (mergers & acquisitions) Broker – investment banker is not a broker, does not represent both sides Role reversal – Selling a company is far easier than buying company. This is counter-intuitive to most people’s experiences and biases. Buyers far outnumber sellers. Shopping cart – In the supermarket of M&A, buyers are not pushing the cart. Business owners push the cart. Buyers are the product on the shelf. Thesis – If you want to make acquisitions, you need more than “we have money and we want to buy your company.” Having a thesis, a reason to speak with the owner, is helpful.
  • #10 M&A is not a nebulous thing, for the most part, investment bankers are not retained like attorneys, there to advice when needed. Instead, investment bankers are hired to execute a specific job.
  • #11 M&A is a process, it isn’t an exciting, rapid fire, open outcry type of industry. We’re not trading stocks. The work is often quiet and thoughtful. Lots of spreadsheets and writing. The process is step by step, methodical, logical, goal oriented, limited and finite amount of time. Investment bankers might refer an attorney, perhaps an accountant/auditor. Limited ability to refer consultants and coaches. Once the deal is done, investment banker is outside looking in, very limited ability (probably no ability) to make referrals.
  • #12 Here are some of the common misconceptions that we will discuss in the next few slides
  • #13 Typical misconceptions: Buying is easy “I want to buy a company, this is easy…whaddya got?” I get contacted by 20-30 buyers every week Selling is difficult “I found a buyer…I did all the hard work…granted the buyer is a random sample of one who tossed an offer over the transom, but I have a buyer! I’ll just pay you some hourlies, but no need for a success fee because finding the buyer is the hard part, and I did that. Oh, uh, the price the buyer is bidding is really low, so if you’re as good as you say you are, you have magic words or something and you’ll be able to get the buyer to pay a lot more, right?” Grass is greener Most of us have had sales jobs, who hasn’t fantasized about being in the buyer’s side?
  • #14 The big value of the investment banker is not in finding a buyer, it is not in the preparation of materials…the value is in closing the deal Closing a deal is not necessarily the most time consuming part. Putting materials together, researching and refining a buyers list take a lot more time. And those are important steps. The hardest work, the trickiest work, is dealing with all the issues that might pop up as closing approaches. Deals don’t close themselves. Someone needs to stay on top. Someone needs to push and often cajole other constituents to get the deal done.
  • #15 Far too many buyers spend too much time on perfectly defining the perfect target…for themselves. Too little time is spent on what the other side gets out of the bargain. Buying is difficult, buyers are the commodity, need to figure out how to stand out from the crowd.
  • #16 Signed an LOI on Oct 26. 60 days to close. These means closing would be between Christmas and New Years Eve. The last week or two of the year is typically a dark period – people take time off and don’t go to the office. The due diligence process and contract writing was cordial, minor issues were settled relatively easily. As we were nearing the closing date, a problem popped up. The seller’s bank was slow walking the pay off letter. I suspect the banker didn’t want the deal to close until the near year. Bonuses probably based on year end outstanding loans. Banker simply stopped responding to emails and calls. I know some of the top execs at the bank, went straight to them, sent a polite but blistering email. Message received. Payoff letter showed up on Dec 30 and we closed on NYE. The longer deals take to closer, the greater the odds something will go sideways. Passivity doesn’t get it done.
  • #17 Knowing a lot of buyers – who does the advisor represent? The client or his good buddy, the buyer? Typical question is “tell me about your buyers.” Different i-bankers do not have different, unique, proprietary lists of buyers. Buyers want to be contacted. Buyers are easy to find. How a list is created is far more important. If an i-banker does not have CapitalIQ, they don’t have the resources necessary to do a good job. Industry experience is great, but it is not the “end all be all.” Typical question is “have you done a lot of deals like mine?” What special insight is gained? Focus should be on “clearing the market” that requires preparation, quality materials, running an orderly process. Remember, 1) sellers don’t have an “ask” price, 2) buyers are easy to find and contact, 3) buyers should make initial offer, 4) having multiple buyers is a check against a “random sample of one” making a low ball offer. Magic words – “I have a buyer, I did the hard work, I just need you to button up the deal, so I’ll just pay hourlies. I’m not paying a success fee because I did the hard work of finding the buyer…but the offer is low. If you’re so good, get the buyer to pay more!” No one has magic words. Techniques to enhance value is what you want to determine. Handling “ask” question “We put together a detailed book that contains all the info you’ll need to make an offer, please review it and put together a deal that you can close. Be mindful of competition, of course.” Low cost provider & negotiating prowess: M&A is not a realtor, not merely a listing service How your banker negotiates with you is how they will negotiate for you
  • #18 I was doing buy side work. Contacted a company, left message for the owner. Owner recently hired a broker and thought my call was evidence of great work by the broker. Materials created by broker were poor. Broker never attended meetings with client. Both sides walked away from the negotiating table multiple times. I tried numerous deal structures before finally finding one that both sides found acceptable. Broker did not help client with negotiations but gets to claim “industry experience”
  • #19 Here are the differences between a realtor and an i-banker No “ask” price No “for sale” sign No online listing Proactive Workload Research Sophistication level Negotiating Realtors take 6% - probably a higher rate than an i-banker
  • #20 Typical fees are a monthly retainer and a success fee. Client reimburses all deal related expenses (miles, airfare, hotels, etc.) Specifics fees depend on size of deal, complexity, experience of i-banker, etc. Monthlies are a sign of commitment, “skin in the game” by the seller. I-bankers do not make money on monthlies. Need a closing to make money. Opportunity cost for i-banker if deal doesn’t close (could have made money elsewhere). Monthlies often offset against final success fee (but not always). Minimum fee might come into play, depends of size of deal. Warning: The so-called business broker model involves an initial down stroke and then a success fee at close. No monthly retainer. The problem is the further away from that initial payment, the less responsive the client, the less likely client will listen to the i-banker. You get what you pay for. How much is free advice worth?
  • #21 Chemistry – you gotta like your advisor! Negotiating prowess Ask for proposal, cut fees to the bone, if the banker accepts…don’t hire them. Anyone offering their services at a cut rate price is probably offering a cut rate service The way your investment banker negotiates with you is exactly how they will negotiate for you The process – valuation comes from clearing the market Talking to all the viable buyers Getting multiple offers Poker playing – overplaying a strong hand scares away buyers, need to know how to play a weak hand Enhancing valuation - Find that one buyer uniquely suited to value the business above all others Check references Remember, not all results the same Finding a buyer is easy, getting a deal done that makes sense is the difficult part
  • #22 Was their work worth what you paid? – value vs price Time – because of countless vagaries with doing deals, the length of time is an almost meaningless metric. A deal that closes in 6 months might be a bad deal. A deal that took a year and half might be the best thing for the seller. Far more important is follow up, follow through, and accomplishing what they say they’d accomplish. Buyers – buyers are a dime a dozen. Easy to find buyers. More important is making sure an i-banker attends all meetings with the client (the seller). Leaving a seller alone with a buyer is a mistake. Price – all else being equal, a higher price is obviously better than a low price. But “high” or “low” are subjective. How can someone answer that question. Most likely, the seller accepted the highest offer. Determining how an i-banker handled the dreaded retrade is far more important. Was the i-banker able to maintain the agreed upon valuation, or was the deal price cut over and over and over? Good job – Another subjective question. What you want to hear is a seller say, “we couldn’t have done what they did for us.” If a seller says “we did all the work, they didn’t show up for meetings, our lawyer did all of the negotiating,” don’t hire them.
  • #23 In the pre-Internet era, everything was done by voicemail. Young marketing VP decided that knowing how far our stores were from nearest competitor was a good idea. Spur of the moment idea that popped into his head as he drove to work. He sent out a broadcast VM to our store managers only, he left district managers out of the loop, and asked them to ascertain the distance to nearest competitor and communicate info to their DMs. I started getting voicemails, “Bill, 4.1 miles” and “We’re 1.4 miles away.” I dutifully wrote down all these numbers, figuring eventually one of my managers would tell me why. After I gathered the info for all 17 of my stores, I tried to fax this info to HQ. Guess what, the company had dozens of DMs, all doing the same thing as me. The line was busy for hours. Total waste of my time. Fax machine ran out of paper. The net result? Reams of paper with info that was useless. When you ask questions, how will you use the info? Are you getting info that will help you?
  • #24 QoE and inventory are the two main things buyers will focus on. They’ll do a bank rec, they’ll pour through your general ledger, they’ll want to confirm all inventory is sellable (and present). If inventory is obsolete or unsellable, buyers will agitate for a write down. This means earnings will be reduced. Multiple that reduction by the deal multiple and that’s what obsolete inventory can cost a seller. “Ask” question – Not handling the ask price question can inadvertently reduce the value of a company. Succession – a company that is viewed as being owner-centric will have a lower value, if any value at all, to others. Buyers will view the owner as “owning” the customer relationships. If the owner is gone, those relationships might not last. Not having suitable management to run the company after the owner (and perhaps other senior execs leave) can reduce the value, too. Rent and vacation – smaller issues, but they pop up. Some owners also own the facility and rent the space at a low price. If this is the case, earnings will have to be adjusted downward for a market rate (e.g., higher) rent amount. For vacation, buyers don’t want to be on the hook for employee’s vacation that should have occurred before the closing. Pay close attention to these details. Team members – if team key, senior team members are not included, that can be a red flag to buyers. Re-trade – unfortunately, this is far too common of an occurrence. Some (not all) buyers will submit a high offer in the hopes of getting the deal to the exclusive stage, then methodically knock the price down. Death by a thousands cuts. Working capital – if set too high in the LOI, seller will “owe” money at the close. Can reduce proceeds by tens of thousands, maybe hundreds of thousands of dollars.
  • #25 Client was a very well run company, systems/reordering were outstanding – Just in Time (JIT). Despite increasing sales, the working capital was decreasing. As a result, working capital was decreasing despite increasing revenue. Buyer wanted to take average of 18 mos, which is fair and reasonable, but that would unduly increase working capital target, meaning client would “owe” money at close. We explained situation, buyer agreed to 6 mo average. Lack of foresight and ability to negotiate would have cost our client a couple hundred thousand.
  • #28 Owner expendable – train other mgrs to run company without out Design/implement systems to remove ad hoc decision making – not trying to cripple decision making, trying to provide framework so employees can act w/out running to you Balance sheet – collect AR – make sure they’re current or within terms. If your terms are 30 days but you routinely collecting in say 45, make the case that is the norm for your company – don’t let a buyer discount AR Slow moving inventory should be written off – this reduces earnings and it is better to do this before a sale process that in the middle of one Cut dead weight – trim non productive staff now – not a license to be cruel or capricious, give me the chance to improve Increase sales – easier said than done, of course, push your sales people, better commission plan? Add back machine – Owner’s comp, taxes associated with owner’s comp add back, severance/lawsuit settlement, personal expenses (FAAP) usually a club (country, health, hunting), car exp, travel/meals, family members on payroll
  • #29 Parallel fashion – time is now to begin planning, avoid “run business/sell business/do something with dough” syndrome Wealth mgt – not a stockbroker, usually a staff that helps with issues ranging from investments to estate planning to taxes, also may help with mortgages, loans other personal financial needs. The time to plan is BEFORE a sale process An advisor may be able to suggest a structure to help mitigate taxes/plan for future generations, etc Lawyer – use an M&A atty, not a contract guy, or a litigator, someone who has done M&A deals before. Accountant – will need to provide info for buyer in DD. Buyer will need good accountant to test earnings, inventory. Investment banker – executes the M&A process, contacting buyers, preparing sale materials, negotiating, structuring deals Chain of command – determine who has what role – determine who the “point person” who will speak with other side and handle all queries and requests. Might sound like more work – helps avoid cross communication, duplicate steps, general frustration
  • #31 Sell Side Suspects – start w/ a large list – brainstorming, “crazy” things, 200-300 is good start Winnow – discuss and reduce, toss out buyers that don’t fit, process may cue new ideas/previously overlooked buyers, winnow this down to about 100 Collaborative – i-banker does heavy lifting, research Seller – approves all prospects before contact made – no need to constantly run back to client Buy side What does target get? Be careful – what does the other guy get? Avoid the myopia of “the perfect target for me” Criteria – what are you looking to buy? Revenue, profits (EBITDA), growth, personnel, deeper penetration in current market, new products, new markets
  • #32 Buyers want to be contacted – reverse sales job, but don’t over play it, avoid the ides of hyperbole Sellers don’t want to be contacted – have a reason, a thesis Auction vs negotiated transaction – auction sends out materials to the world, sees what sticks. Works well for large companies and/or household names. Smaller deals, especially those with a story, need a high touch approach. Tailor each call to the specifics of a buyer, and asset can have different value props for different buyers, need to communicate that to get Alchemy – making contact is more art than science, use phone and email, each person has a preferred method of contact Screeners – talk to the right person, don’t waste time with the clueless or dedicated doer of evil, tell your story to the decision maker – CFO, corp dev person, or the like
  • #33 Exec sum – anonymous, summary info and financials, just enough to tease buyer into action Tout key selling points - nature of customer relationships (F500, SME, etc), recurring revenue, growth, profits, propriety whatever Be careful – selling is sensitive, may cause harm if competitors learn of pending transaction, be careful
  • #34 Sign Confidentiality Agreement to learn more CA more useful/helpful to sellers Buyer agrees to not reveal info, contact seller, even mention discussions, won’t disclose materials, agrees to return/destroy materials No harm to buyers if the world knows they’re so successful they can make acquisitions Tip: Attach CA to teaser
  • #35 The name – confidential offering memorandum, confidential information memorandum, the book, the package, all mean same thing Digital – provides level of security – watermark Data – huge! History, products, sales & marketing, employees, financials, assets, facilities Here’s the key – it needs to provide enough data for someone to make an offer Staggered release – certain sensitive info (customer names, recipes, etc) may be provided at a later date
  • #36 Indication – buyer submits letter to seller’s rep, stating interest in doing a deal Non-binding Valuation range – usually not a specific, detailed valuation, based on info provided thus far Psychological step Exclusivity – don’t do it, not at this point! Do not proceed to meeting until you know buyer’s intent!
  • #37 Wizard – importance of meeting in person, goes 3 dimension, black & white to Technicolor Update – financial mainly, any other pertinent updates. Do not recreate the wheel, meeting is not for discussion of company history. Answer questions, of course, but if your presentation includes “and then in 2002 we…” you’ve lost the battle. Book will explain all this, make sure buyer has read book Facilities visit – may or may not be important – more important for distribution/manufacturing Neutral ground – depending on situation, may make sense to do the meeting at location other than seller’s office/facility, lots of business people may inadvertently tip hand. Site visit may be separate…weekend or after hours Q&A – do both sides play well together?
  • #38 Offer – specific valuation, steps to closing, timing – what needs to be done (due diligence) Non binding! Exclusivity – seller probably needs to grant this, buyer will be spending time and money, wants some protection that he won’t lose deal at the last minute Financing – pay attention, is buyer asking for a financing contingency? Multiple offers – pick best one
  • #39 Open the kimono – publisher hated that, means full disclosure Seller reveals all to buyer – contracts, financials, employee info, etc. Sensitive stuff – recipes, customer names, trade secrets, source code, etc., provided last Confirmatory! Don’t let buyer slip into post closing planning
  • #40 Consultants – lots of ‘em Auditors (earnings tests, inventory) Lawyers Sundry (marketing, database, IT, environmental) Consultants to consultants Disseminate info – virtual data room Central repository, Security (watermark) Seller controls the process of what information is shared…and when
  • #41 Binding document – finally Keep it fair – one side docs can slow down process Buyer usually provides initial draft – but sell can too, no law against it! Written in parallel with due diligence Redline ping pong – beware, pick up phone to hash out difference, lawyers handle legal issues, investment bankers handle business issues, yes, some gray areas
  • #42 Closing should be a mere formality – all work done before Flow of funds – determines where money goes Similar to buying a house – lots of documents to sign Mere formality – all hard work is done before closing day
  • #43 Very technical term – post closing STUFF Announcing the deal – press release? Tell the employees Collecting - escrow, earn outs, notes, any final or contingently payments Integrate – buyer may need a transition team to handle integration, good idea to have HR personnel on hand to handle paperwork/questions, 401K, tax info, insurance etc Is seller staying on? Transition period? Full time?
  • #45 Valuation What is it? How is it determined? What enhances it? What hurts it? Business owner approach Investment banker approach JKC approach Pro-forma JKC “football field”
  • #46 Valuation is the confluence of cash flow and time Future prospects of the company (historical financials are the guide) The risk associate with the specific business Systemic risk – risk that applies to everyone Cost of capital Some methods to look at valuation EBITDA basis Contribution margin Asset value Multiple of gross profit Multiple of revenue Discounted cash flow
  • #47 Timing of payments - is Seller getting paid at close? Over time? Form of consideration Cash at closing Contingent payments are at risk of retrade by Buyer Stock in the acquiring company? Seller note – in other words, is Seller financing the transaction? Lowers net present value Earn out – Performance risk Working capital adjustment AR/AP Inventory Stock vs. Asset Does it really make a difference? Talk with your tax advisor
  • #48 Client turned down multiple offers in the low to mid $20M range. Accepted offer was $33M, only $2M cash at close, $27M note, the rest in thinly traded penny stock Was re-traded numerous times after closing
  • #49 Adj EBITDA - “Add Backs” are expenses that will go away after a change of ownership or one time only expenses that won’t be incurred again. Adjustments to Owner’s Compensation Might also include payroll taxes and benefits Severance and lawsuit settlement Personal expenses - FAAP The Clubs (country, hunting, health, etc.) Car expenses Family members Travel, meals, entertainment Rent Are your facilities owned or leased? Are you paying over/under or at market rates? Working Capital Reason is to make sure company is operated in “normal course,” removes incentive for seller to sell off inventory, speed up collections of AR, and not pay bills Any issues with AR/AP, inventory?
  • #54 Pro-forma does not mean projections It means benefits Buyer realizes by combining with Seller Reduction/elimination of duplicate expenses Ability to affect price changes Reduction of customer concentration Mitigation of seasonality Smoothing revenue peaks and valleys Ability to get better pricing/terms from suppliers
  • #56 On a pro-forma basis, 5% price increase, better pricing from vendors drops COGS, elimination of duplicate expenses lowers SG&A by $3M. The combination yields an increase of $15M in EBITDA If Kate wanted to acquire Zuzu, what multiple makes sense? 5X on $5M = $25M valuation But the impact of the combined entities is $15M increase in EBITDA. $75M is 15X based on $5M, but only 5X based on $15M
  • #57 Seller Cataloger Late comer to Internet Great customer service Underutilized distribution facility ($3/order) Sales declined from $55M to $29M Losing money ($3M) Buyer “Pure play” Internet distributor No catalog No customer service Expensive outsourced fulfillment ($10/order) ~30M in revenue
  • #60 Seller State-of-the-art distribution facility Centrally located (Louisville) Underutilized $40M revenue, $2M EBITDA Buyer Decrepit light manufacturing and distribution Long Island!! $25M revenue Private equity backed
  • #61 Seller Distributor of packaging Large concentration (45%) $12M revenue, $850K EBITDA Great systems Buyer PE backed roll up of distribution companies Problems with systems – was willing to pay more to pick up the revenue and profits of seller…and also their systems expertise.
  • #62 Earn out - Keep it simple, top line revenue is usually most straight forward, Seller may balk at using profits – unsure of what Buyer will do to overhead Seller note – seller helps finance acquisition Stock – buyer uses equity as currency, what is the market? The float? Daily trading average? How easily can seller convert to cash? Buying less than 100% - Seller might want a Put
  • #65 Legal M&A experience, need lawyers who have done deals. Important! Main job: focus on legal issues (investment bankers handle business issues) Can have input on LOI (which sets the stage for the purchase agreement) But guard against going overboard You don’t want LOI stage to become due diligence The lawyers becomes the QB when LOI is signed Do not let them negotiate business terms! Beware of red line ping pong Accounting/auditing Quality of earnings Inventory, A/R, A/P Wealth management They face tax issues, do they have suitable tax and accounting advisors Investment banker You might interface with one when buying Good thing – you’re dealing with a pro Bad thing – you’re dealing with a pro You might want to retain one for your purposes Acquisition search (finding dealings) Difficult work, need to be focused and dedicated, full time Negotiating and structuring Capital sourcing
  • #66 A deal was slowed when the client insisted on using a long time personal friend as the M&A attorney. The friend was an attorney and had done work on legal docs, perfectly competent for that work. Unfortunately, the attorney had never done an M&A deal. As a result, the attorney was effectively learning on the job. Instead of discussing specific terms, the i-banker needed to explain why certain sections were needed (reps & warranties, but a lot of other facets of the purchase agreement). Lawyer wanted to renegotiate deal terms, issues that were already settled. Reinvented the wheel. Worse, the attorney was a “one man band” and didn’t have a staff. Much of the legal work is compiling the myriad schedules needed in a typical purchase agreement. For law firms of a size, the partner can have 1 or 2 or 3 junior attorneys handle the grunt work of schedules while the senior attorney tends to more pressing matters. Without a support staff, the schedules were largely ignored, leaving the investment bankers to handle the schedules. The upshot is because of the delays, a deal that should have closed in Jan was pushed back to Feb. Then the targeted close date was mid March. First week of March, the company rec’d news that two of its big clients were merging. This would mean the combined clients would rationalize vendors. In other words, the client was about to lose a big chunk of business. This lowered earnings by about $750K a year. At a 6X multiple, the attorney’s delays cost the client $4.5M. Hire someone who knows what they are doing. Do not allow deals to take longer than necessary to close. The longer a closing the takes, the greater the odds something will go sideways.
  • #67 Buffer – let someone else interface between you and the other side. Don’t want to poison the well Full time – selling a company is a full time job. Owners already have a full time job - running the company. Let someone else handle the job of selling the company. Emotions – an owner has spent years, perhaps a lifetime, building a company. The sales process means interlopers will poke and prod, question decisions, make critical comments. Someone who is emotionally detached and an arm’s length away should handle the process Preparation – using a experienced pro, a “been there, done that” type, means you will be prepared instead of constantly surprised and unprepared. Frame – being prepared means controlling the proceedings. The other side isn’t going to make your case. Confidentiality – an intermediary can contact the other side without divulging what company is for sale. Important on the buy side, too. Sellers are reluctant to open up to a competitor, more apt to share info with a nonemployee Timing – a pro will help keep the process apace and moving forward Sounding board – running a business can be a lonely job, don’t go it alone!
  • #68 Investment Banker vs. Business Broker IB – larger deals, larger fees, larger staff, more resources Retainer, monthlies, success fee, expenses Broker – akin to a listing service (real estate) Often willing to work for little or no $$$ Real world skinny: Lack of framing - brokers typically don’t recast numbers Laziness/lack of experience – the forwarded email as a CIM Passive vs. assertive/aggressive
  • #69 Depending on deal, a buyer may bring in other consultants. Marketing and IT are not uncommon. Increasingly, environmental is an issue. Does the facility have any issues? When was a phase one last performed?
  • #70 Poor communication is the death of deals Purposely communicating incorrect facts (also know as lying) Withholding information Unintentionally communicating incorrect information If you don’t know, say you don’t know! Chain of command Who is calling prospecting buyers? Who is responsible for negating and structuring? Who “green-lights” deals? Who is the point-person for contact with advisors?
  • #72 Know Your Position Weak or strong hand Don’t only look at your hand, look at the other players Remember the goal – closing a deal Playing hardball might cost you the deal, where can you bend? Decision maker – only negotiate with the decision maker Rollercoaster ride Don’t get too excited by the highs, don’t let the lows crush you ABC – Always Be Closing
  • #73 Buyer inadvertently revealed they spent $1.6M on DD. When they tried to re-trade the deal, using the inventory issue that we had already disclosed, client wanted to tackle the retrade as well as all other open issues one at a time. I said if buyer can accept our positions on all open issues, we’ll agree to a $500K price concession. I bundled all open issues and made the contingent upon acceptance of our offer.
  • #74 How do Buyers make a bid? Big question, no one size fits all. Depends on myriad factors Ask the Seller “what do you want?” If reply is reasonable/something you can support, you have a deal! If reply is “pie in the sky” - Be blunt and direct, “that’s not going work, but here’s what I can do…” Submit a term sheet – Goose the process, putting something in writing often gets a response What motivates/scares? In a challenged situation, Seller may be happy to get off the hook Assume bank debt Salary from continued employment “All this pain and suffering and worrying…gone”
  • #75 Buyer Large conglomerate, money not an issue, could overpay, wanted to expand into new business lines Seller Cleaning and guarding biz, son-in-law doubled business, liked his independence, main issue: security for family Deal got done by running net present value of deal on the table. Even if he hit his 10 year plan, he’d need everything to go perfectly, no tax increases, no recessions, no problems with work or his health…and he’d be in the exact same position as he is today. Why leave it all on the come line?
  • #76 Successful tactics “Here’s the deal that gets it done” Pick up the phone Conditional if-then The first who speaks loses Don’t be afraid to haggle Beware of a bad bluff Sell it, speak confidentially, get to the point Be prepared to have your bluff called Avoiding Common M&A Negotiating Mistakes Drawing a line in the sand Resorting to “take it or leave it” Yelling Bogging down in minutiae Overselling Personal attacks Negotiate in good faith Code of honor, your word is your bond Poisoning the well Sideways - Getting a deal back on track A negotiation has a flow, a rhythm, when that is disrupted, something is amiss If the other side has gone radio silent, do something different (lunch, a drink, golf) Keep messages succinct, avoid multiple questions/points Avoid long voice mails Mea culpa – “Did I do something wrong?”
  • #77 Successful tactics “Here’s the deal that gets it done” Pick up the phone Conditional if-then The first who speaks loses Don’t be afraid to haggle Beware of a bad bluff Sell it, speak confidentially, get to the point Be prepared to have your bluff called Avoiding Common M&A Negotiating Mistakes Drawing a line in the sand Resorting to “take it or leave it” Yelling Bogging down in minutiae Overselling Personal attacks Negotiate in good faith Code of honor, your word is your bond Poisoning the well Sideways - Getting a deal back on track A negotiation has a flow, a rhythm, when that is disrupted, something is amiss If the other side has gone radio silent, do something different (lunch, a drink, golf) Keep messages succinct, avoid multiple questions/points Avoid long voice mails Mea culpa – “Did I do something wrong?”
  • #78 If you want to sell a company, you need to have reasonable expectations. That means being prepared tax-wise. Have you conferred with your tax advisor? This segues into wealth planning, do you plan to leave anything for the next generation? Your grandkids? Charities? When selling, avoid hockey stick projections. And above all, no matter how crazy and messy the process might seem…TRUST THE PROCESS
  • #79 Client did not do their tax homework. Repeatedly, their advisors told them, “Yeah, yeah, yeah…you’ll be fine.” Did not realize tax hit to A/R. Rejected deal once we were firmly into DD. A few years later, revenues were 50%. Should have taken the deal. Should have planned better.
  • #80 Are you ready to sell? Revenue – the more, the merrier Growth – 1%, 3%, 5%, 10% or is growth flat or, worse, declining? EBITDA - $1M, $3M, $5M, $10M+ Owner – how important? How involved in business? Margin – what is EBITDA margin? 10%, 15%, less than 10%? Accounting statements – audits, reviews, compilations? CAPEX – minimal or heavy? Who will provide documents? How responsive? Secret sauce – where’s the magic? What does the company do better/differently than others? Are you ready to buy? Does your company have the size and financial strength to make acquisitions? Does your bank support your plan? How have you compiled your targets? What’s different about your approach, why would anyone talk to you?
  • #81 Contacted by a Buyer Not unique - everyone and his mother wants to buy a company Random sample of one Proprietary deal flow only benefits buyer Know the deal before meeting (see IOI) Financials – be careful Contacted by Seller (often via an investment banker) The Good: If they contact you, presumably they are serious about selling The Bad: if they contact you, presumably they have contacted others, you might be in a “bake off” The Good: Materials will be prepared in advance, they will understand the process, due diligence materials ready to go The Good: They might be advised by cut throat deal pros (investment bankers) The Bad: They might be advised by cut throat deal pros (investment bankers) So how do you win a bake off? Bid high Connect with the Seller
  • #82 Reviewed numerous companies, then disappeared without informing the other side.