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Exit Strategy PlanningUnderstanding the Current M&A
Environment
Presented by: Gerry Chadwick, CBI
John Keighley, M&A Intermediary
Introduction Transaction Types Potential Buyers Current M&A Environment Critical Seller Decisions Creating Value in Your Business Preparing Your Business for Sale Selling Your Business – The Process Financing the Deal
Discussion Topics
Valuing Small Businesses ◦ Shannon Pratt
M&A Source 5/3 Bank – May 5, 2011 Capital Strategies
Update The $10 Trillion Opportunity
◦ Richard Jackim and Peter Christman Selling Middle Market Businesses
◦ Russell Robb
Source Material
ESOPs Family Succession Sale Partnerships Stock Sale Asset Purchase Non-tax Issues – Stock vs. Asset Sale
Cash/working capital Liabilities/Limiting assumed liabilities Assignment of critical contracts Transfer of licenses
Transaction Types
Private Equity Groups (PEGs) Strategic Corporate Buyers High Net Worth Individuals
Potential Buyers
Approx. 1,500 active PEGs Platform investments – larger investments
in certain categories “Add-on” investments – smaller investments
added to platforms Build financial leverage and critical mass Typically want to invest all money within 5
yrs. and sell within 10 yrs. Often want business owner to stay on for
several years
Potential Buyers - PEGS
Have specific reasons for wanting to make a particular purchase – distribution, new products, financial leverage, new footprint
May be able to pay a premium due to synergy
Generally looking for companies in the same or related industry
May have management team in place for transition
Potential Buyers - Strategic
Usually on the smaller end of middle market Bring specific expertise to transaction Relies on strong, existing management
team Financing can be an issue –need personal
guarantees
Potential Buyers - HNWI
Seller’s Market◦ Many prospective buyers for too few strong
businesses Business Values are on the rise
◦ Back to levels of 3-4 yrs. ago◦ 3-4X for smaller companies with modest growth; 5-
7X for larger businesses with strong projections Depends on industry, capability of management,
balance sheet Strategic and PEGs are flush with cash Banks are lending Potential for capital gains tax increases
Current M&A Environment
Timing ◦ Planning can take 2-3 yrs.◦ Sale process can take 6-18 mos.
Pre-sale self assessment◦ What are your motives◦ Desired outcome◦ Timeline◦ Financial ◦ Buyer – what type of buyer do you want◦ Business Continuity◦ Prepare yourself – time, energy, disclosure,
money
Critical Seller Decisions
Evaluate your business◦ Financial health of business◦ Non-financial aspects◦ SWOT analysis◦ Transferability
Take the time to improve where needed◦ Management team◦ Customer base◦ Brand◦ Balance sheet◦ Facilities
Keys to Success
Assemble your team◦ Accountant◦ Attorney◦ Financial planner◦ Estate planner◦ Banker◦ M&A Intermediary/Business Broker
Set the right expectations ◦ Business valuation, real estate appraisal, equipment
valuation Perform pre-sale due diligence Develop/update strategic plan and forecast
Preparing Your Business to Sell
Develop marketing materials◦ Offering Memorandum◦ Blind profile/teaser
Prepare target list of buyers Launch campaign Interview prospective buyers/screen Manage due diligence/data room Structuring and negotiating the deal Close sale Implement transition plan
Selling Your Business – The Process
Financing Sources◦ Commercial banks◦ SBICs/SBA◦ Subordinated debt funds
Things Banks care about◦ Cash flow (EBITDA)◦ Balance sheet◦ Collateral (and ability to gain first lien position)◦ Personal Guarantees
Financing the Deal
Financing Sources◦ Commercial banks◦ SBICs/SBA◦ Subordinated debt funds
Things Banks care about◦ Cash flow (EBITDA)
Does not include Seller’s discretionary expenses◦ Collateral (and ability to gain first lien position)◦ Personal Guarantees
Financing the Deal
Questions
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Dayton, OH 45459
937-866-4611
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