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Monadnock pres 2
 

Monadnock pres 2

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    Monadnock pres 2 Monadnock pres 2 Presentation Transcript

    • Hank Nelson
      Monadnock Advisors LLC.
      Mergers & Acquisitions Overview
      Market Overview – M & A Process
      Maximizing Value
    • M & A Market Overview 2010
      Global M&A volume increased 25% $2 Trillion
      U.S. M&A volume grew 17%
      Aggregate number of transactions increased 34%
      Record number of transactions
      Middle market deals up 59%, volume 72%
      Number of deals under $100M jumped 58%
      Enterprise Value/EBITDA 8.6 compared to 7.6
      Acceleration 2H FY10
    • M & A Market Overview 2010
      Drivers:
      Equity market gains
      Favorable credit markets
      Cash/capital stockpiles driving corporations and financial sponsorship activity
      Moderate economic recovery – Global GDP 4%
      Returned focus on growth vs operational efficiencies
    • U.S. M & A Activity
      Source: Software Equity Group 2010
    • U.S. Middle Market M & A Activity
      Source: Baird M&A Analysis 2011
    • M & A Definitions
      EV – Enterprise Value
      EBITDA – Earnings Before Interest Taxes
      Depreciation & Amortization
      M & A Measurements
      EV/Revenues – Multiple of Revenues 1.0x
      EV/EBITDA – Multiple of EBITDA 9.0x
      Comparables
      Multiples for public companies similar sector – size
      Announced transactions
      Discounted for size, lack of liquidity, concentration
    • U.S. Technology Sector M&A Activity
      Source: Baird M&A Analysis 2011
    • M & A Overview 2011
      General outlook - continued growth from 2H FY10
      R. Blair & Co.
      “Dollar volumes would be consistent with levels achieved in 2005 record year of the previous M&A recovery.”
      Pepperdine Survey IB’s – Private Sale Increase 51%
      Significant Increase 21%
      Drivers:
      Strategic buyers flush with cash $2T in U.S. Co.
      Modest economic growth projected
      M & A perceived as best way for growth
      Financial sponsors (PE) opportunity
      Smaller companies- Make vs. Buy
      Credit markets in play
      Timing….
    • M & A Process
      Role of the M & A Advisor
      Quarterback of Advisory Team
      Legal, Tax, Accounting, Wealth Mgmt
      Operations Consultant
      Strategy Advisor
      Preparation for Sale
      Marketer of Business
      Deal Technician
      Financial Advisor
    • M & A Process
      M & A Advisor:
      Cultivate relationship(s) as part of your company development process
      Free advice – market knowledge, timing, business model
      Forces outward discussion and viewpoint
      Excellent preparation for first time seller
      Ability to respond immediately to any inquiries
    • M & A Process
      Marketing
      Marketing
      Document Prep
      Business Review
      Negotiations
      Screening and Planning
      Transactions
      Business Model
      Historical Financials
      Recast
      Financials
      Projections
      Offering Memorandum
      Executive Summary
      Management Presentation
      Marketing Plan
      Industry Research
      Selection Targets
      Determine Goals and Objectives
      Company Review : Strategic, Operational, Financial,
      Competitive
      Bidding
      Select Finalist
      Structure of Transaction
      Asset vs Stock
      Indemnification
      Reps & Warranties
      Purchase Agreement
      Identify Weaknesses
      Improve Operations
      Develop a Buyers View
      Data Room
      Confidentiality
      Agreement
      Estate Planning
      Execute Agreement
      Funds Transfer
      Letter of
      Intent
      Final Due Diligence
      Term Sheet
      Taxes
      Contact and CA
      Meetings
      Due Diligence
      Establish Marketability
      Realistic Valuation
      Review Process
      Engagement
      6 -12 Month Process
    • M & A Process
      Process Control Change Point
      2
      Competitive Bidding
      Offering Memorandum
      Seller
      3
      Executive Summary
      1
      Closing
      4
      7
      Letter of Intent
      Preparation -
      NO Surprises
      Buyer
      6
      5
      Due Diligence
      P&S Agreement
      Time is the Enemy
      6 -12 Months Process
    • M & A Process
      Degradation of Value:
      Lack of a business plan or projections
      Due diligence preparation – surprises
      Intellectual property - protection or documentation
      Missing projections - timelines
      Lose focus on business
      Customer references
      Employees
    • Maximize Value - Range of Values
      Synergy Value
      Sale to an Outside Buyer - company
      Recapitalization –Angel, VC, PE
      Investment Value
      Management Buyout
      Investment Value (structured)
      Employee Stock Ownership Plans
      Fair market Value
      Gifting
      Fair market Value
    • M & A Maximizing Value
      Primary types of buyers:
      Strategic: Competition – Vendors
      Desire specific aspect – technology –customer base
      New market entrant, leverage internal resource (marketing sales/distribution)
      Financial: Angel, VC, Private Equity, Individuals
      Focus on cash flow from business
      Business base from which to grow – platform
      Theoretically paying for the present value of the future cash flows – usually applied by applying multiple price periods
      Hybrid: Add-ons, Consolidations, Rollups, Product
      Market share but with cash flow that can be enhanced through improved relationships/distribution
    • Risk vs. Return by Investor Class
      Risk
      Angel Investor
      VC Investor
      PE Investor
      Strategic Buyer
      Multiple
    • Risk Assessment = EBITDA Multiple
      Private Business – Growing -Mature
      100
      12%
      100
      17%
      = 5.9x
      = 8.3x
      Higher Risk Assessment by buyer will generate a lower EBITDA Multiple
      Private Business – Mid Stage/SMB
      100
      35%
      100
      25%
      = 2.9x
      = 4.0x
    • Maximizing Value - Valuation Drivers
      Investment Risk
      Investment Consideration
      Cyclical
      Capital Intensive
      Commodity
      Market Share Driven
      New Competition Threat
      Management Selling out
      IP, Owners, Competition
      Stable and Predictable
      High Return on Capital
      Brand Name
      Growing Industry
      Recurring Revenue
      Alignment of Interest
      Technology
    • M & A - Maximizing Value
      Differentiators:
      Company vision
      Technology – product
      Customer base
      Employees
      Business model
      Financial performance
      Stability – (ability to sell future)
      Strategic relationships (gateway)
    • M & A Maximizing Value
      Market Reality for the Entrepreneur:
      Companies no longer look at one opportunity to satisfy needs, but evaluate, compare, assigning weighted value and risk
      Large companies are presented hundreds or more opportunities a month for 5- 15 deals a year
      Need to differentiate
      Market is usually the determinant of time to sell
    • M & A
      M & A is a process not an event
      Hank Nelson
      Monadnock Advisors LLC.
      hnelson@monadnockadvisors.net
      www.monadnockadvisors.net