Monadnock pres 2

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Monadnock pres 2

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

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