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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