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M+A

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  • OK - Lets do the run down of how it works – We’ll look at all these items in detail but lets do a quick overviewConfidentiality Agreement / Info Request – This is where we startMost Buyers and sellers would rather keep a deal or potential deal secret until it closesWhat are you selling? The questionnaire defines all items for sale as well as learning “the lay of the land”Letter of Intent / Due DiligenceOnce we understand what is being sold, we can make an offer, which is done through the letter of IntentDD is done to determine – if the understanding of value on both sides (buyer and seller) – is truly what has been representedFinancing the deal – Is it all cash? Is it over time? What are the options and how can that affect overall value as well as the ability to get the deal donePurchase and sale agreement – This is where the lawyers earn their moneyOther considerations – HR Issues, Leases Etc.Closing the deal – the mechanics –John will explore thisJOHNS QUESTION on Attorneys
  • This is where we get an understanding of what is being bought or Sold. Again we aren’t purchasing a single asset like a car, there are many moving parts to the box of value we are purchasing so this is where it all gets showcased
  • LOI – Based on the answers given on the Questionnaire – and subject to DD an offer is madeDD – The field work to prove the value on the questionnaire or reveal other issues that may not have been disclosedFinancing – John will go through this but there are many ways to finance a trx. These different methods will have differing tax consequences as well in many cases effect the value of the deal
  • Purchase Agreement – This is the lawyers work and it takes a skilled lawyer on both sides – There needs to be a meeting of the mindsOther Considerations – contingent liabilities (Leases, Deferred Comp etc.) – how are these dealt with?Closing the deal – Other items post closing like assigning leases, transferring contracts, transferring title to vehicles etc. – A checklist is useful to create in this regard and make sure all items are ultimately closed
  • JOHNS QUESTION – Data RoomMany Times as the seller we put together a dossier that includes History of the company, the owners, the market as well as most answers to most standard questions. In affect it’s a document to market our business to potential buyers and that can be stored and accessed electrontically in a data room such as smart vault, sky drive, etc. Or a hard copy
  • Essentially the buyer wants to not only understand the value and number of tangible and intangible assets to be purchased but also the actual selling price may not be the amount the buyer pays and the seller receives.Tax considerations can take a large bite out of the gross amounts, so knowing the type of entity allow the CPAs on both sides to distribute the tax benefits to both the buyer and seller. The Caveat: Make sure you have a good CPA or you may get some unintended surprises
  • We want to know revenue per technician to support the revenue numbers and valuationWe want to get a feel for compliance with DOL regs and Fair labor Standards ACT
  • In this regard, I’m looking for ratios:How many office people does it take to run a certain number of field force membersSales folks to techniciansSupervisors to techniciansThese are all items that based on ratios and industry rules of thumb and experience help support revenue and profitability claimsIn addition, Value can be assigned to an assembled workforce. So we need to understand the org chart
  • We want to protect the asset that we are purchasing! Standard Employment Agreements in our industry usually contain employee non competes. We don’t want employees quitting and stealing customersBenefits – are they similar to ours. Employee expectations?List of employees – Again we want to protect the intangible asset! We need to know that no one is stealing or redirecting or customers Workers Comp / Safety records – Any looming lawsuits, our hiring practices? To many out on WC
  • Is there synergy between buyer and seller? If not an employment agreement may not workPhone lines and InternetContingent or scheduled Liabilities? Leases, yellow page contracts etc
  • Lawsuits? Covered by Insurance?Tax Returns? Outstanding Liabilities or Liens?Software Used – We at PCO bookkeepers work with the 3 majors, PP, Service Pro and Real Green. Having an expert like us go through the sellers data file can result in some pretty interesting informationSoftware used – Integrated our companies – it’s a lot easier if we are on the same platformCustomer agreements – what are we responsible for – any lifetime warranties out there?
  • Contrary to popular belief Value is based on profitability then calculated back to multiple of revenues so that 1x 1.5x etc needs to beanalized for profitability:Later during DD - u have to look at recurring revenue and dollars per hour to figure that outExample: 1 mil – 10 techs, 5 techsTherefore its important to look at recurring, renewals and non recurring revenue
  • Does the types of work (Schedule types) blend well with our business?
  • Health of A/R, A/PNet Value of Hard Assets
  • The most valuable single Asset – Customer List – Get under the hood, look at $ per hour, types of workRoute WorkRenewalsOne TimeTitlesFinancing AgreementsLiens UCC filigsDoes the business fit with ours – people, software, service contracts?
  • Transcript

    • 1. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS DUE DILIGENCE CONQUERING FINANCIAL AND LEGAL OBSTACLES IN A PURCHASE / SALE OF A PCO BUSINESS By: Daniel S. Gordon, CPA John P. Corrigan, CPA, Esq.
    • 2. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Introduction 2
    • 3. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Chronology of a Successful Deal Request for Information / Acquisition Questionnaire Due Diligence - Buyer Due Diligence - Seller 3
    • 4. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Financing the Deal Purchase / Sale Agreement Details not Addressed in the LOI Closing the Deal What’s Next? 4
    • 5. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Chronology of a Successful Deal 5
    • 6. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Negotiating Price and other items of importance 6
    • 7. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Prior to beginning the Information Request The buyer and seller should promise in writing to keep confidential the fact that negotiations are proceeding, and promise not to disclose any information learned during the investigation or negotiations. This provides the parties with some protection if the deal falls through. A Confidentiality Agreement is Standard: 7
    • 8. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS The Request for Information The Buyer provides Seller a written questionnaire concerning matters of importance: • Assets Purchased • Liabilities Assumed • Key Business Points 8
    • 9. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Letter of Intent “LOI” • The buyer outlines the terms and price informally agreed to in a written, nonbinding Letter of Intent (aka Memo of Understanding). Due Diligence • Each party has limited time (30-60 days) in which to investigate each other to see whether they wish to proceed or not. Financing • While sellers prefer cash only deals at closing, buyers usually propose outside or seller financing. We will explore later 9
    • 10. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Purchase Agreement • If there are no nasty surprises uncovered during due diligence, the parties' respective lawyers hash out the details of the Purchase / Sale Agreement Other Considerations • Such as HR, Leases, and complying with State Laws, etc. Closing the Deal • Sign the Purchase/ Sale Agreement and other related documents and subsequently close the deal by fulfilling any conditions as defined earlier 10
    • 11. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Request for Information / Acquisition Questionnaire 11
    • 12. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS General Information Name of Company? Years in Business? Operate in the following State (s)? Describe geographic area? ( i.e. Cities, Counties) Form of Organization? C Corp S Corp Sole Proprietorship LLC Year and State Formed? 12
    • 13. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Technician Information Number of Full Time Technicians? Number of Part Time Technicians? How Are Technicians Compensated? is the pay plan? If Hourly, what are the rates of pay? If Route, what Hourly % of Route Both 13
    • 14. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Non–Technician Information Number of Sales People? Number of Office People? How Are Sales People Paid? Number of Managers / Supervisors? How Are Office People Paid? How are Managers / Supervisors Paid? 14
    • 15. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Also attach the following: 15
    • 16. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Other Information How many advertised phone lines and internet Any contractual obligations? i.e. Yellow Page Contracts Is the company obligated under any office leases? Does seller seek employment with buyer? payment? If so, is the lease assignable? domain names does the company own? If so, for how long and what is the monthly 16
    • 17. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Other Information Is the company currently involved in or does it If yes, please attach information including insurance coverage If no, please attach explanation Has the company filed all tax returns required by QuickBooks Yes No Yes expect to be involved in any lawsuits? Software Used: No Service Pro Pestpac Other (Please List) Please attach a copy of any customer service agreements the company uses Federal, State and Local Authorities? 17
    • 18. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Operational Information Revenue: Commercial Recurring Commercial Non-Recurring Residential Recurring Residential Non-Recurring Termite Jobs Termite Renewals Other Services Recurring Other Services Non-Recurring Total Revenue Proj. Current Yr 2012 2011 2010 18
    • 19. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Customer Information Weekly PC Semi MPC EOM PC Quarterly PC Monthly PC Other Recurring # of Accounts Revenue Per Period Annual Revenue Annual Term Renewals Other Annual Renewals 19
    • 20. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Accounts Receivable: Accounts Payable: Number of Vehicles (Attach Schedule) Estimated Value $ Equipment (Attach Schedule) Estimated Value $ Current 30 Day 60 Day Over 90 Total Any Notes Payable Due on Vehicles or Equipment? Please attach schedule. Asset / Liability Information 20 Analysis of Write offs
    • 21. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Due Diligence - Buyer 21
    • 22. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Formulating an Offer Once the seller provides the completed Request for Information / Acquisition Questionnaire and the Confidentiality Agreement, the buyer makes an offer based on the seller’s answers to the questionnaire, subject to due diligence procedures. 22
    • 23. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Generally, the buyer uses this due diligence phase to: 23
    • 24. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS In order make these determinations, the buyer will want to see 24
    • 25. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Buyer will want to see any management reports used: • Sales reports • Inventory records • Detailed lists of assets • Aged receivables and payables • Payroll and Benefits records 25
    • 26. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Due Diligence - Seller 26
    • 27. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS If you are selling to one of the larger players in the industry you have a good idea of who they are and their ability to close the deal. However, if you are doing a deal with a smaller player you'll want to find out the buyer's… 27
    • 28. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Seller due diligence, finding out about the buyer -why is it important? • If the seller plans to work for the buyer after the sale • Part of the purchase price will be paid in the future though a financing arrangement or an earn-out. Even if you plan to collect all your cash at the closing, walk away, and never look back, you should satisfy yourself that there's at least a reasonable likelihood that the buyer will be able to operate the business successfully. 28
    • 29. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Financing the Deal 29
    • 30. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Types of Financing 30
    • 31. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Elements of a Purchase Agreement 31
    • 32. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS 32
    • 33. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Stock Purchase Agreement (“SPA”) vs. Asset Purchase Agreement (“APA”) 33
    • 34. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Stock Purchase vs. Asset Purchase 34
    • 35. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Restrictive Covenants 35
    • 36. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Representations and Warranties 36
    • 37. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Representations and Warranties 37
    • 38. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Details not Addressed in the LOI 38
    • 39. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS 39
    • 40. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS 40
    • 41. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS 41
    • 42. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS Closing the Deal 42
    • 43. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS 43
    • 44. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS 44
    • 45. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS 45 How Can We Help? For over a decade PCO Bookkeepers has been providing comprehensive financial and operational reporting services to PCOs nationwide: Over that period, we have worked with various companies to analyze enterprise value as well as negotiate and structure appropriate purchase and sale agreements We are pleased to announce that co-presenter of today’s discussion, John Corrigan has joined PCO Bookkeepers as an advisory consultant to strengthen our M&A capabilities
    • 46. THE PEST CONTROL INDUSTRY’S MOST TRUSTED ACCOUNTING FIRM PCO BOOKKEEPERS 46 Bookkeepers M&A Services include: • “Getting your Feet Wet” – Thinking about buying or selling but don’t know where to start? We provide individualized consulting services – “the who, what, where, when and how” • For Sellers – Let us help you refine your thinking as to sell or not to sell - considering all the facts. We can also help with the best way to structure a deal from the sell side • For Buyers – Found a company to buy? We can help analyze it, perform due diligence and help with the best way to structure the deal from the buy side Contact us: Dan Gordon, CPA John P Corrigan, Esq, CPA info@pcobookkeepers.com or Call us at 973-300-0288 x 201