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Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
Preparing Your Company For Sale
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Preparing Your Company For Sale

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Presentation by Kevin Learned of General Counsel, P.C. and Braun Jones of WWC Capital, LLC

Presentation by Kevin Learned of General Counsel, P.C. and Braun Jones of WWC Capital, LLC

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  • 1. Preparing Your Company for Sale<br />March 23, 2010<br />
  • 2. Agenda<br />7:15 – 7:45 – Breakfast and Networking<br />7:45 – Introduction and Welcome<br />Merritt Green, Managing Partner, General Counsel, P.C.<br />7:50 – 8:45 – Program Panel<br />Braun Jones, Partner, WWC Capital Group, LLC<br />Kevin Learned, Chair, Corporate Practice Group, General Counsel, P.C.<br />8:45 – 9:00 – Q&A<br />
  • 3. Contents<br />The Essence of Value<br />Maximizing Value<br />Preparing for Due Diligence<br />M&A Process<br />
  • 4. I. The Essence of Value<br />
  • 5. Four Primary Valuation Methods<br />Asset-Based Methods<br />(unusual in M&A, unless liquidation)<br />Marketplace Methods<br />M&A methods (comparable transactions) <br />Guideline public companies<br />Income Methods<br />Discounted (or capitalization of) cash flows<br />Rules of Thumb<br />
  • 6. Value<br />Benefit<br />Risk<br />=<br />The Essence of Value <br />Value Defined<br />Value can be defined as a <br />risk-adjusted benefit<br />
  • 7. Value<br />Cash Flows<br />Expected Return<br />=<br />The Essence of Value <br />Value Defined (cont.)<br />Forward looking<br />Time Value of Money plus Risk<br />
  • 8. The Essence of Value <br />Value Creation<br />The key to value creation is to identify those strategies that most effectively:<br /> improve net cash flows and/or <br /> reduce risk<br />Value creation is a function of the company’s growth potential (revenues, profits, and capital base) and its ability to earn a return on invested capital above its cost of capital<br />
  • 9. The Essence of Value <br />Multiples, ROI, and Risk<br />Risk quantifies the likelihood of achieving less than expected returns.<br />It can also be thought of as the time you are willing to wait to get your investment back<br />
  • 10. The Essence of Value <br />Buyer’s Perspective<br />Buyers evaluate businesses as to their risk factors and expectations of future earnings<br /><ul><li>Historical earnings
  • 11. Growth prospects for business and industry
  • 12. Depth of management
  • 13. Employee stability
  • 14. Terms of sale
  • 15. Competition
  • 16. Location and facilities</li></li></ul><li>Perspectives on Value<br />Fair Market Value: An appraiser’s formal valuation (normally for legal or IRS purposes)<br />Investment or strategic value (beauty is in the eye of the beholder)<br />Dynamic valuation (effective auctions)<br />
  • 17. Normalization Adjustments<br />Track adjustments and present them clearly<br />Main types of normalization adjustments:<br />Non-recurring revenues/expenses<br />Discretionary/personal expenses<br />Owners salaries (if not indicative of market rates)<br />Unusual accounting methods<br />Rent (if not indicative of market rates)<br />Have back-up schedules where needed<br />
  • 18. How Do You Normalize Earnings? <br />
  • 19. What about the Balance Sheet?<br /> Company A<br />$10M Revenue<br />$1M Earnings<br />5x Earnings Multiple<br />$5M Valuation<br />No Debt<br />Sales Price = $5M<br />Equity Value = $5M<br /> Company B<br />$10M Revenue<br />$1M Earnings<br />5x Earnings Multiple<br />$5M Valuation<br />$1M Debt<br />Sales Price = $4M<br />Equity Value = $4M<br />“Enterprise Value” is $5 million for both<br />
  • 20. II. How to Maximize Value<br />
  • 21. Value Drivers <br />What Drives Business Value?<br /><ul><li>Quality of Revenues
  • 22. Financial Performance
  • 23. A Strong Balance Sheet
  • 24. Management Team’s Depth and Experience
  • 25. Quality of Assets (tangible and intangible)
  • 26. Intellectual Property
  • 27. Proprietary Information and Processes (competitive advantage)
  • 28. Growth History and Potential (business / market)
  • 29. Quality and Uniqueness of People, Products, & Services
  • 30. Favorable Economic & Industry Conditions</li></li></ul><li>Risk Drivers <br />What Drives Business Risk?<br /><ul><li>Lack of Customer Diversification
  • 31. Contingent Liabilities
  • 32. Inexperienced Management Team
  • 33. Lack of Management Depth
  • 34. Poorly Maintained Assets
  • 35. High Operating Costs
  • 36. Frequent Contract Renewals (bidding)
  • 37. High employee turnover
  • 38. High Financing Costs
  • 39. Weak Accounting Systems, Record Keeping, and Controls
  • 40. Poor Visibility, Small Backlog
  • 41. Litigation Exposure (Health Hazards, Environmental, Tax, Compliance, etc.)</li></li></ul><li>The Value Enhancement Process<br />Value Building Map<br />
  • 42. The Value Enhancement Process<br />Strategic and Process Initiatives – Track and Improve<br />Sales<br />Sales lead and pipeline tracking<br />Improve customer satisfaction<br />CRM or other automation<br />Proprietary methods (e.g., training programs, follow-up, etc.)<br />Order processing automation<br />Problem resolution<br />Supervision<br />Marketing<br />ROI analysis<br />Customer surveys<br />Market driven product development, refinement<br />Build corporate identity/brand<br />Public relations<br />Social network marketing initiatives<br />Proposal development<br />Market segmentation or other research<br /> <br />Finance<br /><ul><li>Improve reporting systems
  • 43. Financial dashboard
  • 44. Improve cash flow, liquidity
  • 45. Reduce operating, overhead costs
  • 46. Detailed projections with backlog and pipeline
  • 47. Improve collections
  • 48. Proprietary procurement procedures
  • 49. Improve ROIC</li></ul> <br />Human Resources<br /><ul><li>Lower turnover
  • 50. Develop job descriptions
  • 51. Conduct regular performance reviews
  • 52. Create effective incentive programs
  • 53. Proprietary recruiting methods
  • 54. Training
  • 55. Compensation reviews, committees
  • 56. Formal grievance process</li></li></ul><li>Business Owner Considerations <br />What else is important to enhance value?<br />Plan for exit<br />How important is the CEO/owner<br />Who are the key employees – are they properly incentivized<br />Who has the key relationships with customers<br />Are there management gaps<br />Value-based strategy<br />Insurance, risk exposure<br />Tax, investment, and estate planning (business and personal)<br />
  • 57. Top 10 Seller Mistakes<br />Overestimating or underestimating value<br />Trying to time the market or selling at the peak<br />Failing to plan for taxes and estate<br />Focusing on price and not terms <br />Failing to take a buyer’s perspective<br />Failing to lock-in key personnel <br />Keeping poor accounting records <br />Failing to seek professional assistance<br />Underestimating the required time and complexity of issues<br />Waiting too long – not selling into positive momentum<br />
  • 58. IV. Preparing for Due Diligence<br />
  • 59. Preparing for Due Diligence<br />Don’t Wait for the Buyer<br /><ul><li>Accounting
  • 60. Taxes
  • 61. State Registrations
  • 62. Ownership
  • 63. Governance
  • 64. Contracts
  • 65. Affiliated Transactions
  • 66. Employees/Contractors
  • 67. Intellectual Property
  • 68. Contingent Liabilities</li></li></ul><li>Accounting<br />Balance the Books<br /><ul><li>Accounting Systems and Controls
  • 69. Audited Financials
  • 70. Buyers Will Require
  • 71. Identify and Resolve Issues
  • 72. Through Recent Calendar Quarter
  • 73. Consider Auditing Up to Three Years Back
  • 74. Be Prepared for Recent Financials to be Reviewed
  • 75. Track Normalization Adjustments</li></li></ul><li>Taxes<br />Get Current with Uncle Sam<br /><ul><li>Income
  • 76. Sales and Use
  • 77. Employee/Payroll
  • 78. Property
  • 79. Franchise</li></li></ul><li>State Registrations<br />Are You Qualified?<br /><ul><li>Obtain a Good Standing Certificate
  • 80. Place of Formation
  • 81. Other States Where Qualified
  • 82. Qualify Where Doing Business
  • 83. Location of Contract Performance
  • 84. Generating Sales/Income
  • 85. Generally, Not Mere Solicitation </li></li></ul><li>Ownership<br />Avoid Loose Ends<br /><ul><li>Update Stock Ledger and Capitalization Table
  • 86. Document All Equity Issuances and Transfers
  • 87. Document All Incentive Compensation
  • 88. Clean-up Unwanted Transactions
  • 89. Transfers in Violation of S Corp Restrictions
  • 90. Issuances with Negative Tax Implications
  • 91. Transfers/Issuances in Violation of 51% Ownership Requirements</li></li></ul><li>Governance<br />You are Selling a Real Company<br /><ul><li>Make Sure Your Organizational Documents are Updated
  • 92. Conduct Regular Board Meetings
  • 93. Conduct Annual Shareholder Meetings
  • 94. Adopt Current Resolutions Appointing Directors and Officers</li></li></ul><li>Contracts<br />Is Everything Updated?<br /><ul><li>Are Expired Contracts Continuing?
  • 95. Amendments, Work Orders, etc.
  • 96. Identify Contracts That Require Notice or Consent
  • 97. Identify Contracts with Other Transfer Restrictions
  • 98. Set-aside Restrictions
  • 99. Contracts Currently Being Negotiated
  • 100. Look Ahead to a Sale
  • 101. Terminated Contracts</li></li></ul><li>Affiliated Transactions<br />Keep Everything Separate<br /><ul><li>Document Agreements Between the Company and Owners or Affiliates
  • 102. Loans
  • 103. Leases/Subleases
  • 104. Shared Services
  • 105. Intercompany Transfers
  • 106. De-Personalize the Company</li></li></ul><li>Employees/Contractors<br />Lock Down Your Team<br /><ul><li>Employment Agreements with Key Employees
  • 107. Non-competition and Non-solicitation provisions
  • 108. Change of Control Bonuses
  • 109. Incentivize Employees to Stay with the Company
  • 110. Limit Concerns with Transition
  • 111. Keep Focus on Business Operations
  • 112. Well-drafted Independent Contractor Agreements
  • 113. Human Resources/Immigration Audit</li></li></ul><li>Intellectual Property<br />Do You Own It?<br /><ul><li>Work for Hire
  • 114. Assignment of Inventions
  • 115. Patents
  • 116. Trademarks
  • 117. IP Audit</li></li></ul><li>Contingent Liabilities<br />Resolve Disputes<br /><ul><li>Pending or Threatened Litigation
  • 118. Engage Competent Counsel
  • 119. Determine Amount in Dispute</li></li></ul><li>IV. The M&A Process<br />
  • 120. Assembling the Team<br />Owners and key managers<br />Attorneys (w/ specific M&A experience)<br />Accountants (before-the-fact clean-up and after-the-fact compliance, tax specialists)<br />Investment bankers (valuation, marketing, process, and negotiation experts)<br />Estate planning and/or financial planning professionals<br />
  • 121. The M&A Deal Process<br /><ul><li> Establish transaction objectives and parameters
  • 122. Create a potential</li></ul>acquirer/partner list<br /><ul><li> Draft Confidential</li></ul>Information Memorandum<br /><ul><li> Preparing for Due Diligence
  • 123. Contact prospective acquirers/ partners
  • 124. Narrow the potential acquirer/ partner list
  • 125. Answer initial information requests
  • 126. Schedule management presentations
  • 127. Solicit 1st round indications of interest
  • 128. Preliminary due diligence deliveries
  • 129. Provide additional financial and operational information, as appropriate
  • 130. Request best and final offers
  • 131. Evaluate offers and select acquirer / partner
  • 132. Negotiate letters of intent
  • 133. Complete due diligence deliveries
  • 134. Facilitate completion of the documentation
  • 135. Close transaction
  • 136. Assist with financial risk minimization</li></li></ul><li>Seller<br />Buyer<br />Multiple Offers<br />Closing<br />Management<br />Presentation<br />LOI Negotiations<br />Exclusivity to Buyer<br />Seller’s Advantage Curve<br />
  • 137. Questions?<br />Kevin R. Learned<br />General Counsel, P.C.<br />6862 Elm Street, Suite 800<br />McLean, Virginia 22101<br />p: (703) 226-2713<br />e: klearned@generalcounsellaw.com<br />Wm. Braun Jones, III<br />WWC Capital Group, LLC <br />11911 Freedom Drive, Suite 1010 <br />Reston, Virginia 20190 <br />p: (703) 995 2175 <br />e: bjones@wwccapital.com<br />

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