Thinking About Selling Your Business or Growing Through Acquisition?  A Discussion of Things to Consider  Merger & Acquisi...
Agenda <ul><li>Current Situation  </li></ul><ul><li>Buyers  </li></ul><ul><li>Preparing to Sell  </li></ul><ul><li>Valuati...
Current Market Situation <ul><li>Market is Active  </li></ul><ul><ul><li>Industry Buyers </li></ul></ul><ul><ul><li>Privat...
Sunair/Middleton <ul><li>Offer of $2.75/share X 13.1 Million shares = $36.0 Million </li></ul><ul><li>Debt as of 6/30 = $1...
Types of Buyers & Motivations <ul><li>Strategic Buyers  </li></ul><ul><li>A cash flow stream </li></ul><ul><li>Customer de...
What Buyers Are Looking For?  <ul><li>Operating/Financial Characteristics  </li></ul><ul><ul><li>Revenues (Trailing 12; Bo...
Preparing to Sell <ul><li>“Always be prepared to sell your business, but operate it with the mindset that it will be yours...
Preparing to Sell <ul><li>What’s the curb appeal of your business? </li></ul><ul><li>Target a purchaser  </li></ul><ul><li...
Issues With C Corp Acquisitions <ul><li>Most buyers prefer asset purchase </li></ul><ul><ul><li>Avoid the perceived liabil...
How Buyers Value a Business <ul><li>Multiple of “Adjusted” Cash Flow (EBITDA or EBITA) </li></ul><ul><ul><li>Transparency ...
External Factors <ul><li>Multiple buyers </li></ul><ul><li>Stability of potential buyers local operation </li></ul><ul><li...
Valuation Range <ul><li>Lower retention </li></ul><ul><li>Lower pricing </li></ul><ul><li>Stagnant growth </li></ul><ul><l...
Valuation Myths <ul><li>“ It is worth that much to me ….” </li></ul><ul><li>“ 1.0 (or more) times revenue is the going rat...
Case Study # 1  <ul><li>$6.0 Million in revenues; 6 locations </li></ul><ul><li>Top 10 companies; 3 rd  generation enterpr...
Case  Study # 2  <ul><li>$3.0 Million in Revenues </li></ul><ul><li>Market entry - strategic </li></ul><ul><li>Complex tim...
Case Study # 3 <ul><li>$2.0 Million in Revenue; 15%-20% EBITDA </li></ul><ul><li>One major buyer precluded from the market...
Case Study # 4 <ul><li>$2.1 Million in revenues in a solid market </li></ul><ul><li>Buyer made an attractive offer  </li><...
The Acquisition Process <ul><li>Confidentiality agreement </li></ul><ul><li>Worksheet & financial statements </li></ul><ul...
Employees <ul><li>Meeting as soon as possible </li></ul><ul><li>Buyer typically targets retaining customer level employees...
Growth Thru Acquisition Fundamental Questions <ul><li>How will acquiring another company improve your business </li></ul><...
Understanding Key Metrics - Revenues <ul><li>Revenue mix; recurring vs. non-recurring </li></ul><ul><li>Service frequency ...
Understanding Key Metrics – Cash Flows <ul><li>Easily determined </li></ul><ul><li>Owner benefit </li></ul><ul><li>Market ...
Understanding Key Metrics – Retention <ul><li>Historical retention of the business </li></ul><ul><li>Are differences expla...
Integration Challenges Key to Success <ul><li>Business model compatibility </li></ul><ul><li>Asset conversion </li></ul><u...
Integration Challenges Key to Success <ul><li>Talent to deliver the level of quality of service and upside </li></ul><ul><...
Summary <ul><li>Buyers </li></ul><ul><li>Preparing to Sell </li></ul><ul><li>Valuation </li></ul><ul><li>Case Studies </li...
Questions & Answers Mark Long BlueSky Group, LLC www.blueskygrp.com [email_address] Mobile - 614.448.6640 Fax – 614.659.9392
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Selling Your Business Blue Sky Version V1

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Things to consider if contempleting a sale of your business or looking to grow thru acquisition.

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Selling Your Business Blue Sky Version V1

  1. 1. Thinking About Selling Your Business or Growing Through Acquisition? A Discussion of Things to Consider Merger & Acquisition Consultants Group, LLC BlueSky The
  2. 2. Agenda <ul><li>Current Situation </li></ul><ul><li>Buyers </li></ul><ul><li>Preparing to Sell </li></ul><ul><li>Valuation Methodology </li></ul><ul><li>Case Studies </li></ul><ul><li>The Acquisition Process </li></ul><ul><li>Growth Thru Acquisition </li></ul><ul><li>Question & Answers </li></ul>
  3. 3. Current Market Situation <ul><li>Market is Active </li></ul><ul><ul><li>Industry Buyers </li></ul></ul><ul><ul><li>Private Equity </li></ul></ul><ul><li>Trends </li></ul><ul><ul><li>Credit loosening? </li></ul></ul><ul><ul><li>“ Overhang” of PE funding? </li></ul></ul><ul><ul><li>Threats to current value creation models </li></ul></ul><ul><ul><li>Aging of “Boomer” business owners </li></ul></ul><ul><ul><li>Expiration of current capital gains rates </li></ul></ul><ul><li>Valuations </li></ul>
  4. 4. Sunair/Middleton <ul><li>Offer of $2.75/share X 13.1 Million shares = $36.0 Million </li></ul><ul><li>Debt as of 6/30 = $15.6 Million </li></ul><ul><li>Total consideration = $51.6 Million </li></ul><ul><li>Revenues TTM 6/30 = $52.6 Million (down 18% from $64.0 on 9/30/07) </li></ul><ul><li>EBITDA YE 12/30/2008 - $6.3 Million (8.2X) </li></ul>
  5. 5. Types of Buyers & Motivations <ul><li>Strategic Buyers </li></ul><ul><li>A cash flow stream </li></ul><ul><li>Customer density/fixed cost absorption </li></ul><ul><li>Improvement of overall profitability </li></ul><ul><li>Talent </li></ul><ul><li>Eliminate a competitor/keep from competitor </li></ul><ul><li>New market/geography entry </li></ul><ul><li>Improve their business </li></ul><ul><li>Financial Buyers </li></ul><ul><li>An earnings stream </li></ul><ul><li>Industry entry </li></ul>
  6. 6. What Buyers Are Looking For? <ul><li>Operating/Financial Characteristics </li></ul><ul><ul><li>Revenues (Trailing 12; Booked) </li></ul></ul><ul><ul><li>Revenue per customer/service mix; clarity </li></ul></ul><ul><ul><li>Pricing </li></ul></ul><ul><ul><li>“ Adjusted” EBITDA </li></ul></ul><ul><ul><li>Predictability in performance; trends; candor </li></ul></ul><ul><li>Non-financial Characteristics </li></ul><ul><ul><li>Stability/reputation in the marketplace </li></ul></ul><ul><ul><li>Talent within the organization; “turn key” </li></ul></ul>
  7. 7. Preparing to Sell <ul><li>“Always be prepared to sell your business, but operate it with the mindset that it will be yours forever” </li></ul><ul><li>What are your objectives? </li></ul><ul><li>How do I achieve those objectives? </li></ul>
  8. 8. Preparing to Sell <ul><li>What’s the curb appeal of your business? </li></ul><ul><li>Target a purchaser </li></ul><ul><li>Improve key business fundamentals </li></ul><ul><ul><li>Adjusted EBITDA </li></ul></ul><ul><ul><li>Customer count growth </li></ul></ul><ul><ul><li>Improve customer retention </li></ul></ul><ul><ul><li>Revenue per customer </li></ul></ul><ul><li>Unique competence </li></ul><ul><li>Eliminate deal breakers </li></ul><ul><li>Increased transparency </li></ul><ul><li>Corporate form (C vs. S, LLC) </li></ul>
  9. 9. Issues With C Corp Acquisitions <ul><li>Most buyers prefer asset purchase </li></ul><ul><ul><li>Avoid the perceived liability; unknown </li></ul></ul><ul><ul><li>Less complex due diligence; cost </li></ul></ul><ul><ul><li>Deductibility of goodwill (simple example, 1.0M, 500K goodwill, 100K tax benefit) </li></ul></ul><ul><ul><li>No governance required going forward; simply put the assets on the books </li></ul></ul><ul><li>C Corp shareholder prefer stock purchase </li></ul><ul><ul><li>Dramatically more tax efficient for seller </li></ul></ul><ul><li>Intractable issues often prevent deals </li></ul><ul><li>In certain situations there are alternatives </li></ul><ul><li>Recommendation </li></ul>
  10. 10. How Buyers Value a Business <ul><li>Multiple of “Adjusted” Cash Flow (EBITDA or EBITA) </li></ul><ul><ul><li>Transparency of information is critical </li></ul></ul><ul><ul><li>Risk adjustment for retention or other perceived material risk </li></ul></ul><ul><ul><li>Synergies </li></ul></ul><ul><li>Strategic/inducement premium </li></ul><ul><li>Treatment of debt </li></ul><ul><li>Communicate as multiple of revenues; most readily understood </li></ul>
  11. 11. External Factors <ul><li>Multiple buyers </li></ul><ul><li>Stability of potential buyers local operation </li></ul><ul><li>Legal/franchise conflicts </li></ul><ul><li>Strategic value of the marketplace </li></ul><ul><li>Macro-economic trends </li></ul><ul><li>Timing </li></ul>
  12. 12. Valuation Range <ul><li>Lower retention </li></ul><ul><li>Lower pricing </li></ul><ul><li>Stagnant growth </li></ul><ul><li>Lack of transparency </li></ul><ul><li>Low curb appeal </li></ul><ul><li>Higher risk </li></ul><ul><li>Market economics </li></ul><ul><li>Unpredictable revenues stream </li></ul><ul><li>Solid fundamentals </li></ul><ul><li>Need a platform </li></ul><ul><li>High transparency </li></ul><ul><li>Integration ease </li></ul><ul><li>EBITDA </li></ul><ul><li>High curb appeal </li></ul><ul><li>Market economics </li></ul><ul><li>Competitive buyer dynamics </li></ul><ul><li>Solid personnel </li></ul><ul><li>Lower risk </li></ul>Low Valuation Premium Valuation
  13. 13. Valuation Myths <ul><li>“ It is worth that much to me ….” </li></ul><ul><li>“ 1.0 (or more) times revenue is the going rate” </li></ul><ul><li>“ My business is unique……” </li></ul><ul><li>“ I should be paid for the value of the synergies” </li></ul>
  14. 14. Case Study # 1 <ul><li>$6.0 Million in revenues; 6 locations </li></ul><ul><li>Top 10 companies; 3 rd generation enterprise </li></ul><ul><li>Market expansion & entry </li></ul><ul><li>$6.0 Million all in </li></ul><ul><li>10-12% EBITDA, not transparent, synergies not clear </li></ul><ul><li>Complex IT integration </li></ul><ul><li>Unique selling model; emphasis on commercial </li></ul><ul><li>Customer information, business metrics unclear </li></ul><ul><li>Only strategic buyer </li></ul>
  15. 15. Case Study # 2 <ul><li>$3.0 Million in Revenues </li></ul><ul><li>Market entry - strategic </li></ul><ul><li>Complex timing </li></ul><ul><li>Complex deal structure and due diligence </li></ul><ul><li>$4.5 Million </li></ul><ul><li>Entry into the 2nd largest lawn care market </li></ul><ul><li>Ease of IT integration </li></ul><ul><li>Prospects of future business relationship </li></ul>
  16. 16. Case Study # 3 <ul><li>$2.0 Million in Revenue; 15%-20% EBITDA </li></ul><ul><li>One major buyer precluded from the market </li></ul><ul><li>Not an attractive market </li></ul><ul><li>One major buyer needed a platform so strategic motivation </li></ul><ul><li>Strategic buyer made offer in 2002 of $2.1 Million; </li></ul><ul><li>Despite competitive situation, market economics; buyer makes a compelling offer </li></ul><ul><li>Owner rejected offer, no sense of a plan </li></ul><ul><li>2003 buyer began servicing select areas with small satellite </li></ul><ul><li>Owner came back in late 2004; buyer offered $1.5 Million which was rejected </li></ul><ul><li>2006 seller again initiates discussion; 2006 buyer is no longer interested </li></ul>
  17. 17. Case Study # 4 <ul><li>$2.1 Million in revenues in a solid market </li></ul><ul><li>Buyer made an attractive offer </li></ul><ul><li>Potential seller indifferent; no counter </li></ul><ul><li>The financial situation changed for the buyer </li></ul><ul><li>Seller wanted to re-engage in October </li></ul><ul><li>Buyer would no longer interested for two reasons; perception of gamesmanship and change in market conditions </li></ul>
  18. 18. The Acquisition Process <ul><li>Confidentiality agreement </li></ul><ul><li>Worksheet & financial statements </li></ul><ul><li>Business analytics </li></ul><ul><li>First meeting </li></ul><ul><li>Term sheet, LOI, or other form of non-binding offer </li></ul><ul><li>Internal approval </li></ul><ul><li>Due diligence </li></ul><ul><li>Purchase document generation </li></ul><ul><li>Closing </li></ul><ul><li>Integration </li></ul>
  19. 19. Employees <ul><li>Meeting as soon as possible </li></ul><ul><li>Buyer typically targets retaining customer level employees </li></ul><ul><li>MVR, drug screens, background checks </li></ul><ul><li>Compensation & benefits typically better </li></ul><ul><li>Career paths </li></ul><ul><li>Different expectations </li></ul>
  20. 20. Growth Thru Acquisition Fundamental Questions <ul><li>How will acquiring another company improve your business </li></ul><ul><li>What are you specifically trying to accomplish? </li></ul><ul><li>How will you define and measure success? </li></ul><ul><li>Do you have an integration plan going in? </li></ul><ul><li>What is the degree of complexity? </li></ul>
  21. 21. Understanding Key Metrics - Revenues <ul><li>Revenue mix; recurring vs. non-recurring </li></ul><ul><li>Service frequency and program design similarity </li></ul><ul><li>Average annual revenue per customer </li></ul><ul><li>Pricing per service visit </li></ul><ul><li>Commercial vs. residential </li></ul>
  22. 22. Understanding Key Metrics – Cash Flows <ul><li>Easily determined </li></ul><ul><li>Owner benefit </li></ul><ul><li>Market compensation package </li></ul><ul><li>Upside for improving current cash flow without investment or major change to the business </li></ul><ul><li>Financials transparent and format comparable </li></ul>
  23. 23. Understanding Key Metrics – Retention <ul><li>Historical retention of the business </li></ul><ul><li>Are differences explainable and do they make sense? </li></ul><ul><li>What affect does pricing/service have? Low/low model? Low/high model? </li></ul><ul><li>Service guarantees understandable, are they important part of the value proposition, are they aligned, and impact of change? </li></ul>
  24. 24. Integration Challenges Key to Success <ul><li>Business model compatibility </li></ul><ul><li>Asset conversion </li></ul><ul><li>Ease of IT integration </li></ul><ul><li>Integration of previous years information </li></ul><ul><li>Brand integration/marketing & selling processes </li></ul>
  25. 25. Integration Challenges Key to Success <ul><li>Talent to deliver the level of quality of service and upside </li></ul><ul><li>How are decisions made currently? </li></ul><ul><li>Compensation and incentive symmetry </li></ul><ul><li>Performance standards and measurements </li></ul><ul><li>Ability to handle the transition issues </li></ul>
  26. 26. Summary <ul><li>Buyers </li></ul><ul><li>Preparing to Sell </li></ul><ul><li>Valuation </li></ul><ul><li>Case Studies </li></ul><ul><li>Process </li></ul><ul><li>Employees </li></ul><ul><li>Key metrics & integration </li></ul>
  27. 27. Questions & Answers Mark Long BlueSky Group, LLC www.blueskygrp.com [email_address] Mobile - 614.448.6640 Fax – 614.659.9392

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