The Art of                                                                   PRESENTERS:   Buying & Selling               ...
WHO WE ARE       Advisors with over 25 years’ experience in the   Automotive, Heavy Duty, and Commercial Aftermarket      ...
MARX GROUP ADVISORS                    TOM MARX                                                      DAVE BARBEAU         ...
MORE THAN JUST MEMBERS…© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and...
1.    Preserve your life’s workTODAY WE                                        2.    Understand your exit strategiesWILL C...
PRESERVE YOURLIFE’S WORK ―Most of myam getting readythe            business. I                        net worth is in     ...
TIMELESS QUESTIONS • Will my business survive me? • How do I get my equity out and gain liquidity when I want to? • How ca...
IF A CATASTROPHE HAPPENED TODAY,ARE YOUR DUCKS LINED UP?     • Is my succession plan in place both practically and legally...
UNDERSTAND YOUR SHORT,             MID AND LONG TERM GOALS              AND YOUR OPTIONS FOR                  EXIT STRATEG...
70% OF ALL SMALL AND MIDSIZED  BUSINESSES DON’T SELL AFTER THEY                     ARE PUT ON THE MARKET                S...
CURRENT                                    • M&A activity increased starting                                              ...
KEY FACTORS FOR CONSIDERING A             TRANSACTIONFOR BUYERS:                                                         F...
WHAT ARE THE TYPICAL STEPS INBUYING/SELLING PROCESS:  STEPS IN BUYING:                                                STEP...
SELLERS© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12...
WHEN DO                                           • You are tired of the hassles – no                                     ...
WHAT DO YOU                                                   • Keep making profit  NEED TO DO                            ...
TYPICAL DEAL STRUCTURES                                                         Joint              Mergers                ...
•    100% paid at closing    TERMS OF                                 •    Seller Financing                               ...
HOW TO                                      •    Keep revenues & profits growing                                          ...
PLAN AHEAD      Ideally, begin to prepare at least 3 years before                     you want to cash out© 2011 Marx Grou...
SELLING: OPTIONS© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- O...
#1: SALE TO                                          Valuation is often book value and           COMPANY                  ...
#2: PASSING                                                           • Valuation is more complex   DOWN TO               ...
#3: SALE TO •                                                 Valuation is determined by the                              ...
#4: SALE TO                                              • Importance of some valuation                                   ...
WHAT IS YOUR COMPANY                   REALLY WORTH?   • Conflicting concepts      – Value to buyer & seller      – Sale t...
WHAT DOES                                                            • Looks at brighter future and  THE SELLER           ...
VALUATION METRICS    • Revenue & operating trends: Past/Current/Projected    • Strength of balance sheet    • Amount of lo...
VALUATION COMPONENTS THAT ARE     IMPORTANT TO PUBLIC BUYERS                Operating                  Buyer Wants        ...
DETERMINING THE VALUATION   •    Recast your P&L   •    Operating earnings averaged over a period of years x a multiple   ...
DETERMINING THE MULTIPLE   •    Strong revenue & profit growth = higher multiple   •    Above average margins= higher mult...
POTENTIAL                                         • Long term debt                                                  • High...
EARN OUT OPTIONS:                              GETTING PAID© 2011Group Advisors Advisors – Succession Planning For Family ...
• Typically 30-50% paid at closing inBASED ON                                          stock or cash                      ...
GETTING PAID:                                                        • Management Buyout                                  ...
• Mezzanine financing is aMEZZANINE/                                              combination of debt and equity          ...
• Company buys back stock – resellsDEFERRED                                                  to management                ...
CASHING IN                                         •                                                   •                  ...
BUYER© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, ...
•      Take out a competitor   BUYERS CAN                                         •      Take out low price leader   GROW ...
WHAT DOES Looksaat the same financial statements              from buyer’s perspective  THE BUYER       • Trailing profit ...
WHAT OTHER                                                 •                                                           •  ...
WHAT OTHER                                            •     Degradation of sales and/or profits                           ...
• Get all skeletons out of the closet—REDUCING THE                                       eventually they will be discovere...
WHEN DO YOU KNOW THE DEAL            IS NOT GOING WELL   •    LONG delays in response   •    Every deal results in a new d...
WHEN DO YOU KNOW THE DEAL              IS GOING WELL                     When the deal closes and money is transferred!© 2...
WHY HIRE AN INTERMEDIARY OR A    SUCCESSION PLANNING EXPERT                      “Only an idiot would sell his own deal.” ...
WHAT TO LOOK FOR WHEN HIRING  A BROKER OR M&A CONSULTANT                                        •    Knows Your Industry  ...
SUMMARY   • Preparation is key when planning for the future   • Gather the information you need   • Regularly update and r...
THANK YOU       If you would like a copy of this presentation or further       information on buying or selling, please co...
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Marx Group Advisors- SSA 2011 "Aspects of Buying/ Selling a Small Business"

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70% of all mall and mid-sized owners who are thinking of selling their business and need to know how to prepare and follow-through the right way to successfully value their business.

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Marx Group Advisors- SSA 2011 "Aspects of Buying/ Selling a Small Business"

  1. 1. The Art of PRESENTERS: Buying & Selling TOM MARX CEO AND CO-FOUNDER a Business PAUL COOPERSTEIN PRESIDENT & CO-FOUNDER© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011
  2. 2. WHO WE ARE Advisors with over 25 years’ experience in the Automotive, Heavy Duty, and Commercial Aftermarket Brokerage: Equity and debt Consulting services Buy-Sell-Merge financing© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 2
  3. 3. MARX GROUP ADVISORS TOM MARX DAVE BARBEAU • Business growth & • Parts distributor & marketing focus aftermarket executive • 25+ years industry • Industry management experience consultant PAUL COOPERSTEIN CHRISTINE LEMAy • Venture capitalist & investment banker • Business development • Business lawyer & manager mediation specialist • International specialist© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 3
  4. 4. MORE THAN JUST MEMBERS…© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 4
  5. 5. 1. Preserve your life’s workTODAY WE 2. Understand your exit strategiesWILL COVER: 3. Current state of the M&A landscape 4. Factors for considering selling / buying 5. When do you know it is time to sell? 6. Typical steps in the buy/sell process 7. Deal structures 8. Valuation methods 9. Getting paid 10. Why hire an intermediary?© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 5
  6. 6. PRESERVE YOURLIFE’S WORK ―Most of myam getting readythe business. I net worth is in to retire and want to sell... Where do I start?‖ - Business Owner© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 6
  7. 7. TIMELESS QUESTIONS • Will my business survive me? • How do I get my equity out and gain liquidity when I want to? • How can I get a fair price when I sell, how do I value the business?© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 7
  8. 8. IF A CATASTROPHE HAPPENED TODAY,ARE YOUR DUCKS LINED UP? • Is my succession plan in place both practically and legally? Could someone take my place tomorrow? • If not: – Company is at risk on all fronts – Key staff is at risk professionally – Uncertainty about direction/leadership can cause attrition – Your family may not be taken care of© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 8
  9. 9. UNDERSTAND YOUR SHORT, MID AND LONG TERM GOALS AND YOUR OPTIONS FOR EXIT STRATEGIES© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 9
  10. 10. 70% OF ALL SMALL AND MIDSIZED BUSINESSES DON’T SELL AFTER THEY ARE PUT ON THE MARKET Selling a business is not like selling a piece of real estate or any other asset© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 10
  11. 11. CURRENT • M&A activity increased starting Q4 2010 STATE OF THE • Transactions are being hampered by low valuations, tight fisted banks M&A and cautious buyers • As competition for acquisitions LANDSCAPE increases, prices will rise • We live in times of great uncertainty© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 11
  12. 12. KEY FACTORS FOR CONSIDERING A TRANSACTIONFOR BUYERS: FOR SELLERS:• Expand geographic reach • Freedom• Enhance revenues, add critical • Financial challenges mass • Disagreements between partners• Gain new customers, suppliers, or family members management, technology • Unforeseen events (illness,• Improve operating margins accident, death, natural disaster)© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 12
  13. 13. WHAT ARE THE TYPICAL STEPS INBUYING/SELLING PROCESS: STEPS IN BUYING: STEPS IN SELLING: • Evaluation of Transactional • Pre-Deal Preparation Assumptions/Marketplace • Confidentiality Agreements Assessment • Identify Buyers • Financing/equity partners • Letter of Intent • Target Selection • Definitive Agreement • Letter of Intent • Due Diligence • Definitive Agreement • Close • Due Diligence • Post Close Execution • Close and Integration© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 13
  14. 14. SELLERS© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 14
  15. 15. WHEN DO • You are tired of the hassles – no more fun YOU KNOW IT • You want to do something else in life • Nostalgia – ―It ain’t like it used IS TIME TO to be‖ • You aren’t sleeping at night SELL? • You don’t want to talk with your spouse – or even your dog!© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 15
  16. 16. WHAT DO YOU • Keep making profit NEED TO DO • Maintain adequate inventory, fill rates and margins DURING THE • Retain key people • Keep customers happy SALES PROCESS© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 16
  17. 17. TYPICAL DEAL STRUCTURES Joint Mergers Acquisitions Ventures Management Going Public Going Buy-Out Private © 2011 Marx Group Advisors – Succession Planning For Family Businesses in the Aftermarket ACOFAS and SSA- October 12, 2011 17
  18. 18. • 100% paid at closing TERMS OF • Seller Financing Earn-out based on multiples of earnings SALE • • Earn-out based on revenues • Hold-backs© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 18
  19. 19. HOW TO • Keep revenues & profits growing • Have credible successor management INCREASE THE • Have a broad customer base PRICE OF YOUR • Pay attention to your balance sheet – Quality of assets, inventory, old BUSINESS equipment, cores, level of debt, working capital reserve • Other strategic assets (real estate, life insurance policies etc.)© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 19
  20. 20. PLAN AHEAD Ideally, begin to prepare at least 3 years before you want to cash out© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 20
  21. 21. SELLING: OPTIONS© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 21
  22. 22. #1: SALE TO Valuation is often book value and COMPANY goodwill to founder via premium or deferred compensation MANAGEMENT© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 22
  23. 23. #2: PASSING • Valuation is more complex DOWN TO • Estate and gift tax considerations FAMILY significantly impact these transactions MEMBER TO RUN© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 23
  24. 24. #3: SALE TO • Valuation is determined by the marketplace or the buyer PRIVATELY HELD • Seller’s representatives can COMPANY and should influence buyer’s valuation© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 24
  25. 25. #4: SALE TO • Importance of some valuation components will vary between PUBLICLY HELD publicly-held buyers and privately held buyers COMPANY • Majority of components will be important to both groups • Due diligence and discovery even more critical© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 25
  26. 26. WHAT IS YOUR COMPANY REALLY WORTH? • Conflicting concepts – Value to buyer & seller – Sale to company management – Passing down to family member – Sale to privately or publicly held company – Book value – Industry standards, benchmarks, trends© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 26
  27. 27. WHAT DOES • Looks at brighter future and THE SELLER diminishes past issues, including those caused by The Great CONSIDER RecessionWHEN VALUING • Promotes strengths for higher priceTHE BUSINESS?© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 27
  28. 28. VALUATION METRICS • Revenue & operating trends: Past/Current/Projected • Strength of balance sheet • Amount of long term debt Assumed Debt Decrease in Purchase Price • Cash flow (EBITDA)/interest expense ratio Slow Less More Pay Cash Debt© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 28
  29. 29. VALUATION COMPONENTS THAT ARE IMPORTANT TO PUBLIC BUYERS Operating Buyer Wants Earnings to Avoid Margin Dilution The larger the seller is in Prediction Public Market Avoids Erratic relation to the buyer, the of Earnings Performance more important these Large components are. Cuts Earning Amounts of Per Share Goodwill© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 29
  30. 30. DETERMINING THE VALUATION • Recast your P&L • Operating earnings averaged over a period of years x a multiple • Consistency in earnings (margin & growth) = fewer years needed • Typical average is prior 3 years© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 30
  31. 31. DETERMINING THE MULTIPLE • Strong revenue & profit growth = higher multiple • Above average margins= higher multiple • Strong buyer marketplace = higher multiple • Valuable assets = higher marketplace© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 31
  32. 32. POTENTIAL • Long term debt • High level of goodwill compared toFACTORS THAT assets and net income • High percentage of aged receivablesREDUCE THE • Dominance of a few customersMULTIPLE • Lower operating margin than that of buyers© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 32
  33. 33. EARN OUT OPTIONS: GETTING PAID© 2011Group Advisors Advisors – Succession Planning For Family Businesses in the Aftermarket© Marx Marx Group - SSA- October 12, 2011ACOFAS and SSA- October 12, 2011 33
  34. 34. • Typically 30-50% paid at closing inBASED ON stock or cash • Additional payments over 2 – 5 yearsMULTIPLE OF based on meeting profit targets • Sometimes a kicker for revenue growthEARNINGS • Sometimes a claw-back if key client or metric is lost or missed or if AR is uncollectible© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 34
  35. 35. GETTING PAID: • Management Buyout • ESOP – will be covered inOTHER OPTIONS another presentationFOR OWNERS • Mezzanine/Equity Partner • Deferred Compensation Payment© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 35
  36. 36. • Mezzanine financing is aMEZZANINE/ combination of debt and equity financing that is often used forEQUITY expansions • Equity partners may be a validPARTNER interim or long term strategy© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 36
  37. 37. • Company buys back stock – resellsDEFERRED to management • Payout over time – 5 to 10 yearsCOMPENSATION • Secured by life insurance – if something happens to principalsPAYMENT • Avoid bank borrowing – hopefully, financed by company cash flow© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 37
  38. 38. CASHING IN • • Stay on in some fashion (if you choose) EmployeeDOES NOT • ConsultantALWAYS MEAN • Run the business for a defined period of timeSELLING OUT • Grow the business with someone else’s investment© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 38
  39. 39. BUYER© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 39
  40. 40. • Take out a competitor BUYERS CAN • Take out low price leader GROW • Expand into regions that allow you to grow your business© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 40
  41. 41. WHAT DOES Looksaat the same financial statements from buyer’s perspective THE BUYER • Trailing profit and loss to determine trends CONSIDER • Weaknesses so they can present lower offer WHEN VALUING • Wonders about the true value of inventory and collectability of THE BUSINESS? receivables© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 41
  42. 42. WHAT OTHER • • Loss of a key customer Loss of key employeesCONCERNS KEEP • Hidden legal or accounting traps • If real estate is included,BUYERS UP AT environmental or structural issues • Will the seller go into competitionNIGHT? (hence non-compete clauses© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 42
  43. 43. WHAT OTHER • Degradation of sales and/or profits during the acquisition processCONCERNS • Changes in the marketplace,KEEP BUYERS • competition or the economy Losing the competitive edge if wordUP AT NIGHT? gets out© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 43
  44. 44. • Get all skeletons out of the closet—REDUCING THE eventually they will be discovered anyway • Full disclosure of all positives andSTRESS OF THE negatives • Timely review and responseTRANSACTION • Carefully think through all responses so they are complete and accurate • Have an intermediary do the heavy lifting© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 44
  45. 45. WHEN DO YOU KNOW THE DEAL IS NOT GOING WELL • LONG delays in response • Every deal results in a new detail • When every paragraph of the LOI ends with ―BUT‖ • When the legal bills are double and triple what you were originally estimated© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 45
  46. 46. WHEN DO YOU KNOW THE DEAL IS GOING WELL When the deal closes and money is transferred!© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 46
  47. 47. WHY HIRE AN INTERMEDIARY OR A SUCCESSION PLANNING EXPERT “Only an idiot would sell his own deal.” “I don’t do my own dental work.” • Having someone else find prospects and negotiate the deal reduces emotions and usually results in higher sell price • Focus on what you do best: running your business© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 47
  48. 48. WHAT TO LOOK FOR WHEN HIRING A BROKER OR M&A CONSULTANT • Knows Your Industry • Experience • References • Intelligent Strategy© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 48
  49. 49. SUMMARY • Preparation is key when planning for the future • Gather the information you need • Regularly update and review your business plan and other documents • Enroll your family/key employees in your plans • Don’t do this alone – get the support of professionals to help you maximize your investment© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 49
  50. 50. THANK YOU If you would like a copy of this presentation or further information on buying or selling, please contact us below: TOM MARX Paul Cooperstein 415.453.0844 ext. 106 617.328.7333 tmarx@marxgroupadvisors.com pcooperstein@marxgroupadvisors.com Marx Group Advisors are located nationwide: BOSTON SAN NEW HOUSTON DETROIT FLORIDA PHOENIX RAFAEL YORK www.marxgroupadvisors.com© 2011 Marx Group Advisors – Succession Planning For Family Businesses in the AftermarketACOFAS and SSA- October 12, 2011 50

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