Gt.Selling Your Business.Webinar.Deck

303 views

Published on

If you\'re even considering selling your midsize company in the next couple years, here\'s the bottom line: you should start the process now.

No kidding.

That does not mean you should officially list your business for sale. It means you as the business owner should start some of the "behind the scenes" efforts (that is, preparation) that will enable you to maximize the value of your company during a sale and enhance the terms you\'ll negotiate as early as possible.

0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
303
On SlideShare
0
From Embeds
0
Number of Embeds
15
Actions
Shares
0
Downloads
5
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Gt.Selling Your Business.Webinar.Deck

  1. 1. Growthink’s “Bottom Line” Guide to Selling Your BusinessFebruary 2009 Terms on the Best January 7, 2010 1
  2. 2. What’s in This 45 Minute Presentation?• Our recommended approach to help you sell your private firm on the best terms• Our Bottom Line? • Start as early as possible. Focus on four key areas to maximize your price and the terms of the sale. 2
  3. 3. Today’s Presenters • Troy Centazzo • Managing Director; Group Lead, Investment Banking • Per Larson • Managing Director; Group Lead, Consulting • Decades of combined integrated entrepreneurship, consulting and investment banking (M&A) experience 3
  4. 4. Who is Growthink?• Integrated strategic consulting, investment banking, and market research practice • Practice focus on gazelles and mid-size companies• Founded in 1999, more than 2,000 client engagements to date• Team of 40 finance & consulting professionals• Offices in Los Angeles, New York, San Francisco 4
  5. 5. Our Credentials• Member FINRA, SIPC• Inc. 100 Fastest-growing Business Services Company in U.S.A.• Better Business Bureau “A” Rating• Recognized for our thought leadership regarding business planning, growing and selling comapnies, & entrepreneurship 5
  6. 6. Webinar Format1. 45 Minute Presentation and Q&A2. Questions/comments as we go: – Type in utilizing GoTo Webinar chat-box3. After Call: – We will provide contact information – Survey feedback – You will receive, via email, copies of the review slides and a recording of the presentation 6
  7. 7. Agenda• Who Will Likely Get the Most from this Seminar• Why Value is Often Left on the Table by the Seller• The Growthink Four Pronged Approach to Selling a Business• Ideal Timeline for This Process• The 800 Pound Gorillas in the Room: Tax Changes and the Economic Climate• To Learn More 7
  8. 8. This Seminar is Ideal For• Business owners who – Have greater than $5 million annual revenue – Pre-tax earnings greater than $1 million – Have at least 2 years of operating history – Considering a sale within 3 years – Considering a transfer of leadership to the ‘next generation’ – May have been approached by intermediaries (investment banks) to represent the company in a sale transaction – Have received offers in the past to sell 8
  9. 9. How Most Midsize Private Businesses Are Sold… AndWhy Value is Often Lost by Sellers• Many private businesses are sold in this fashion…. – Selling to another company or executive based on a first offer – Not starting early enough – Choosing the wrong – or no – professional advisors• This process is too often marked by: – Failure to appropriately plan to invest in value- increasing projects – The company’s best attributes are not optimally presented – Company records, financials, processes not addressed – Deals structured without considering tax and other implications 9 – Unprepared sellers
  10. 10. What is the Growthink Approach to SellingBusinesses? 1. “Getting the (Business) House in Order - Early” • “Cleaning up” financial statements, accounting practices, outstanding legal and other situations, and “dotting the I’s and crossing the T’s” 2. “Maximizing Your Value by Re-energizing Your Company’s Business Plan” • Enhance the price you command by implementing a few strategic initiatives – Business Planning 101 3. “Run a Professional-Level Sales Process” • Creating a professional offering package, targeting the right buyers and a leading a well-run process 4. “Structure, Structure, Structure” • Choose the right transaction structure that maximizes your return 10
  11. 11. Selling Your Midsize Business – an Example Timeline (24 - 30 Months) January 2010 January 2011 January 2012 June 2012 1. Getting the (Business) House in Order Due Documentation/Records Financial Models and Statements Diligence 2. Enhance the Company’s Strategy and Plan to Maximize Valuation Understand Success Factors Strategic Planning Execute strategic initiatives 3. Run a Professional Level Sales Process Develop Sales Commence outreach process “Package” 4. Execute Proper StructureUnderstand all Tax and Create list of possible Close Transaction Legal Requirements deal structures 11
  12. 12. Prong 1 - Getting Your (Business) House in Order• What are the key issues that owners of private businesses often face when they decide to sell? ` Record Keeping 12
  13. 13. Prong 1 - Getting Your (Business) House in Order (cont.) The Importance of Pre-Sale Preparation and Planning • Often private – and especially family – businesses have intertwined legal structures and agreements developed over the years. These should be addressed. • Legal and Documentation • Review legal and incorporation documents, contractual agreements and outstanding legal issues, make any necessary changes (see due diligence list) • Fix issues on D&B Report and/or outstanding owner situations that affect business • Work with counsel or a financial advisory group to create a plan to clean up your capitalization table 13
  14. 14. Prong 1 - Getting Your (Business) House in Order (cont.) Lower income/higher expenses = lower taxes. BUT, It also generally means a lower price for your company. 14
  15. 15. Prong 1 - Getting Your (Business) House in Order (cont.)• Financial Statements, Accounting and Taxes • “Cleaning up” Your Balance Sheet Assets: • Get rid of “dead” inventory to avoid adjustments to the price • Eliminate “personal assets” – avoid adjustments during due diligence • Excess cash – either dividend or use for growth and valuation enhancing initiatives • Liabilities: • Pay off notes and other liabilities to shareholders • Make sure all liabilities are accounted for (accruals, etc.) 15
  16. 16. Prong 1 - Getting Your (Business) House in Order (cont.) There are likely local accounting firms that specialize in pre-sale services. Ask for referrals. 16
  17. 17. Prong 2 – Maximizing Value by Re-energizing Your BusinessPlan• Every Business Can Enhance its Strategy and Plan • In the stock market, businesses are judged on the future potential of a company, not just the past. Yours should too. • Understand the value drivers of your sector • Generic sources of value in any industry: • Size of company • Strength of firm compared to competition • Profitability and cash flow; contractual ongoing (“sticky”) revenue • Growth rate and sales pipeline • Size of market and industry trends • Market share • Uniqueness of products and/or services • Patent/intellectual property protection • Identify and execute on key strategic initiatives that will drive the 17 value of your firm
  18. 18. Prong 2 – Maximizing Value by Re-energizing Your BusinessPlan Lots of value left on the table by the seller 18
  19. 19. Prong 2 – Maximizing Value by Re-energizing Your BusinessPlan• Every Business Can Enhance its Strategy and Plan • Lead a strategic and business planning process at your company, asking the following: • Do you really know your • Customers and their needs? • Products’ and/or services’ benefits? • Industry and its opportunities and value drivers? • Competition and how you compare? • Staffing needs and expertise? • Operations and whether they’re efficient? • Focus on executing a few select initiatives to maximize results…quickly. 19
  20. 20. Prong 2 – Maximizing Value by Re-energizing Your BusinessPlan Lots of FREE content on our website: Conducting Market Research ** Business Planning ** 20
  21. 21. Prong 2 – Maximizing Value by Re-energizing Your BusinessPlan• Case Study – Media and Technical Staffing Company in Mid-2009 • About $6M in revenue, four years old, only a few full-time employees • Connected to established production company • Strong growth rate • Intends to sell within 18 to 24 months • Several “brand name” clients • Minimal sales and marketing expertise and effort • Unique expertise • Tough market conditions to raise capital 21
  22. 22. Company Example – Media and Technical Staffing Company A Quick Sector Check – Big Market Shares, Stock Prices DownCompany Stock Price 2 % of 52 Wk. High 2 Market Cap ($mm) 2 TEV ($mm) 2 LTM Total Rev ($mm)Manpower Inc. (NYSE:MAN) $41.31 58.4 3,236.8 3,315.7 21,552.8Kelly Services Inc. (NasdaqGS:KELY.A) $10.80 46.6 375.6 372.5 5,517.3Robert Half International Inc. (NYSE:RHI) $22.75 75.9 3,454.0 3,101.3 4,600.6Volt Information Sciences Inc. (NYSE:VOL) $7.04 44.4 146.7 138.5 2,346.0MPS Group Inc. (NYSE:MPS) $8.04 63.0 743.7 662.6 2,222.3Spherion Corp. (NYSE:SFN) $3.70 59.7 191.0 222.8 2,189.2Watson Wyatt Worldwide, Inc. (NYSE:WW) $52.17 84.1 2,222.2 2,208.9 1,773.9Administaff Inc. (NYSE:ASF) $25.70 80.9 653.5 401.6 1,724.4TrueBlue, Inc. (NYSE:TBI) $9.39 53.7 410.9 304.0 1,384.3Monster Worldwide, Inc. (NYSE:MWW) $11.80 40.2 1,453.7 1,285.0 1,343.6Industry Overall - Human Resource and NA NA 65,213.8 70,713.2 175,338.6Employment Services Equity Valuation Enterprise Valuation Industry Performance Industry Market Cap. 65,213.8 Industry TEV ($mm) 70,713.2 ($mm) P/E (LTM) 12.4x TEV/Total Revenue 0.4x Information about firms in your sector yields Price/Book 2.3x TEV/EBITDA (LTM) 6.5x a gold mine of information about the “value Price/Tangible Book 9.7x TEV/EBIT (LTM) 7.7x Margins Profitability drivers” in your industry Gross Margin % 22.6% Return on Assets % 8.6% EBITDA Margin % 6.2% Return on Capital % 15.0% Net Margin % 3.0% Return on Equity % 19.3% Leverage Coverage Total Debt/EBITDA 1.2x Current Ratio 1.4x Debt/Equity 43.9% EBITDA / Interest Exp. 13.9x Debt/Capital 30.1% (EBITDA-CAPEX) / Interest 13.5x Exp. 22 Yahoo Finance, EDGAR, Yahoo/Google Business News
  23. 23. Company Example – Media and Technical Staffing CompanyTechnical Staffing Industry Overview – Key Drivers of Value(Price) These Conclusions Were All Derived from Publicly Available Information• Threshold revenue number and growth rates• Scale, market share• Customer list, including “types” of customers (recognizable?)• Gross margin• Success in a tough sales environment with a long sales cycle• Reaching critical size Key Business Plan Issue – How to Grow Quickly with Limited Access to Growth Capital? 23
  24. 24. Company Example – Media and Technical Staffing CompanyShort-Term Initiatives to Drive ValueStrategic Initiative 1 – Build up the Pipeline…and Fast• Every Business Can Enhance its Strategy and Plan • Implement a sales and marketing outreach strategy • Target prospects by conducting simple “Google News” searches on key terms like “media technical staff” and reviewing online job postings • Create a 20 minute PowerPoint presentation that provides the prospect with valuable information about their needs, “pain points,” and options • Implement an online “first pitch” to quickly qualify leads and set up meeting • Reach out to non-competing, complementary providers of products/services and ask for referrals 24
  25. 25. Company Example – Media and Technical Staffing CompanyShort-Term Initiatives to Drive ValueStrategic Initiative 2 - Increase Gross Margin Percent and Gross ProfitAmount• Every Business Can Enhance its Strategy and Plan • Implement a sales and marketing outreach strategy • Focus on adding high margin services for existing clients (company already had those available but did not focus on them) • Focus on incremental high margin services on every new proposal and relationship • Identify the most profitable clients and focus on delivering additional services/products to them 25
  26. 26. Company Example – Media and Technical Staffing CompanyShort-Term Initiatives to Drive Value Listen To Your Existing Customers 26
  27. 27. Company Example – Media and Technical Staffing CompanyPotential Outcome of Strategic InitiativesIncreased Valuation and Enhanced Attractiveness as AcquisitionEven 2 – 3 additional clients and a robust pipeline will significantly enhance thiscompany’s valuation and attractiveness to a (strategic) buyer Each incremental $1M Will add between $500K and in annualized revenue $1M to valuation Each incremental Will add between $4 - $8M $500k to valuation in annualized EBIT Projected revenue from Will be discounted but will late stage pipeline add to valuation and prospects attractiveness Value of marquee client Always adds to list to strategic partner attractiveness of firm 27
  28. 28. Prong 2 – Maximizing Value by Re-energizing Your BusinessPlan• Key Take-Away • This does NOT require a several month management consulting study that results in a report • Focus on a few basic – but important - initiatives 28
  29. 29. Prong 2 – Maximizing Value by Re-energizing Your BusinessPlan Analysis-Paralysis by Your Friendly Neighborhood Management Consultant 29
  30. 30. Prong 3 – A Professional-Level Sales Process• All signs point to hiring a third party (as well as business advisors) to assist you in the sales process • A professional advisor will understand the value of your firm, the tax issues you face, and how to market your firm during a sale • Packaging is key, and takes hundreds of hours to do well: financial statements, company overview, projections, due diligence materials • Keep the process as confidential as possible • Creating a targeted buyer list to increase demand • Full time process to contact and communicate with this list • Third party intermediary allows owner to focus on the company • The sales process can be extremely distracting and is not guaranteed to be successful • Statistics show that hiring a third party increases valuation • Professional negotiator – this is what an intermediary does 30
  31. 31. Prong 3 – A Professional-Level Sales Process (cont.)• Types of third parties (intermediaries) and advisors Advisor Types Description Business Brokers – “Main Street Represent small businesses and may specialize in a sector. Businesses (list price for business) Contingent fees about 10%+. Advertise your business. Investment Banks – “Middle Develop strategy for company sale and prepare sales package (memo, Market” (receive bids) presentation, financials, due diligence docs). Lead process. Retainer plus success fees. Unregistered “brokers” and intermediaries with Consultants – Individuals and little experience Miscellaneous advisors to prepare company for sale, find buyer, etc. Firms, including Business Appraisers value businesses. Appraisers Accountants Enhance accounting processes, create financial statements (recasts), assist in due diligence. Advise on structure and tax issues. Lawyers/Law Firms Review company documents and other agreements. Advise on tax issues. Review and negotiate purchase documents. 31
  32. 32. Nominee: “The Busiest, Most Confusing Slide in History”Prong 4 – Optimizing Deal Structure and Terms Deal Structures, Description Pros/Cons TermsAsset Sale Sell assets of your company and retain Often preferred by buyer (to leave (hidden} liabilities. liabilities and create step-up basis), but can create a large tax burden for seller. C-corp double tax – corporate tax, plus capital gains tax (more than 50% of sale).Stock Sale Purchase stock of company from Most buyers prefer asset sales, but taxes may be shareholders higherRecapitalization Option of selling to current employee and remaining active in businessSeller’s You “loan” part of the purchase price to the Allows for the deferral of taxes. Third party equityNote/Financing and buyer, which isHuge you over time. Not investors often like this approach. But, want to be A paid to Tax Hit By Installment sales. tied to business?Installments Planning AheadOngoing Royalty Additional payments post-close (e.g., % of revenue)Consulting Ongoing relationship with purchased Additional income post-transaction.Agreements companyMiscellaneous 1. Accept stock from buyer. 2. Tax free There are so many alternatives, sellers should seek transfers to heirs. 3. Use of proceeds from sale. extremely qualified and experienced advisorsstructures/terms/ 4. Use of “goodwill”. 5. Annuity guaranteesissues with installments. 6. Company structure (LLC, 32 C Corp, S Corp). 7. Depreciation recapture.
  33. 33. The 800 Pound Gorillas in the Room – Current Issues• There are a few evolving conditions to closely follow Services What’s Going On? Capital Gains Tax Increases Potential increase from 15% to 20/25.4% in 2011 when tax cuts expire (ordinary income top bracket may rise to 39.6%). Selling in a Down Economy - Tight credit markets, no matter what the banks are telling Availability of Buyer Financing Congress. On the other hand, there’s lots of capital ready to invest. Boomers, Boomers, Boomers Stats say that up to 75% of private businesses will be up for sale within a decade. Will there be more supply on the market? ? ? ? 33
  34. 34. Recap• Start Now if You Think you Will Sell in the Next 3 years• Learn what Drives Value in Your Business• Get Your (Financial) House in Order• Re-energize Your Business Plan• Engage a Professional to Run the Sales Process• Understand Deal Structures and What’s the Right One for You 34
  35. 35. To Learn More• Contact us at: – troy.centazzo@growthink.com – per.larson@growthink.com – 800-506-5728• We can also conduct a free Company Sale Audit* – Guidance on your particular company sale process• In the LA area? • We’re holding a three hour seminar based on these concepts (February 18) *Pre-qualification required 35

×