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8 steps to making successful acquisitions


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Our steps to helping clients find and buy businesses that are currently not listed for sale.

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8 steps to making successful acquisitions

  1. 1. Making Successful Business Acquisitions Our 8 Step Proactive Acquisition Search process: Clients have access to deals others do not, Reduces the time it takes to buy a business, Increases the likelihood of success with an acquired business Business Development Solutions (BDS) Jay Whitney 240 Kirkton Knoll Alpharetta, GA 30022 770-410-7582 770-410-9982 fax [email_address] For a list of several hundred businesses for sale in Atlanta and several thousands for sale in the country, refer to Copyright 2003-20011Business Development Solutions, LLC
  2. 2. The Conventional Approaches to Business Acquisitions <ul><li>Approaches </li></ul><ul><ul><li>Contact Business Brokers </li></ul></ul><ul><ul><li>Review Businesses for Sale Websites </li></ul></ul><ul><ul><li>Network - Lawyers, CPAs, Bankers, Business Colleagues, Trade Associations </li></ul></ul><ul><ul><li>Hear that a Competitor, Customer, Vendor, or some other business is Selling </li></ul></ul><ul><li>Problems </li></ul><ul><ul><li>Reactive approach </li></ul></ul><ul><ul><li>Using a Business Broker that represents the Seller - Legally, everything you say or provide to the Broker can be used by the Broker in the negotiations to get a higher price from you. </li></ul></ul><ul><ul><li>Not using an Advisor that is experienced in business acquisitions can be costly in the negotiations, and in your time spent on potential acquisitions that do not result in a deal. </li></ul></ul><ul><ul><li>85% of all Acquisitions do not meet the original goals of the Buyer. </li></ul></ul>
  3. 3. Many want to make acquisitions, yet Most potential buyers fail to buy <ul><li>Only 2% to 3% succeed within first year </li></ul><ul><li>Only 5% eventually buy </li></ul><ul><li>Average search 9 to 18 months </li></ul><ul><li>Why? </li></ul><ul><ul><li>Some not qualified or committed </li></ul></ul><ul><ul><li>Most are ONLY REACTIVE - they look at only businesses listed for sale. The type of business they are looking for does not happen to be listed for sale at the moment. When acquisitions do occur, many buyers have made many concessions to their carefully considered acquisition criteria. </li></ul></ul><ul><ul><li>Most have never bought a business before - therefore, higher risks unless advisor is used </li></ul></ul><ul><ul><li>Businesses are over priced or other bidders acquire the business </li></ul></ul>
  4. 4. Many business owners want to sell, yet most fail to sell <ul><li>Industry Average: Only a small percentage of businesses “listed” for sale sell in any year </li></ul><ul><ul><li>20% of small businesses </li></ul></ul><ul><ul><li>25% of medium sized businesses </li></ul></ul><ul><ul><li>33% of larger businesses </li></ul></ul><ul><li>Average time before sale is 6 to 18 months </li></ul><ul><li>Why? </li></ul><ul><ul><li>Owner changes his/her mind </li></ul></ul><ul><ul><li>Business Broker just can’t sell it. Some Business Brokers have 10 to 24 “listings” at any time. Some are unprofessional. </li></ul></ul><ul><ul><li>Poor preparation of information for potential buyers </li></ul></ul><ul><ul><li>Some not profitable enough / over priced </li></ul></ul><ul><li>Someone, usually with ties to an insider, buys a good business before it can be listed… usually at a great price. </li></ul>
  5. 5. Proactive Acquisition Search Program <ul><li>Define your acquisition criteria for an ideal business to acquire </li></ul><ul><ul><li>Define Your Acquisition Objectives </li></ul></ul><ul><ul><li>Make A List Of Your Strengths, What Tasks Are You do Well, And Tasks You Like Doing </li></ul></ul><ul><ul><li>Take A Realistic Inventory Of Your Weaknesses, The Tasks You do Not do Well, And Tasks You Do Not Like Doing </li></ul></ul><ul><ul><li>Set Your Short Term Through Long Term Objectives </li></ul></ul><ul><ul><li>Define Your Exit Strategy - Know It Going In </li></ul></ul><ul><ul><li>Establish Specific Acquisition Criteria And Key Business Attributes </li></ul></ul><ul><ul><li>Set Acceptable Price & Terms Guidelines Up Front </li></ul></ul><ul><li>Identify Business Owners who want to sell and that meet your acquisition criteria, but do not want their business “listed for sale” </li></ul>
  6. 6. Higher Level of Activity <ul><li>Businesses listed for sale </li></ul><ul><ul><li>Atlanta area businesses listed for sale now 300 </li></ul></ul><ul><ul><li>Turnover of “listings” in one year 2 </li></ul></ul><ul><ul><li>Total businesses available to ALL potential buyers 600 </li></ul></ul><ul><li>Businesses not listed for sale, but owner wants to sell </li></ul><ul><ul><li>Privately owned Atlanta area based businesses with 38,000 between 5 and 249 employees and over 4 years old </li></ul></ul><ul><ul><li>% of business owners that want to sell 5% </li></ul></ul><ul><ul><li>Total businesses available to YOU 1,900 </li></ul></ul>
  7. 7. Proactive Acquisition Search Program <ul><li>Preparation, planning, & marketing: </li></ul><ul><ul><li>1. Prepare & plan </li></ul></ul><ul><ul><li>2. Locate & select targets </li></ul></ul><ul><ul><li>3. Market to targets </li></ul></ul><ul><ul><li>4. Telephone follow-up </li></ul></ul><ul><li>Evaluation of Opportunity: </li></ul><ul><ul><li>5. Discussions with Sellers </li></ul></ul><ul><ul><li>6. Business evaluation </li></ul></ul><ul><li>Negotiation & Settlement: </li></ul><ul><ul><li>7. Letter of Intent negotiation </li></ul></ul><ul><ul><li>8. Financing, due diligence, & closing </li></ul></ul>
  8. 8. Proactive Acquisition Search Program Goals & Results <ul><li>Quickly </li></ul><ul><ul><li>75% to 80% of our clients successfully acquire a business </li></ul></ul><ul><ul><li>We are PROACTIVE by identifying owners who want to sell, but do not want their business “listed” for sale. </li></ul></ul>
  9. 9. <ul><li>Increase the likelihood that you will be successful with the Acquisition </li></ul><ul><ul><li>With a business “listed” for sale, many prospective buyers look at it. The fact that a business remains for sale may be a signal that something is wrong. </li></ul></ul><ul><ul><li>If you buy a business that meets all your acquisition criteria, your chance of succeeding are higher than if no business is quite right and you start making trade-offs and concessions as to what it is that you really want. </li></ul></ul><ul><ul><li>Financial Management assistance after the sale is available to help make your company successful. By the end of the Due Diligence on a company, we usually understand its financial aspects as well as or better than our client. </li></ul></ul><ul><li>BDS is committed to Client </li></ul><ul><ul><li>We put in 200 to 400 hours for each client </li></ul></ul><ul><ul><li>We accept a limited number of clients and provide timely, responsive service. </li></ul></ul><ul><ul><li>We provide more financial and strategic advice and transaction assistance than offered by business brokers. </li></ul></ul><ul><ul><li>If a transaction is not in Client’s interest, we recommend against it. </li></ul></ul><ul><ul><li>We provide “post-deal” assistance to make the acquisition a success. </li></ul></ul>Benefits Provided by BDS to Client
  10. 10. <ul><li>Consistent delivery of qualified sellers </li></ul><ul><ul><li>First leads in 1 to 3 weeks </li></ul></ul><ul><ul><li>5% average response rate </li></ul></ul><ul><ul><li>3 to 4 acquisition candidates identified within 2 months that meet all of Client’s criteria (industry, size, profitability, price, and deal structure). Acquisition could be finalized in 4 to 6 months. </li></ul></ul><ul><ul><li>We Co-Broker with other Business Brokers to show their “listings” </li></ul></ul><ul><li>Smooth Transition </li></ul><ul><ul><li>Buyers want from Sellers: Smooth transition training, follow-on employment and consulting, covenant not-to-compete, & holding paper subordinated to bank. We do the difficult negotiations so that the Seller does not hold a grudge. </li></ul></ul><ul><li>Securing Financing </li></ul><ul><ul><li>Client may not be able to secure on own, and we can help better the loan terms. </li></ul></ul>Benefits Provided by BDS To Client
  11. 11. <ul><li>We are on your side in getting all material facts </li></ul><ul><ul><li>Brokers representing the Seller are legally required to provide material facts, BUT what is a considered a material fact is limited by law . If the Seller’s Broker discloses more information than legally required by law, and those facts are not in the Seller’s favor, they could be sued by the seller. </li></ul></ul><ul><ul><li>For Example: In Georgia, a Broker representing the Seller is legally required to only provide information on competitors, or potential competitor, within one mile of a business. If they know that a potential competitor is building a new facility more than one miles away, unless the Seller has approved the disclosure of that information, they should not disclose it. </li></ul></ul><ul><li>We provide advice, not just facts </li></ul><ul><ul><li>Brokers representing the Seller are legally prohibited from providing advice. </li></ul></ul>Benefits Provided by BDS To Client
  12. 12. <ul><li>To help client buy business below going valuations </li></ul><ul><ul><li>Bringing synergistic potential sellers to bargaining table who would not have come if they knew your company was the potential buyer. </li></ul></ul><ul><ul><li>Maintaining Client’s confidentiality - Prevents aggressive pricing expectations if Seller knew your company was the potential buyer. </li></ul></ul><ul><li>Value of Client’s time and allowing Client to focus on their current business </li></ul><ul><li>Your plans to grow your company through acquisition can remain hidden from the industry </li></ul>Benefits Provided by BDS to Corporate Client
  13. 13. Business Development Solutions The M&A Resource for Growing Companies <ul><li>Mergers & Acquisitions </li></ul><ul><ul><li>Valued from $500,000 to $20 million </li></ul></ul><ul><li>Business financing </li></ul><ul><li>Chief Financial Officer Services </li></ul><ul><ul><li>Financial analysis, implementation, & coaching after you acquire business </li></ul></ul><ul><ul><li>Budgeting and Cash control during critical one-year period after acquisition </li></ul></ul><ul><ul><li>Goal is to add to profits & reduce the chance of unexpected financial problems </li></ul></ul><ul><li>Jay Whitney, MBA </li></ul><ul><li>Passed CPA exam </li></ul><ul><li>Started in 1992 </li></ul><ul><li>Membership </li></ul><ul><ul><li>Network for Business Acquisition & Investment </li></ul></ul><ul><ul><li>Assoc. for Corporate Growth </li></ul></ul><ul><ul><li>Georgia Association of Business Brokers </li></ul></ul><ul><ul><li>International Business Brokers Association </li></ul></ul><ul><ul><li>Merger & Acquisition Source </li></ul></ul>
  14. 14. Step Preparation & Planning <ul><li>Set realistic objectives </li></ul><ul><ul><li>Financing ability </li></ul></ul><ul><li>Formalize criteria </li></ul><ul><ul><li>Industry </li></ul></ul><ul><ul><li>Size (number of employees, revenue, & profits) </li></ul></ul><ul><ul><li>Amount available for down payment </li></ul></ul><ul><ul><li>Synergy (operations, marketing, technology, …) </li></ul></ul><ul><ul><li>Mesh your strengths with the weaknesses of the business you seek to acquire. </li></ul></ul><ul><ul><li>Where do you want the acquired business to be positioned in 1, 3, and 5 years? What is exit strategy? </li></ul></ul><ul><ul><li>Set acceptable price & terms guidelines up-front. </li></ul></ul><ul><li>Pre-approach research on companies & industry </li></ul><ul><li>Prepare credentials / documentation </li></ul><ul><li>Select Acquisition Team </li></ul><ul><ul><li>Attorney, Tax CPA. Professional financial planner </li></ul></ul>
  15. 15. Step Locate & Select Targets <ul><li>Sellers </li></ul><ul><ul><li>Owner / operators </li></ul></ul><ul><ul><li>Corporate divestitures </li></ul></ul><ul><ul><li>Source: Proprietary database, Dun & Bradstreet directory, Trade associations </li></ul></ul><ul><li>Professional Network </li></ul><ul><ul><li>CPAs’, Attorneys, Personal Financial Planners, Bankers, Brokers </li></ul></ul><ul><li>Merger & Acquisition Web pages </li></ul><ul><ul><li>BizBuySell, Merger Network, Georgia Association of Business Brokers,, Riggs Allen Report, BusinessesForSale, GlobalBX, BizQuest </li></ul></ul><ul><ul><li>We can Co-Broker with Business Brokers that represent the Seller, while representing you, and your interests, as a Buyer’s Broker. Generally, “listing” brokers will not co-broker unless we make the initial contact with them. Do not make an initial contact with the “listing” broker, let us, so we can help you without cost to you. </li></ul></ul>
  16. 16. Step Market to Targets <ul><li>Call each target company to verify information </li></ul><ul><ul><li>Owner’s name, address, employee count, and that the business does what we think it does </li></ul></ul><ul><li>Personal mail </li></ul><ul><ul><li>Target Companies </li></ul></ul><ul><ul><li>CPAs, Attorneys, Personal Financial Planners, Business Brokers, ... </li></ul></ul><ul><ul><li>Quantity: from 100 to 800 </li></ul></ul><ul><li>Expected Results </li></ul><ul><ul><li>10% - phone dialogue </li></ul></ul><ul><ul><li>3% - 10% - meeting </li></ul></ul><ul><ul><li>2% -5% - good prospects within criteria and valuation guidelines </li></ul></ul><ul><ul><li>1% - 3% - short list </li></ul></ul>
  17. 17. Step Telephone Follow-up to Targets <ul><li>Confidential & Professional </li></ul><ul><li>Limited phone questions </li></ul><ul><li>Qualify Seller </li></ul><ul><ul><li>Determine motivation for selling (Retirement, health, … </li></ul></ul><ul><ul><li>Do they meet client’s criteria </li></ul></ul><ul><li>Qualify Client to Seller </li></ul><ul><ul><li>We are retained by client, therefore serious buyer </li></ul></ul><ul><ul><li>Financial capacity & experience </li></ul></ul><ul><li>Secure appointment </li></ul>
  18. 18. Step Discussions with Potential Sellers <ul><li>Goals </li></ul><ul><ul><li>Many tours of business operations </li></ul></ul><ul><ul><li>Convert a Reaction (willing to talk to a good prospective buyer) to a Proactive approach (wanting to sell to a good buyer). </li></ul></ul><ul><ul><li>Gather data and review financials </li></ul></ul><ul><ul><li>Sell Client as a good prospective buyer </li></ul></ul><ul><ul><li>Agreement that value should be based on generally accepted valuation standard. </li></ul></ul><ul><ul><li>Identify Seller (and his/her spouse's) needs - both economic and non-economic </li></ul></ul><ul><ul><li>Multiple meetings with good prospective sellers </li></ul></ul><ul><li>Debrief after </li></ul>
  19. 19. Step Business Evaluation <ul><li>Study operations, industry, ... </li></ul><ul><li>Recast historical financials </li></ul><ul><ul><li>Earnings always under reported </li></ul></ul><ul><li>Agree on financial forecast </li></ul><ul><ul><li>Buy the future </li></ul></ul><ul><li>Mine owners insight </li></ul><ul><li>Determine feasibility </li></ul><ul><li>How well does it meet client’s acquisition criteria? </li></ul><ul><li>Pricing & deal structure recommendation </li></ul>
  20. 20. Step Business Evaluation <ul><li>Value of a Business is more than just the price, it is based on: </li></ul><ul><ul><li>Future performance </li></ul></ul><ul><ul><li>Financial leverage </li></ul></ul><ul><ul><li>Financial return expectations </li></ul></ul><ul><ul><li>Cash flow, not profits </li></ul></ul><ul><ul><li>Deal & tax structure </li></ul></ul><ul><ul><li>Asset type </li></ul></ul><ul><ul><li>Exit strategy </li></ul></ul><ul><li>We value businesses based on: </li></ul><ul><ul><li>Historical comparable Business Sale/Acquisitions transactions </li></ul></ul><ul><ul><li>Internal Rate of Return (IRR) & Present Value calculations </li></ul></ul><ul><ul><li>Will financing be available based on the price & terms </li></ul></ul><ul><ul><li>Will expected cash flow support: debt service, a return on the equity injected, and salary & benefits for new owner. </li></ul></ul>
  21. 21. Step Letter of Intent Negotiations <ul><li>Difficult Negotiations </li></ul><ul><ul><li>Client maintains good relations with seller, allowing BDS to push toward low price </li></ul></ul><ul><ul><li>If client soured relations with seller, a more difficult transition period may eliminate any benefit of a lower price </li></ul></ul><ul><ul><li>As a Broker we can push a deal forward. If a buyer tries to push a deal forward, the seller may raise his/her price expatiations. </li></ul></ul><ul><li>Moderate discussions </li></ul><ul><ul><li>Suggest creative deal structure to reconcile objectives </li></ul></ul><ul><ul><li>Mediate differences </li></ul></ul><ul><ul><li>Record & follow-up on details </li></ul></ul><ul><ul><li>Coordinate advisors </li></ul></ul><ul><li>We analysis and provide a valuation the company to allow our client to knowledgeably negotiate </li></ul>
  22. 22. Step Financing, Due Diligence, & Closing <ul><li>Find lenders, prepare financing deal book, & negotiate best terms </li></ul><ul><li>Administer entire process so that closing is not derailed </li></ul><ul><ul><li>Keep principals informed </li></ul></ul><ul><ul><li>Coordinate the advisors </li></ul></ul><ul><ul><li>Manage Seller/Buyer remorse </li></ul></ul><ul><li>Facilitate due diligence </li></ul><ul><ul><li>Most business acquisitions do not meet their original goals because: financials are not picked apart, buyers do not look past the numbers, and due diligence is inept. We do everything we can so these things do not happen. </li></ul></ul><ul><li>Post-closing consultation </li></ul>
  23. 23. Reasons Why Deal Will Close / Will Not Close <ul><li>1. Motivated Seller </li></ul><ul><ul><li>Find all potential sellers </li></ul></ul><ul><ul><li>Structure deal around “why” they want to sell </li></ul></ul><ul><li>2. Keep Process Moving </li></ul><ul><ul><li>Financing pre-approved </li></ul></ul><ul><li>3. No Surprises </li></ul><ul><ul><li>Document preparation </li></ul></ul><ul><li>4. Work as team </li></ul><ul><li>5. Priced right </li></ul><ul><li>6. Win/Win approach </li></ul><ul><li>1. Seller Surprises (taxes) </li></ul><ul><li>2. Chemistry - seller & buyer </li></ul><ul><li>3. Due Diligent discovery </li></ul><ul><ul><li>Lack of Document preparation </li></ul></ul><ul><li>4. Professional interference </li></ul><ul><li>5. Sales/Profits drop </li></ul><ul><li>6. Financing for buyer </li></ul>The process helps the deal close
  24. 24. BDS Retainer <ul><li>To cover expenses </li></ul><ul><ul><li>For most engagements: Initial fee of $____ to $____. </li></ul></ul><ul><ul><li>Covers most all expenses except overnight and out-of-state travel. </li></ul></ul><ul><ul><li>Out-of-Pocket costs not covered must be approved by client. </li></ul></ul><ul><li>Shows Buyer’s Commitment to Buying and to BDS </li></ul><ul><li>BDS Commitment - 200 to 400 hours </li></ul><ul><li>Retainer is Credited Against the Success Fee </li></ul><ul><li>Justification for retainer </li></ul><ul><ul><li>If there are no businesses listed for sale that meet acquisition criteria, and Buyer expects to buy a business producing profits of say $200,000 per year. </li></ul></ul><ul><ul><li>Then for each month Buyer does not buy a business, the Buyer is out $16,667 ($200,000 / 12) in lost opportunity cost. </li></ul></ul>
  25. 25. BDS Project Fee <ul><li>Transaction fee: </li></ul><ul><ul><li>__% from $____ to $____ </li></ul></ul><ul><ul><li>__% from $____ to $____ </li></ul></ul><ul><ul><li>__% from $____ to $____ </li></ul></ul><ul><ul><li>__% from $____ to $____ </li></ul></ul><ul><ul><li>__% above $_____ </li></ul></ul><ul><ul><li>Minimum of $______ </li></ul></ul><ul><li>Justification for fee </li></ul><ul><ul><li>Savings in Price & terms and financing costs exceed our fee </li></ul></ul><ul><ul><li>You buy a business quicker than by using the conventional approaches </li></ul></ul><ul><ul><li>You should be more successful with the business you acquire </li></ul></ul>
  26. 26. Industry Expertise <ul><li> </li></ul><ul><li>Manufacturing – Printed Circuit Board, Food Processing, Heavy Equipment Parts – After Market, Cabinets / Hardwoods, Printing, Diaper Manufacturing </li></ul><ul><li>Distribution - Fuel, Oil, & Propane Distribution; Vehicle Repair Distribution; Wine Wholesaler </li></ul><ul><li>Transportation - Air Freight, Garbage Collection, Truck Transportation, Courier Service </li></ul><ul><li>Services – Commercial Landscaping, Executive Recruiting & Employee Staffing, Prepress Firm, Carpet Cleaning, Childcare facilities, Healthcare, Heating & Air Conditioning, Post-secondary education, Property management </li></ul><ul><li>Construction - Underground Utilities, Parking Lot Paving & Stripping, Stucco Siding Repair </li></ul><ul><li>Retail – Garden Center, Movie Theater, Title Pawn </li></ul><ul><li>We have experience in a wide array of industries, but the same Merger & Acquisitions fundamentals apply across all of them and many more. </li></ul>
  27. 27. Making Successful Acquisitions in 8 proven steps A presentation from Business Development Solutions It is your choice as to how we can help you: Do you want to look only at businesses listed for sale and likely be bidding against other potential buyers. Or Use a proactive Acquisition search to look at all businesses We can help you either way Copyright 2003 to 20011 Business Development Solutions, LLC