Exit/Transition Planning for the Privately-held Payday Business


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Presentation by Mike Costello, Tom Decosimo and Kim Lawrence at the 2011 Community Financial Services Association conference.

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Exit/Transition Planning for the Privately-held Payday Business

  1. 1. Exit/Transition Planning for thePrivately-Held Payday Business Presented by Mike Costello Kim Lawrence Tom Decosimo 1
  2. 2. “When we needed a business valuation, welooked to Decosimo because of their AlternativeFinance industry knowledge and advancedvaluation credentials.” – Check ‘n Go
  3. 3. Today’s Agenda• Business Valuation• Strategic Transition Planning• Sell-Side Advisory 3
  4. 4. Business Valuation 4
  5. 5. Why Get a Business Valuation?Of the many reasons to get a businessvaluation, many are related to exit ortransition planning:• Mergers and acquisitions (“About how much could I get if I sold my business?”)• Buy-sell agreements (“At what price should our ownership interests change hands?”) 5
  6. 6. Why Get a Business Valuation?• Employee incentives including options, phantom stock, and ESOPs (“How can I incentivize employees and/or efficiently transfer ownership to them?”)• Estate, gift, and income tax purposes (“How can I minimize my tax liabilities while transferring ownership?”)
  7. 7. From BV to STP• BV professionals with expertise and experience in these areas naturally fit into an advisory role in M&A, and buy-sell decisions 7
  8. 8. From BV to STP• With combined experience of BV, estate, and tax expertise, Decosimo are ideal advisors for transferring ownership or for preparing an exit strategy for the owner• We call this all-encompassing shareholder planning service “Strategic Transition Planning,” or “STP,” others may call it “Exit Planning,” “Succession Planning,” or “Ownership Planning”
  9. 9. Strategic Transition Planning 9
  10. 10. Strategic Transition Planning 1. Identify Owner Objectives1. Planning 2. Identify Business and Financial Resources 3. Develop STP Plan (Details Strategies to maximize and protect value of business and financial assets and execute transition)2. Preparing The Business Asset: 1. Retain and Incentivize Key Employees 2. Entity Selection The Personal Assets:(Maximizing and 3. Business Continuity 4. Successor Training 5. Value Drivers 1. Estate Planning (Designing an Estate to Minimize Tax Liabilities, Preserve Family Wealth, and Preserve Family Continuity) 2. Wealth Planning (Performed by Outside Advisor)Protecting Value) 6. Estate Planning (Transfer Tax Planning) 6. Other Management Consulting Items (Customer Concentration, etc.)3. Executing Execute Transition to Family, Co-Owner, Management, or Third Party Transfers Wealth from Business Asset to Personal Asset. Continue with Estate and Wealth Planning 10
  11. 11. Phase One 1. Identify Owner Objectives 2. Identify Business and Financial Resources1. Planning 3. Develop STP Plan (Details Strategies to maximize and protect value of business and financial assets and execute transition) 11
  12. 12. Planning Phase• Identify, clarify, and prioritize owner objectives: – When do you want to transfer? – To whom? (family, management, or third party) – How much money does the owner need? – Other objectives (charitable, rewarding ee’s)• Identify and value resources: – Personal assets (financial planner performs a financial needs analysis) – Business asset  perform a business valuation 12
  13. 13. Planning PhaseWhy a business valuation from the start:• Are we there yet? ($ goal - $ personal assets = what owner needs in value from the business) – By comparing the valuation to the needed $ from transfer, we can determine strategy for growth/maintenance of business value (aggressive/ conservative)• Food for thought to aid the “to whom” question: – Different valuation methods can show relative value achieved by transferring to different groups (family, management, and 3rd party) and clarify these strategies• Input data for tax strategies: value of nonmarketable minority interests• Identify value drivers of the business and what is hindering value 13
  14. 14. Planning Phase• Work with current advisors (tax, legal) to develop appropriate strategies to accomplish goals• Come up with an implementation plan with specific time frames per task and assign the tasks to the right advisor 14
  15. 15. Phase Two The Business Asset: The Personal Assets: 1. Retain and Incentivize Key 1. Estate Planning (Designing Employees an Estate to Minimize Tax 2. Entity Selection Liabilities, Preserve Family Wealth, and Preserve Family2. Preparing 3. 1. Identify Owner Objectives Continuity) Business Continuity(Maximizing and 4. Successor Training 2. Wealth Planning 2. Identify Business and Financial 5. Resources Value Drivers (Performed by OutsideProtecting Value) 6. 3. Develop STP(Transfer Tax Estate Planning Plan (Details Advisor) Planning) Strategies to maximize and protect 6. value of business and financial assets Other Management Consulting Items (Customer ad execute transition) Concentration, etc.) 15
  16. 16. Preparing• Implement the strategies developed in planning phase designed to: – Minimize tax liabilities (S vs. C-Corp, etc.) – Increase cash flows and value (value drivers) – Protect business and personal assets – Motivating and retaining employees – Set up estate to handle the size of the business asset – Create an ability to sell the business (if necessary) 16
  17. 17. Phase Three Business Asset: Personal Assets: Execute Transition to Family, Continue with Estate Co-Owner, Management, or and Wealth Planning Third Party3. Executing Transfers Wealth from $$$$ Business Asset to Personal Asset. 17
  18. 18. Family Transition• Plan gifts or other appropriate methods of transition to minimize tax liabilities• Develop strategies to compensate current owner for interest in business• Prepare next generation for running the business• Utilize tax-exempt gifting, if necessary• Transfer control to the next generation 18
  19. 19. Management Transition• Fund management transfer (get money to management for purpose of buying out current owner)• Determine the best means of transition: private equity-backed management buyout, deferred compensation, or other• Consider tax deferral strategies• Prepare management for ownership and running the company• Execute the transition to management 19
  20. 20. 3rd Party Transition• Determine target pricing• Develop sales materials and research potential buyers• Approach and negotiate with buyers• Secure and evaluate offers• Due diligence• Closing 20
  21. 21. DCF’s Three Phase Sell-Side Process 21
  22. 22. DCF’s Three Phase Process• Phase One: Business Review• Phase Two: Research and Preparation of Marketing Materials• Phase Three: Marketing the Company 22
  23. 23. DCF’s Three Phase Sell-Side Process Discuss and identify objectives.  Prepare Teaser (1 to 2 page summary,  Engage and qualify potential buyers, doesn’t disclose company name). send Teasers and NDAs.  Review the Business’s performance.  Begin preparing the Data Room for due  Prepare a Confidential Information diligence. Memorandum (CIM, a detailed  Identify market position, competencies,  Send the CIM and Procedures Letter to description of company). and priorities. potential buyers that execute the NDA.  Prepare a Non-Disclosure Agreement  Field questions from interested buyers.  Identify the business’s qualities that (NDA) and Procedures Letter. make it an attractive investment.  Receive, assess, and negotiate  Discuss and finalize Teaser, CIM, and Indications of Interest (IOIs). NDA.  Arrange management interviews, visits,  Review business’s performance and and presentations. broader economy.  Research universe of potential buyers.  Receive, assess, and negotiate Letters of Intent (LOIs).  Determine target value for the  Determine most probable potential transaction. buyers.  Select finalist.  Assist due diligence and buyer financing.  Prepare business and gather  Discuss potential buyers, determine information for the sale. which to approach.  CLOSE.
  24. 24. Phase One – Business Valuation• Perform a valuation, with particular focus on: – Assessing core competencies of the company – Identify the qualities that make the company an attractive acquisition target – Determine a target value for the company 24
  25. 25. Phase One – Business Valuation• Why perform a business valuation? – Presents all the issues concerning the sale up- front – Identifies concerns that may arise during Due Diligence – Identifies business’ key selling points – Determines expectations for pricing of the transaction (saves the advisor time and money) 25
  26. 26. Phase Two• Involves three steps: – Research and determine potential buyers – Prepare sales documents (valuation feeds into these): • Prepare a Confidential Information Memorandum (CIM) • Prepare a Teaser 26
  27. 27. Phase Three – Marketing the Company• Sell-side stage: – Qualifying buyers – Selecting finalists – Sending out Teasers – Management interviews – Preparing a Data Room – Assessing and – Sending the CIM negotiating Letters of Intent – Assessing Indications of Interest – Selecting the winner – Negotiating with potential – Due diligence buyers – Closing 27
  28. 28. DECOSIMO CPA’s• Accounting firm with nearly 150 CPAs• Headquartered in Chattanooga, TN• Offices in Cincinnati, OH; Atlanta and Dalton, GA; Grand Cayman, USVI; Memphis, Nashville, and Knoxville, TN• Perform tax, audit, and/or business advisory for many payday entities• Expertise in multiple industries 28
  29. 29. Decosimo Advisory Services• A practice of Decosimo firm• Provides business valuation, litigation support, and transaction advisory services• More than 35 years of transaction experience• Professionals hold ASA, CBA, and/or ABV credentials• Significant valuation, litigation support, and transaction advisory experience with payday firms 29
  30. 30. Decosimo Corporate Finance, LLC• “Maximizing Value for the Middle Market”: – Sell-side and buy-side advisory, – Debt and equity capital sourcing, – Fairness opinions, – Valuations, – Due diligence, and other transaction advisory services. 30
  31. 31. Decosimo Corporate Finance• More than $17 billion in transactions 31
  32. 32. Questions? 32