M&A and Financing Webinar - February 14th
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M&A and Financing Webinar - February 14th presented by Aaron Hasler, Managing Partner - Succession Lending.
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M&A and Financing Webinar - February 14th
- 1. PRESENTED BY: SCOTT WETZEL, JD - MANAGING PARTNER, SUCCESSION LENDING AARON HASLER – MANAGING PARTNER, SUCCESSION LENDING SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 M&A and Financing POWER LUNCH
- 2. ? ? ? Supply and Demand Dislocation RESULT: What’s causing the dislocation? SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 2 100,000 advisors set to retire by 2025 90% of independent advisors never retire 50 buyers for every advisory practice seller
- 3. SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 3 Who is Succession Lending? Conventional (non-SBA) Correspondent lender providing timely and cost effective bank financing to independent and registered financial advisors to promote the preservation of small business ownership in the financial services industry.
- 4. Opening New Doors for Buyers and Sellers: Bank Financing SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 4 Today’s Buyers: Approaching potential sellers offering to buy their practice with seller financing over a four year period. WHAT SELLERS HEAR: “I do all the work and take all the risk.” Recrafting the Message: Offer sellers cash at close with bank financing for up to 100% of the purchase price with 20-30% escrowed for 12-24 month client conversion hurdles. WHAT SELLERS HEAR NOW: “I can finally retire, receive a fair value for my practice, and not take on all the risk.”
- 5. Why Bank Financing? Seller Advantages • Increased liquidity at closing • 70% - 80% payable at close • Remaining 20% - 30% typically payable within one year • Decreased risk 5SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 Buyer Advantages • Longer loan terms • Reduced monthly payments
- 7. Structural Considerations - SBA vs. Conventional SBA • Variable Rates • Lien against personal property • Restrictive • No partial buyouts • No partnerships • Seller must not remain with the business 12 months post-sale • Cumbersome • 151 documents for close • 3 – 6 months to close • Why? $ Conventional • Fixed rates • No liens on personal property • Flexible • Allows for partial buyouts • Seller may remain with practice in excess of one year • Efficient • 27 documents to close • 30 – 45 days to close SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 7
- 8. Common deal structure with 100% bank financing require 20% - 30% of proceeds held in escrow subject to client conversion hurdles for seller. SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 8
- 9. Mitigating Factors • Loan Amount • Character (credit) • Cash Flow • Loan devalue Our Fee Succession Lending’s Standard Loan Structure*
- 10. SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 10 Complementary Disciplines Comprehensive Services • Enterprise Engineering • Business Valuations • Succession Planning & Equity Pathways • Mergers & Acquisition Strategy • Compensation Structure • Contract Design & Drafting • Corporate Consulting • Ongoing Strategic Support FP Transitions delivers an Integrated consulting Model STRATEGY ANALYTICS LEGAL VALUATION © 2018 FP Transitions, LLC
- 11. SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 11 Commercial Loans EMS Program • Coupon Code: LEND CTS Program • Finance with Succession Lending • 2% of Transaction • 94% success rate Comprehensive Services
- 12. SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 WEALTH MANAGEMENT: Commercial Financing 101 SCOTT WETZEL, JD – MANAGING PARTNER AARON HASLER – MANAGING PARTNER
- 13. SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 13 Bankers and Advisors an Awkward Courtship • 98% of advisors have never entered into a commercial loan • Lack experience and relationships in commercial banking • 99.5% of banks have never entered into an advisory loan • Lack experience and knowledge of how to evaluate an advisory practice Problem: Advisors don’t know who to reach out to and then lack experience on how to present their application. Banks lack understanding of how to evaluate advisory practices Result: Historically, minimal financing available to advisory loan market
- 14. Five C’s of Credit: Wealth Management SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 14 Character Capacity Capital Collateral Conditions Increased transparency as to character – FINRA Ability to repay other obligations Advisors nominal commercial loans and experience Equity (cash) “Houston, we have a problem.” Negative net tangible asset value Term Rates FINRA Deposits Seller’s Practice Conditions are flexible Zero
- 15. SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 15 WEALTH MANAGEMENT: STRUCTURAL CONSIDERATIONS
- 16. Advisory Loan Financing Options & Alignment Seller’s Note v. Bank Financing Seller’s Note • Seller self-finances • 4-5 year term • Higher monthly payments • Buyer often in red for 4-5 years • Buyer not enthusiastic • Seller paid out over 4-5 years • No seller urgency Bank Financing • Bank finances • 7-10 year terms • Lower monthly payments • Buyer in the black Day 1 • Buyer incentivized • Immediate funding • Seller urgency and security • Aligns buyer and sellers SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 16
- 17. Financing Structure Summary Seller’s Note • 4-5 years • Fixed rates • No lien on residence • Flexible conditions SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 17 Conventional • 5-10 years • 7 year Term, 10 year Am • Fixed rates • No lien on residence • Efficient • 27 documents to close • 30 – 45 days to close SBA • 5-10 years • Floating rates • Lien placed on residence • Cumbersome • 151 documents to close • 3 – 6 months to close
- 18. Structural Financing Eligibility Seller’s Note • Tranche sales • Partial sales • Complete sales SBA • Complete sales • Seller must depart the practice entirely within 12 months SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 18 Conventional • Tranche sales • Partial sales • Complete sales
- 19. Increasing Bank Curb Appeal Deposits • Bank’s ability to form a “relationship” with borrower • Operating account • Seller proceeds • Escrow account Equity Increases Options • “Skin in the game” – 5% to 10% Contractual Creativity 19 SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391
- 20. CASE STUDIES: Funded Loans Tranche Sale • $4.2MM valuation • Internal buyer • 25% buyout annually over a 5 year schedule • Deposits Partial Sale • Valuation $6.8MM • Internal buyers • Sole owner sold 48% • Two junior partners • 24% each • $3.4MM bank financing • Deposits SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 20 Complete Sale • $1.2MM valuation • External buyer • 100% cash at close • 25% held in escrow subject to client conversion hurdles • Deposits
- 21. Tax Considerations Seller • Capital Gains • Costs Basis • Asset Sale • Consulting Agreement Taxation • Non-compete • Stock Sale • Cost Basis Buyer • Interest deduction • Debt service ratio • Regular income credits 21SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391
- 22. Bank Financing: Documents Required Buyer • 3 years business tax returns • 3 years personal tax returns • Interim practice financials • Personal Financial Statement • Third Party Valuation Seller • 3 years business tax returns • 3 years personal tax returns • Interim practice financials • Personal Financial Statement • Third Party Valuation 22 Required for Closing: • Purchase Agreement • Corporate Documents • Proof of E&O Insurance SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391
- 23. Steps to Ensure a Successful Acquisition 23SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 Top Tier Practice Value
- 24. Summary • Bank Financing is the game changer the industry needs to increase the number of transactions. • Be patient with the Seller and Buyer. It is an emotional conversation. • Prepare • Our Team 24SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391
- 25. Next Steps: Pre-Qualification SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 25
- 26. SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 26 (866) 567-6282 www.SuccessionLending.com Q&A