At some point in the life-cycle of a company the decision is reached to sell the organization. For most owners and management teams this is an unfamiliar process, resulting in mistakes being made which can weaken the company’s negotiating position or even result in a failed attempt to complete an agreeable transaction. John Piercy presents the “typical stages” in a company sales process and discuss the do’s and don’ts associated with each step. The primary focus will be on how to properly prepare for a sale, how to establish realistic estimates of the value for a company and how to successfully navigate a competitive bidding process. John will use his background as a private equity investor and his experience in successfully selling three companies to provide real-life examples of the pit-falls that can happen in a sales process. This presentation will be of interest to any owners and employees of companies, regardless of size, that may be interested in selling or buying a company as well as those in the services industry that support these companies. About John Piercy: John Piercy is the Group Vice-President of Business for Shaw Communications, where he has sales, marketing and operational responsibilities for Shaw’s business markets. Prior to joining Shaw, he was the CEO of Atria Networks and, prior to that, the President of Mountain Cablevision - both companies being successfully sold to Rogers Cable and Shaw Communications respectively. (Each of these transaction set new benchmarks for valuation and were transacted during a recessionary market). John’s career also includes a number of years as a venture capital investor with BCE Capital and The Becker Group.

1. Optimizing the Value of
Your Company
January-11-12

2. BITNET Presentation – January 10. 2012
Shaw Business
• Extensive Fibre footprint across
Canada with deep-fibre penetration
and coax distribution in Western
Canada
• Deep roots in the business segment
from Shaw “Big Pipe” and Shaw for
Business
• Have a suite of Business products
that address the needs of Small,
Medium, Large and Carrier
customers, including:
• Voice trunks/SIP trunks
• Hosted telephony
• Internet
• Ethernet LAN connectivity
2 • WiFi

3. BITNET Presentation – January 10. 2012
AGENDA
• How to maximize the value of your company
in a sales process:
• Typical Sales Process
• Pre-Sale Decision
• Valuation
• Preparation
• Process to maximize value
• Keys to successfully selling a company
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4. BITNET Presentation – January 10. 2012
The Process and Timeline
Pre Sales Non-Binding Post
Preparation Bake-off Pre-closing
Decision Bids Closing
2 Months 1 Month 2 Months 2 Months
• This process and timeline would be typical of a business that is:
• $50M to $500M in value
• Non-public
• Moderate complexity
• Buyer and seller are motivated
• No regulatory requirements
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5. BITNET Presentation – January 10. 2012
Pre-Sales
• Always be prepared:
• Keep a record of transactions in your industry
• Have a business plan that looks forward three years or
more
• Contracts and Legal Documents
• Have list of all contracts and their location
• Better yet - keep them in a single location or in a Database
• Avoid “consent for change of control clauses”
• Avoid a complicated ownership structure and any
restrictions on the sale
• Make the decision to sell at the right time
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6. BITNET Presentation – January 10. 2012
Pre-Sales
• When is the right time to sell?:
• Depends heavily on the market, the company, the
owners,…
• To maximize value it would be perfect if:
• There are multiple motivated buyers
• You are the only seller
• Company has a strong opportunity to grow
• No recent, material changes (lawsuits, company structure,
ownership,……)
• No gun to your head
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7. BITNET Presentation – January 10. 2012
Decision to Sell
• Hire Professional help
• Bankers/brokers
• Lawyers
• Accountants
• Negotiate a fee prior to start (avoid hourly charges)
• Make a list of the potential buyers and why they would
want to buy your company.
• Establishing value expectations and validate it.
• Discounted Cashflow
• Enterprise Value as a multiple of Earnings
(EV/EBITDA)
• Previous transactions (price per sub, price per $
revenue,…)
7 • SET A FLOOR VALUE AND STICK TO IT

8. BITNET Presentation – January 10. 2012
Valuation is key
Kazoo Enterprises
2010 2011 2012 2013 2014 2015 2016
Revenues $40.0 $44.0 $48.4 $53.2 $58.6 $64.4 $70.9
Expenses $28.0 $30.2 $32.7 $35.3 $38.1 $41.9 $46.1
EBITDA $12.0 $13.8 $15.7 $18.0 $20.5 $22.5 $24.8
Capital $5.0 $5.0 $5.0 $5.0 $5.0 $5.0 $5.0
Taxes (@20%) $2.4 $2.8 $3.1 $3.6 $4.1 $4.5 $5.0
Free Cashflow $4.6 $6.0 $7.6 $9.4 $11.4 $13.0 $14.8
i n $M
• Sample Company – Kazoo Enterprises
• Financials – 2 previous years, 3 year plan and two additional
years “extrapolated”.
• Private company
• Revenue growth 10% and Expense Growth of 8%
• $5M a year in capital upgrades to support growth
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9. BITNET Presentation – January 10. 2012
Valuation – Discounted Cash Flow
2010 2011 2012 2013 2014 2015 2016 2017
Free Cashflow $4.6 $6.0 $7.6 $9.4 $11.4 $13.0 $14.8 $ Terminal Value
• What is the Dollar Value of the free cashflow generated by the
company?
• Future “cash” is discounted by a “discount rate”
• Terminal Value – value of the company if it were to be sold in the
terminal year
• In this example, we assume:
• Growth beyond 2016 = 2% and a Discount rate of 12%
• Terminal Value of $151M and Free Cashflow Value of the
Company = $122M
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10. BITNET Presentation – January 10. 2012
Valuation – Discounted Cash Flow
• Watch-out for:
• Small changes in inputs can have huge swings in the result.
• Terminal growth of 4%, raises value by $25M
• Doesn’t work well in early stage companies or companies in high
growth and/or high risk environments.
• Buyers tend to discount the cashflows in the outer years (impacts
both cashflows and terminal value)
• Taxation rates may vary between the selling company and buying
company – which one should be used.
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11. BITNET Presentation – January 10. 2012
Valuation – EBITDA multiples
• EBITDA = Earnings before Interest, Taxes, Depreciation and
Amortization.
• Enterprise Value = cash value of a company
• (Share Price x Number of Shares) + Debt - Cash
• Find as many Public companies in the same market and get an
average of the EV/EBITDA.
EV/EBITDA
Public Company A 7.2
Public Company B 6.6
Public Company C 8.1
Average 7.3
• An estimate of the of value is $13.8M x 7.3 = $101M
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12. BITNET Presentation – January 10. 2012
Sample precedent transactions
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13. BITNET Presentation – January 10. 2012
Valuation- EBITDA multiples
• Watch for:
• Which EBITDA should be used:
• Trailing 12 months
• last quarter times 4
• Forward 12 months (in our example. $15.7M X 7.3 = $114.6M)
• Private companies tend to be more aggressive at expensing costs
versus capitalizing costs – which hurts your EBITDA
• Public companies tend to have a more diverse product suite –
therefore the comparisons may be apples to oranges
• Public markets have “expectations” built into the value of an
organization – so there will be variations in data points that are
hard to reconcile.
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14. BITNET Presentation – January 10. 2012
Other issues with Valuations
• Synergies:
• How to you account for savings that occur post transaction
• Reduction in Management
• Volume discounting on materials
• …..
• Earn-outs
• Avoid them like the plague
• Payment options (get professional advice)
• Cash (tax implications)
• Stock (can allow you to defer capital gains tax)
• Mixture
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15. BITNET Presentation – January 10. 2012
Preparation for the Sale
• Confidential Information Memorandum (CIM)
• Document that details the business, past results, future plans, synergies
with the buyer,…
• 50 to 100+ pages
• Information must be factual and truthful
• Teaser Document
• 2 page summary of the business
• Data Room
• Contains all of the documents required to evaluate the operation of a
company (financials, plans, contracts, suppliers and customer lists,….)
• Typically done electronically (documents all .pdf) and access to controlled
and reported on.
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16. BITNET Presentation – January 10. 2012
Non-binding Bids
• Teaser document and Non-Disclosure/Non-Solicit
agreement sent to all potential bidders.
• CIM sent to all parties who sign the documents and
a “Non-binding” offer is requested.
• Typically top 3 or 4 “non-binding” offers proceed to
the next step.
• Things to watch:
• Employees will start to hear the rumours – so have a
communications plan
• Non-solicit must have a “no collusion” clause
• Non-binding bids should contain information with regards
to how the buying company intends to “fund the deal”
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17. BITNET Presentation – January 10. 2012
The Bake-off
• The final 3 or 4 buyers attend a management
meeting:
• Questions on the CIM are answered and more
information provided.
• Access to the Data Room is provided and due
diligence questions answered
• Two weeks later, Binding offers are requested
• An auction like process is typically followed – those
who bid too low are given a chance to improve their
offer.
• It is not just the money – the Definitive
Agreement is a key part of the decision.
• PICK YOUR WINNER
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18. BITNET Presentation – January 10. 2012
Definitive Agreement
• Why it is important to be part of the final decision
• Number of Items can effectively lower the value paid, such as:
• Representations and Warranties
– Timing and logistics of breaches
– Capped versus uncapped
• Hold-backs and Escrow amounts
– Size and timing
• Should contain a “break clause”
• Hard to re-engage other parties once the decision is made
• Contains the items that need to be satisfied prior to closing and the
timing. The faster you close the better:
• Reduces employee uncertainty
• A quick closing keeps your ability to revert to the runner up open.
• You are effectively in a situation where you have two owners
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19. BITNET Presentation – January 10. 2012
The Key’s to maximum value
• Be committed to the sale – set a price and drive to completion.
• Bring in professional help – the money paid will most certainly
be less than the value added.
• Run a competitive process – horses run faster when there are
other horses in the race.
• Knowledge is a key driver
• The better you can articulate the value drivers, the better price you will
get
• Be honest – as you will be expected to represent and warrant
your statements
• Keep calm
• emotions can be destructive in a sales process
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20. PRESENTATION NAME January-11-12
THANK YOU
John Piercy
Group Vice-President, Shaw Business
john.piercy@sjrb.ca
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