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10 Steps to Prepare a Debt Buyer for Sale

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Michael Flock's presentation at the 22nd Annual RMA Conference

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10 Steps to Prepare a Debt Buyer for Sale

  1. 1. Top Ten Things to Prepare a Debt Buyer for a Sale Moderator: Panelists: Michael Lamm, Founder, Corporate Advisory Solutions Michael Flock, Chairman & CEO, FLOCK Specialty Finance Matthew Maloney, Co-founder, President & Chief Investment Officer of the FFAM Group of Companies
  2. 2. Receive Conference Text Alerts RMAI
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  4. 4. This information is not intended to be legal advice and may not be used as legal advice. Legal advice must be tailored to the specific circumstances of each case. Every effort has been made to assure this information is up-to-date. It is not intended to be a full and exhaustive explanation of the law in any area, nor should it be used to replace the advice of your own legal counsel. Any opinions expressed are the opinions of the speaker and not their organization or the Receivables Management Association International.
  5. 5. 10 Steps to Prepare a Debt Buyer for a Sale Michael Flock, Chairman & CEO, FLOCK Specialty Finance
  6. 6. 10 Steps to Prepare a Debt Buyer for a Sale 1. Why are you selling? Assess strategic alternatives. 2. To hire a broker or not? 3. Develop a Process. 4. Develop marketing strategy and tell your story. 5. Estimate Value of company. 6. Clean up your data and sell your underwriting skills. 7. Compliance is crucial. 8. Set up virtual data room and highlight analytics. 9. Make it a team effort and show off your stars. 10. Keep focus on your business. Results are everything.
  7. 7. 10 Steps to Success 1. Why are you selling? ◦ Simple exit totally? Retirement? Raising new equity? Partnering for growth? New markets? New products and services? 2. To hire a broker or not? We are biased. ◦ Don’t assume you can focus on running your company and selling it at the same time ◦ Brokers usually have larger networks, and processes already established ◦ You need dozens of prospects, not just a handful 3. Develop a process ◦ Process keeps focus and resources organized ◦ Important for meeting deadlines ◦ More professional approach to potential buyers
  8. 8. The M&A Process Produces Alternatives STRATEGY MARKETING NEGOTIATIONS EXECUTION Assess Strategic Alternatives Estimate Value Evaluate Options Test the Market Formulate Marketing Strategy Identify Potential Buyers Prepare Management Presentations Contact Potential Buyers Solicit Indications of Interest Facilitate Due Diligence Conduct Preliminary Negotiations Structure Preliminary Deal Solicit Letters of Intent Evaluate Final Offers Refine Structure Facilitate Final Due Diligence Negotiate Agreements Closing Evaluate Initial Offers We facilitate the sale process, emphasizing the importance of creating multiple alternatives. Select Partner
  9. 9. Process Timeline Initial Due Diligence: - Conduct Interviews with Management - Prepare Confidential Memorandum - Develop Marketing Strategy - Discuss Buyer List Marketing: - Contact and Qualify Buyers - Distribute Confidential Memoranda - Prepare Management Presentations - Select Partners to Meet Management - Conduct Management Presentations Intensive Buyer Interaction: - Request Proposals - Review Follow-Up Proposals Buyer Selection: - Negotiate Final Offers - Sign Letter of Intent Finalize Transaction: - Conduct Final Due Diligence - Negotiate Applicable Agreements - Close Transaction - Select Preferred Buyer April May June July August September Follow-up Due Diligence - November Set Timeframes For Activities
  10. 10. 10 Steps to Success 4. Develop a Marketing Strategy and tell your story. ◦ Identify Buyers  Financial – private equity, institutional investors, family offices  Strategic – competitors, other industry service providers ◦ Prepare confidential memorandum – “the book” ◦ Tell a story that differentiates the company and shows future potential of business model and team. Share your passion. ◦ Quality of data and analytics is key. Demonstrate it.
  11. 11. 10 Steps to Success 5. Estimate Value of company. Choose the methodology carefully. ◦ Most common for middle market is the discounted ERNC of portfolio inventory plus platform value. Others are driven by EBITDA or EBJIT. ◦ Prepare data carefully. Get outside validation. ◦ Platform value is subjective, includes value of data, systems, customer base, employees, brand. Could be multiple of book value, EBITDA, EBJIT.
  12. 12. Stages of Underwriting 10 Steps to Success 6. Clean up your data – sell your underwriting skills
  13. 13. 10 Steps to Success 7. Compliance is crucial. Show a focused process and dedicated resources. 8. Set up virtual data room – highlight analytics ◦ 3 year audited financials; 3 year forecast ◦ Adjusted EBITDA for owner expenses, extraordinary one time costs ◦ Outstanding accounting or tax issues ◦ Revenue composition, detailed portfolio returns ◦ Underwriting process ◦ Operations, customer contracts, ◦ Examples of debt purchasing structures ◦ Compliance detail ◦ Organization charts
  14. 14. 10 Steps to Prepare a Debt Buyer for a Sale 1. Why are you selling? Assess strategic alternatives. 2. To hire a broker or not? 3. Develop a Process. 4. Develop marketing strategy and tell your story. 5. Estimate Value of company. 6. Clean up your data and sell your underwriting skills. 7. Compliance is crucial. 8. Set up virtual data room and highlight analytics. 9. Make it a team effort and show off your stars. 10. Keep focus on your business. Results are everything.
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