3. Have been a Buyer (18x)
Seller (3x)
Important to Learn from Mistakes
But you only get one shot
Since Buyers generally have more experience and resources
Rooting for the underdog – most of material is for Seller
Will provide more Practical than Theoretical or Idealistic
4. Easy and Best Way
Informed &
Prepared
Seller
Informed &
Prepared
Buyer
5. How much a business is worth
IS NOT
How much will it will sell for.
6. WORTH:
Sum of Future Cash Flows
Discounted at some rate
$200,000 in perpetuity at 8% is $1.6M
Market Forces should PUSH PRICE
HIGHER
11. Four + Different Prices
Closing Price
With Wipeout of Loans From Owner
With Earnouts (paid from future
growth)
With Multi-Year Services Contract
14. Factors that Affect the Multiple
Condition of your Business
Growth Rate of your Business
Type of Buyer: Strategic or Financial
Type of Sale: Auction or Private Placement
Competitive and Growth of Industry
15. Your Preparation makes a HUGE
difference
Your knowledge and control. Negotiate from
Knowledge
Buyer can gain confidence in what they’re buying
Lack of Clarity = Riskier Business = Lower Valuation
Lack of Organization = More Diligence Effort =
More Cost (Legal & Accounting Fees)
Distracted Management. Lost selling time
16. Type of Buyer:
Strategic or Financial
PROS
Can pay higher because of
Synergies
Understand the business. Faster
discussions
You know them or know of them
Cons
“Synergies” can be “No Job for you
or Staff”
Direction of Business may change
May not have the Cash
PROS
Need you to run ongoing operations
Generally have financing available
Have done this before. Faster
Cons
Generally lower multiple than
Strategic
May not Understand Business
Playing on their Home Court
Are going to exit sometime
17. Type of Process:
Auction or Private Placement
PROS
Potentially Higher Multiple from
created Scarcity and Ego
Diversity of Interested Parties is
Surprising
Cons
You competition will know you plan
Requires multiple presentations.
More complicated, expensive, and
distracting. External resources likely
needed
Hard to keep quiet in the market –
affecting employees, sponsors,
governments.
PROS
Faster
Less distraction to staff, stakeholders
May get Premium for Exclusivity
Cons
May miss the highest paying buyer
19. Pre-Sale Preparation Areas
Accounting
Pro-Forma Adjustments
Records
Employee Items
Legal Items
Other Information & Metrics
20. Accounting
See “Financial Management for Event Businesses” for explanation of Cash
versus Accrual versus Full GAAP accounting and which you should use.
You definitely need
1. Profitability by Event by year.
2. Overhead either direct or allocated
3. Owner expenses clearly identified
4. One-Time items clearly identified
5. Capital equipment purchases identified
Make sure they’re complete.
Net Income on Income Statement = Net Income on Balance Sheet = Net Income
on Tax Return.
23. Contracts
Have available and organized.
Bonus for Summary Tables
Permits: Even though they’re generally annual
Contractors
Business Insurance
Leases
Loans
Sponsorship
Municipal
Key Vendors
Employment
25. Legal Items
Articles of Incorporation
Bylaws
Shareholder Certs
Board Minutes
Certificate of Good Standing
All the other ignored stuff
26. Other Legal & Intellectual Property
Lawsuits (Current & Settled)
Databases
URLs
Trademarks
Investments
IT system
Software
27. Other Items
Registration trends: Return Runners?
Economic Impact Studies
Industry and competitive research
Digital traffic
Course Maps
28. Pro-Formas
Things you want extra credit for
Unusual expenses that Buyer won’t incur
Start up expenses for new products, courses
New events just gaining traction
Asset Purchases that were expensed
Owner Expenses
Costs reductions identified but not implemented
Sponsorship deals signed but not received
Have a MULTIPLE impact
29. Summary
The More you have ready in advance
the better your company looks
The faster the process
The stronger your negotiation position
30. Type of Sales:
Stock Sale or Asset Sale
Sell Shares or LLC Interest
Capital Gains
Entire Company and Pre-
Sale Period Risk goes to
Seller
Seller buys the assets but
not the Company.
Liabilities for pre-sale
period stay with Seller
Buyer gets tax-deductible
amortization on Purchased
Assets – NOT on Stock
Bought
Asset Sale has VALUE to Buyer. Get
something for it
31. What’s the Process Like: Auction
1. “Teaser” deck – little info
2. NDA: Non-Disclosure Agreement
3. CIM: Confidential Information Memorandum
4. Get some kind of LOI, value range
5. In person meetings
6. Revised value range
7. Due Diligence
8. Final Offers, Definitive Docs
32. What’s the Process Like: Private
1. “Teaser” deck
2. NDA: Non-Disclosure Agreement
3. CIM: Confidential Info Memo
Light Financials
4. LOI, value range
5. In person meetings
6. Revised value range
7. Due Diligence
8. Final Offers, Definitive Docs
33. Due Diligence
The LOI figure is the HIGHEST you will see.
It’s all downward from there.
Some Buyers excel at this.
Downward Adjustments are rationalized
via Due Diligence
34. What Buyers Look For in
Financial Due Diligence
Consistent Earnings
Overstated Earnings = Reduce Price
Understated Earnings = Silence
Understated Expenses = Reduced Price
Overstated Expenses = Silence
One time / non-recurring
35. What Buyers Look For in
Legal Due Diligence
Permit Expirations
Contract Expirations
Oral or Poorly Documented
Agreements
Contingent Liabilities
Staffing and Plan Liabilities
36. Maximize Your Value
Consider “Carving Out”
Undervalued Products, Events, Lines
Timing Business
Equipment
Undervalued Races
Nobody has ever shown the Lifetime Value of a
Participant
38. Misunderstanding of Closing
Mechanics
Working Capital Cutoff
Aged A/R, aged Inventory = no credit
Deferred Revenue Less Prepaid Expenses
Missing accruals for payroll and taxes
Credit Card cutoff can be tedious - negotiate
away
Seller is Responsible for Taxes and Payroll up to
Closing
39. Expenses: Who Pays?
Each party pays their own
Buyer Generally Writes the Documents
Can be 5% to 10% of the Transaction
Try to Negotiate a Non-Refundable Deposit /
Breakup Fee
40. Very Important Things to Know
About Buyer
Ability to Close / Knowing the sources of
financing
How they are Pricing the deal (multiple of
earnings)
Who has final approval
41. Know the sources of financing
Assess the Ability to Close. Some are just Fishing or
Shopping your LOI
Funding Sources
Bank loans - even more due diligence
Seller Financing
“Rollover” equity in new entity (make sure its tax free)
Notes Receivable
Earnouts
42. The Rollover Discount
Requires you be able to value the New Company
And you lock up your cash (you exit when they exit)
with limited control
Buyer Determined Multiple of Combined Company 5x 6x 7x 8x 9x
Multiple on Your Company 5x 5x 5x 5x 5x
Discount on Your Rollover 0% -17% -29% -38% -44%
43. Typical Deal Structure Includes
Cash At Close
Indemnity Escrows - up to 10%
Earnouts or Holdbacks if a higher
multiple is paid on “contingency”
Services Contract
44. Indemnity Baskets
Up to 10% of Sales Price
Usually 1 year or until next audit / tax filing
Baskets: For efficiency, up to some amount ($50k)
Buyer pays any claims up to Basket Amount without recourse
Once Full, the Basket Amount comes out of indemnity escrow
Common Items:
Late Invoices, Credit Cards, Understated Vacation Accruals (Or other once-a-
year items)
45. Make Sure You Get
All the Positive Adjustments in
Sellers think in ½ Multiple Increments
Every Item is Multiple Times Important
Get Professional Advice as Necessary
Can have a HUGE impact on multiple and sale price
Get “Tail Insurance” to cover yourself after sale
for later claims
46. Summary: What are Buyers Looking for
Accurate Reports
Consistent over Time
Showing the ongoing earnings of the company.
Pro-Forma out
Owner Expenses
Capital Equipment
One time gains / expenses
Balance Sheet without a lot of aged items
48. Why you will pay more
Market Conditions
Landscape scraped a few times. More buyers than sellers.
Emotion plays as much a role as Financial
Financial Buyers: Belief that you have deep pockets
Strategic Buyers: Ongoing Seller role is diminished or
eliminated
Human Nature: Sellers overvalue their business.
Higher growth, better future than can be proven
49. Dealing with Sellers
What is their Legacy?
Ongoing role?
Continued security for staff
Ongoing reputation of business
Need for over-communication
50. Multiple Ways to Close a Deal
Cash at Close
Deferred Cash
Seller notes
Earnouts is business performs as planned
Holdbacks if risks do not materialize
Rollover
Services Contracts
51. Make it Fast
Seller remorse
Business Growth Delayed
Seller reducing spending
Hard to get / keep customers in uncertain
environment
Hard to hire talent
Deal Fatigue
52. Summary: Top Practical Points
Be Informed & Prepared
Avoid the drama of “Multiples”. Focus on Cash. Now & Total
Select the Process that works for you
Get Everything ready well in advance
Get Professional Assistance. Specific expertise
Exclusivity has Value. Sale Type has Value. Get Value for Them
Keep undervalued assets
Consider Deposits / Breakup Fees for long processes
Understand the Derailing Issues: Working Capital, Indemnities,
Rollover