Overview of Mergers & Acquisitions (M&A) in the US. Who are the players, what and how does the process unfold. Top Five factors to consider before Purchasing a company Top Five factors to consider before Selling a company

1. Mergers & Acquisitions
United States & United Kingdom
Overview, Key Players, Factors to consider
before Buying or Selling
www.Gottesman-Company.com
Q&A to Follow Presentation

2. Meet Your Presenter
Justin Lurie
The Gottesman Company of New York
(Justin’s office is in Houston, Texas)
Buy Side & Sell Side Clients
• Author: The Profit, Guide to
Corporate Strategy
• MIB: University of Sydney

3. Key Information to Cover Today
Concepts
The ‘Journey’
Players
Entities
Involved
Considerations
5 Factors to
Consider
Before Buying
5 Factors to
Consider
Before Selling

4. Is Your Goal to:
A. Acquire a US Company?
B. Be Acquired by a US Company?
C. Something else?
Poll Question

5. Why Sell? - Two Major Factors for M&A
Cash Out
Retire
Deleverage
Moving On
Expansion
60 / 40
Arrangement
Cash
Infusion
Grape vs
Watermelon

6. Corporate
Growth
Inorganic
Growth
Geography,
Market Share
IP, Goodwill
Investment
Financial &/or
Management
Engineering
Roll Up, or
Add-On
Profit, IPO,
Exit
Why Buy? - Two forms of M&A

7. Rules of Thumb
1 in
10
60% >$20k 2 of 3
Discussion to
LOI
LOIs Close Professional
Fees
Meet Expected
Value in Long
Term

8. Who are the People and Entities?

9. The Players, Macro Level
Sellers
Public
Companies
Private
Companies
Connectors
Gottesman
Company
Investment
Banks
Clients, Friends,
Rumours
Buyers
Private Equity
Strategic

10. The Players, Micro Level – Your Team
• International Transaction?
• Contracts, Agreements, etc.Legal
• Pre-Acquisition Readiness
• Due Diligence PeriodCFO/CPA
• Your Tax Consequences
• Your Lifestyle & Family
Personal
Finances

11. What are Private Equity Companies?
• Investment Managers
• Raise Funds through institutional investors (pension
funds, mutual funds, endowments, etc.) and high net
worth individuals
• Purchase Companies and Sell / Exit with Profit (ROI)
• Some specialize in industries, geography, business stage
/ lifecycle, or turnarounds / distress

12. Who are the Private Equity Companies?
Only a small sample of PE Groups worldwide

13. What is the
M&A
Process?

14. Meet Bob
Bob owns a manufacturing company
Ready for the next chapter of his life
Reviews his options
The M&A Process

15. Meet Patrick
Patrick is the ‘Connector’ or ‘Intermediary’
Through Blind Profiles, finds Buyers
for Bob’s Manufacturing Company
The M&A Process

16. Gordon,
a Buyer
Gordon works in a Private Equity firm and is
searching for manufacturing companies.
Patrick (the connector) has a business
relationship with Gordon and presents Bob’s
company
The M&A Process

17. Steps for Gordon:
1. Evaluates blind profile
2. Signs NDA
3. Studies Details of
Company
4. Meets Bob
5. Signs Letter of Intent
(LOI)
The M&A Process
Gordon, Private Equity Buyer

18. The M&A Process
Bob, Seller
Patrick, Connector
Gordon, PE Buyer
Due Diligence Process Begins
Team:
Lawyer,
Accountant, CFO
Senior Managers
Team:
Lawyer,
Accountant,
Analysts,
Industry Experts
Closing – Check Writing

19. What is the M&A Process?
Seller
Comes to
Market
Intermediary
Finds
Buyers
Buyer
Evaluates
Seller Profile
Seller &
Buyer Meet
LOI is
written
Due
Diligence
Period
Closing

20. How much is
my (or their)
Company
Worth?

21. Has your Company performed a Valuation?
A. Yes, at least once
B. No, not yet
C. We’re a Public Company
Poll Question

22. Valuation Rule of Thumb
Assets (property, equipment) & Cash
+
[(adjusted) EBITDA] * [current Industry Multiple]
+
IP & Goodwill
+
Earn-Outs
-
Liabilities, Debt
=
Purchase Price (in theory)
Industry Multiple is often a range (eg: 4 to 6)
Settled Multiple is dependent upon several factors, including:
Concentration of customers
Strength of management team
Longevity of current cash flow
Role of current ownership
Quality of IP & Goodwill

23. 5 Factors to Consider Before
Purchasing a Company

25. All Things Considered…
THE
Company
Deal
Structure
Your
Limitations
Productive
Due
Diligence
Integration

26. 5 Considerations before Purchase…
(1) Not any, but THE
Company
• Does this company fit
within Buyer’s
Strategic Objectives?
• Is Seller Prepared for
Due Diligence?
• Why are they Selling?
• Can Buyer gain the
Seller’s trust?
• Will There be an ROI?
(2) Structure
Appropriately
• $1 a year, forever
• Not glamour,
Substance
• Buyer’s financial house
in order?
• Escrow as a safety
net?
• Design Financial
Leverage
• Earn-outs, Milestones

27. 5 Considerations before Purchase…
(3) Buyer’s Limitations
• Management, Financial
• Distance of Technology,
Geography, Core Business
Expertise
• Integration Costs
• Synergies: 4-6% savings
(4) Productive Due Diligence
Period
• Plan the Integration during
the Due Diligence Period
• Involve management
team
• Discover potential red flags
before you own them
• Objectives:
• No unstated HR, financial,
operational, legal issues
• Financial and Operational
Soundness as claimed

28. 5 Considerations before Purchase…
(5) Integration Complexities
• Cultural Differences
• Need to Create new Culture, Values,
and Success Stories
• Products & Services Cross-Selling to
new & existing Clients
• Realistic Revenue & Performance
Goals

29. 5 Factors to Consider Before
Selling a Company

31. If you’re an Owner,
do you have an Exit Strategy?
A. Yes, it is in writing and detailed
B. Somewhat, have considered it
C. It will just figure itself out
D. Not applicable to me
Poll Question

32. All Things Considered…before Selling
Objectives &
Exit Strategy
Transferability
& Processes
Executive
Team
Balance
Sheet
Blemishes
Expectations
& Post Exit
Life

33. 5 Considerations before Selling…
What is the Goal of Selling Your Company?
(1) Objectives
• Understand the emotional element and avoid it, be logical
• By what date, or event, to exit the company?
• Leave completely, or partially? Could or would you work as an employee?
• Grow the company together in a partnership?
Is the Business Process Effective without You?
(2)
Transferability
• What is the Buyer really purchasing?
• Are the written procedures effective?
• Will the key customers remain?
• How will employees and customers be effected by your exit?
• Employee agreements, benefits, political hierarchy
• Preferred customers, written customer contracts, relationships

34. 5 Considerations before Selling…
The Management Holds the Key to Value
(3) Executive
Team
• Does management make independent and correct decisions?
• Are they empowered to do so?
• The more the current owner is involved, the less the company is worth
What is Hiding on the Balance Sheet?
(4) Balance
Sheet Blemishes
• Eliminate the Ugly
• Unreconciled balances
• Uncollectable receivables or excessive write-offs
• Liabilities: lawsuits, problematic leases, underfunded retirement plan, etc.
• Annual audits?

35. 5 Considerations before Selling…
Is the Company ‘Worth’ as much as You
‘Need’ or want?
(5)
Expectations
& Post Exit
Lifestyle
• How will you manage and invest the proceeds?
• Do you need cash up front, or can you provide financing to the Buyer?
• Possible earn-outs? That should only be the Gravy
• What will you do next?
• Can you have a new identity? (no longer President of ….)

36. M&A Summary
Intermediaries Create Transactions
Private Equity & Corporate Strategic
Buyers Dominate Buy Side
Be Prepared, Strategic, & Decisive,
so the Options are Yours
Buyer
Connector
Seller

37. Questions & Answers; Thank you for Attending!
• Contact Details for offline assistance, Q&A, M&A:
• Justin Lurie
• The Gottesman Company of New York
• JLurie@Gottesman-Company.com
• +1.832.777.1168 office
• +1.646.342.3168 mobile
(located in Houston, Texas)
• Buy & Sell Side Clients
• Specialize in Mid-Market Transactions
• Established 1985, 100+ staff in the US & Canada