This presentation was delivered to delegates of the Canadian Construction Association as part of the program at its annual conference held in March 2016 in New Orleans, LA.

1. PREPARING YOUR BUSINESS FOR SALE &
WHAT TO EXPECT FROM THE SALE PROCESS
Canadian Construction Association
Presentation by Michael J. Walker
Tuesday, 8 March 2016
Reduce Stress Manage Risk Maximize Value
Presentation Produced By: Barnes Strategic IR

2. 2
Planning in Advance for Exit…
Best Way to Go
Source: Canadian Federation of Independent Business Survey – 9,500 Respondents
Formal
<10%
Informal
~35%
None
55%
Who Actually has an Exit Plan / Strategy??

3. 3
Personal Obstacles to Exit Planning
• Fear of retirement
• Reluctance to release control and power
• Bias against planning…procrastination is easier
• Reluctance to deal with family issues
• Distractions of a busy life
Planning: the difference between elevator & stairs
Source: J C Walker (father)

4. • Death
• Disability
• Divorce
• Distress
Forced to Plan
Four “Ds” of Transition Planning:
These events typically force, and often put others in
control of, the transition or exit planning process
4
Plan when you want to, not when you have to

5. 5
Source: Family Business Institute
Considerations for Exiting Family Business
Numerous high profile examples…The T Eaton Company???
• Only about 30% of family businesses survive into the
second generation,
• 12% are still viable into the third generation, and
• only about 3% of all family businesses successfully
transfer operate into the fourth generation or beyond

6. 6
• Business continuity: 78%
• Maximizing value: 45%
• Keeping the business in the family: 18%
• Management and/or financial involvement: 11%
• Protecting and rewarding loyal employees: 5%
• Retaining the business name and identity: 4%
Motivation for Selling
Understanding the Primary Succession
Concerns of Business Owners
Source: PwC Business Insights Pulse Survey

7. Liquidity Options
IPO
Strategic
Purchaser
Financial
Buyer
MBO ESOP
Family
Transfer
Liquidate
Business Valuation
Which Option Makes the Most Sense?7

8. Liquidity Options: Pros and Cons
Strategic Buyers Financial Buyers
Pros
Cons
8
• Revenue and cost synergies could
increase the price
• Familiar with business / industry –
less due diligence
• Often short transition period
• Change in terms and conditions of
employment for staff
• Continuation risks to current
employees
• Conflicts of business cultures could
hinder integration
• Sharing proprietary competitive info
with those who do not buy
• Management team typically remains in
place, usually with equity stake
• Provides liquidity event for owners and
access to additional capital for growth
• May allow for additional upside if owner
continues to participate
• Retain business name and identity
• Buyers’ higher return on equity
requirements may reduce price or add
complexities to deal
• Often “lock in” key shareholders with
earn-out / longer transition period
• Extensive due diligence
• Must meet P/E firm’s investment criteria

9. Liquidity Options: Pros and Cons
Employee/Management Buy Out Family Transfer
Pros
Cons
9
• Fewer transition issues
• Familiarity with business means less
due diligence
• Protects staff
• Maintains business continuity
• Typically much lower price
• Financing issues
• Retain family ownership
• Maintain business family legacy
• Typically lower price
• May not provide adequate liquidity for
exiting shareholder
• May be difficult for owner to transition
out of the business
• Low track-record of success
• Sibling rivalry issues

10. 10
Every Business Has to be Transferred
• Process is complex
• Contains pitfalls
• Involves numerous parties
You Have One Chance to do it Right!
The Only Issue is When…?

11. 1 2 3 4 5 6 7 8 9 10
1 2 3 4 5 6 7 8 9 10
Key is to Sell When You Want To,
Not When You Have To11
40 44 48 52 56 60 64 68 72 76
Personal
Time
Business
Life Cycle
Market
Timing
When is the Right Time to Sell?

12. Develop Strategic Plan
Value Enhancement
Transaction
Transition
Begin Planning at Least 2 - 5 Years Ahead
Develop Transition Strategy Timeline
12

13. 13
Structure Affairs for Maximum Tax Benefit
• 18 – 24 months in advance of a transaction
closing
• Take advantage of capital gains exemptions
• Insulate yourself using family trusts
• Consider separating real estate
• Get your will updated
• Ensure shareholders’ agreement is current and
provides for change of control
• Hire independent advisor
• Start to develop strategy for transition / exit
• Confidentiality Agreement
• Valuation Issues
• Team development
Timing
Structure
Documentation
Other Considerations
Discussions

14. 14
Enhance the Value of Your Business
• Make yourself redundant
• Formalize relationships
• Short / medium term contracts
• Concentration issues
• Employment Contracts
• Stay agreements / Non-compete
• Update
• Document
• Business plan
• Compliance
Management
Customers/Suppliers
Employees
MIS Systems
Operational Processes

15. 15
Enhance the Value of Your Business
• Litigation
• Environmental
• Bonding
• Clean & update
• Redundant assets
• Working capital
• A/R/inventory
• Asset valuation / appraisals
• Corporate structure / tax minimization
• Income “normalization”
• Identification and verification of items
Contingent Liabilities
Corporate Records
Accounting Records
Tax
Personal Expenses

16. 16
Business Valuation Methodologies
• Complex process – company specific
– Numerous influencing factors
– Beauty is in the eye of the beholder
– Every situation is unique
• Objectivity is critical
• Value  Price (meaning its also subjective)
– Market dynamics
– Purchaser synergies
– Purchaser motivations

17. Beware Rules of Thumb!
17
Business Valuation Methodologies
Market Approach…(most widely applied)
• EBITDA Multiple
– Ebitda plus normalized expenses minus sustaining CAPEX
– Differing multiple for industry sectors
 GCs…2.5 – 3.5
 Electrical/mechanical…3.25 – 3.75
 Civil…3.5 – 4.5
Discounted Cash Flow/Earnings Approach
Asset Approach

18. 18
• Corporate Goodwill
• Value In Excess of Asset Value
– Brand Names / Trade-marks
– Trade Secrets
– Customer Lists
– Reputation
– Territorial Access
– Technology / Patents
• Purchasers Will Pay for Corporate Goodwill,
not Personal Goodwill
Understand How to Convert
Personal Goodwill to Corporate Goodwill
Business Valuation Methodologies

19. Action vs. Reaction
Put Yourself in the Driver’s Seat!19
Manage the Transaction Process
Proactive Approach Puts You in Control of
the Process, Timing and Overall Deal

20. 20
Manage the Transaction Process
Build a Structured & Well Managed Process
1. Field a strong team with people you trust from your own
business as well as outside professionals
2. Anticipate and plan for deal issues (identify “skeletons” and
get in front of them)
3. Consider how you would approach the transaction if you
were a buyer not a seller and plan accordingly

21. 21
The Transition Process
Target Approach To Buyers…rifle, not shotgun

22. 22
Buyer
Confidentiality
Distribute
Information
Facilitate
Interest
Arrange
Meetings
Answer
Questions
Confidentiality
Realistic
Owner’s
Objectives
Business
Readiness
Agree on
Valuation
and Strategy
Prepare
Work Plan
Gather
Information
and Data
Industry
Research
Prepare
Information
Memorandum
Identify
Qualified
Buyers
Prioritize
Global and
Local
Buyers
Approach
Strategy
Prepare
Presentations
Create
Competitive
Environment
The Transition Process
Typically 6 to 12 Months
Close
the
Deal
Negotiate
Transaction
Terms
Manage Other
Professionals
Ensure Deal
Momentum

23. Winning Due Diligence
What Doesn’t Kill Us Makes Us Stronger
23

24. • Be ready: prepare and analyze data with purchasers’ eye
– Financial
– Legal
– Tax
– Operational
– Human Resources
– Systems / Controls
– Intellectual Property
• Pre-empt Due Diligence erosion
– Delay timing of important and commercially sensitive / competitive info
– Insist on strict Confidentiality
• Maintain deal momentum…limit Due Diligence timing
Winning Due Diligence
Be Patient … Keep focused on the “Big Picture”24

25. Competition is the Key to Best Deal25
Negotiation
• Negotiate with multiple purchasers simultaneously
• Limit exclusivity / maintain balance of power
• Sale & Purchase Agreement
– Structure for mutual tax benefit
– Minimize holdbacks to reasonable amounts
– Expect deferred/contingent consideration if selling goodwill
– Transition arrangements / management contracts
– Conditions, Representations & Warranties must be reasonable
– No stupid (or poorly advised) buyers
• Expect to spend 12-36 months post sale to transition the
business to new owner

26. 26
Benefits to Using an Advisor
• Quarterbacks the deal team
• Expertise / experience you don’t have
• Industry contacts: access and reach
• Higher selling price
• Quicker, smoother process
• Confidentiality
• Better chance of closing
You hire industry experts to grow your business
When you sell it, expert advice is equally valuable

27. Choose an Advisor Based on Trust
Examine the following:
• Experience / qualifications
• Full time specialist
• Reputation / References
• Who will do the work (how senior???)
• Fee structure…partly fixed, majority
contingent on success
Good advisors will more than pay for themselves
27

28. 28
Every Team Needs a Leader
Tax
Specialist
Banker
Accountant
Equipment
Appraiser
Insurance/
Bonding
Provider
Board of
Directors/
Advisors
Family
Members
Select
Employees
Legal
Advisor
Wealth
Manager
Real Estate
Appraiser
Specialty
Consultants
(Environmental)
(Family
Counsellor)
M&A
Advisor
• Process may look
complicated, but is
straightforward
• Experienced
advisor helps build
the right team
• Keeps team in the
information loop

29. 29
Don`t Underestimate the Effort Required
to Sell a Business
Source: Business Seller Survey Report | Capital C Research and Analysis
Sample Size: 300
Evaluate All Types of
Potential Buyers
Select Additional Advisor
Experienced in Business Sales
Obtain Independent
Evaluation
Hire Tax Advisor in
Advance of Transaction
Methodically Pre-plan
2-3 Years Prior to Sale
Have Personal Advisor to
Look Out for Personal Interest
Have Access to Friend/Mentor
Steps You Took Steps You Would Advise Others to Take
74%
71%
74%
50%
62%
52%
53%
42%
40%
33%
32%
23%
21%
17%

30. 30
In Summary:
• Start the Planning Process Early
• Seek Objective / Independent Advice
• Develop a Diverse Team to Help
• Put Yourself on the Other Side of the Table
• Stay in Control of the Timetable
• Maintain a Patient & Realistic Approach
Remember Four “Ds” of Transition Planning:
• Divorce
• Distress
• Death
• Disability

31. Michael J. Walker CF. is an independent consultant providing
advice to Construction Industry clients on strategies for growth
as well as value enhanced business exits / sales.
Until his recent retirement from a national professional services
firm as “National Mergers & Acquisitions Strategist and Leader,
Construction Industry M&A”, Michael has almost 40 years of
M&A experience, advising private companies, entrepreneurs,
family businesses and management teams. His experience
includes several years at Aon Canada where he led the M&A
team in advising a wide variety of construction industry clients.
Additionally, Michael has advised, or has robust relationships
with, a significant number of company owners / decision-makers
in the Canadian construction industry including many in the
heavy civil / road building, electrical / mechanical as well as
general contracting sectors.
(416) 258-0093 Direct / Text
walker.michaeljames@gmail.com
1603-2285 Lakeshore Blvd. West
Etobicoke, ON M8V3X9
Presentation Produced By: Barnes Strategic IR