1. Heavy Duty
Mergers &
Acquisitions
Presented By Tom Marx
CEO - Marx Group Advisors
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012

2. When was your last
Mergers & Acquisitions
round-up…
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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3. Heavy Duty
Mergers &
Acquisitions
Outlook
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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4. What we’ll talk about today
• Industry perspective – The Good, The Bad
and The Ugly
• Why consolidation is happening
• Mechanics of M&A
• When are you really a buyer vs. seller
• What needs to happen after the sale
• The future of the industry with fewer players
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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5. Distribution perspective
• Number of locations a distributor’s company
operates is steadily increasing
• 45% of distributors are concerned about increasing
consolidation
• 79% see key employee succession planning as
important operational issue
• 70% of all small and midsized businesses don’t sell
after they are put on the market
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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6. Supplier perspective
• Organic growth at 5-7% doesn’t satisfy many appetites
• Acquisition often more cost effective and faster than
organic growth
• Cash is not readily available -- but interest rates
are low
• Economic jitters cause delays and conservative
thinking
• Bolt-ons challenged to get past due diligence
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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7. Installer perspective
• If their business model does not include parts
distribution, fewer places to turn to except
transfer within or sale to local owner operator
• Costs of keeping up with technology and OE dealers
will continue to be a major challenge
• Financing more challenging—earn outs are prevalent
• Scared off by process and costs
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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8. View from the mountaintop
• Multiples are all over the place -- reality is
case-by-case
• Baby boomers wanting out and no succession
plan in place
• Trend is to grow or die a slow and painful death
• Failure to complete deals is very real
• Confusion about whether to buy or sell
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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9. View from the mountaintop
• Owners are tired after a decade of consolidations,
business cycles, banking hassles – and the
Great Recession
• Younger lions are hungry to grow
• Strong companies want to eliminate low-cost
competitors
• PE firms and others have lots of cash
• Auto and now heavy duty have caught investors’ eyes
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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10. M & A options – typical deal
structures
MERGERS JOINT VENTURES ACQUISITIONS
GOING PUBLIC
DIVESTITURES &
OR
ASSET SALES
PRIVATE
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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11. Mergers & Acquisitions
• Combination of two (or more) companies in a stock
or asset exchange transaction
• Not mutually exclusive
• Not limited to public companies
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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12. Mergers & Acquisitions
A
C A B
B
Merger Acquisition
• Company ‘A’ or ‘B’ often • Company ‘B’ purchases stock
loses its identity or assets of Company ‘A’
• Or both companies become • Company ‘A’ is gone
Company ‘C’
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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13. Joint ventures and alliances
Independent entity created between parties for
a specific undertaking – usually jointly owned by
the parties contributing:
• Intellectual property
• Capital and assets
• Marketing and sales
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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14. Going private
Acquisition of the equity of a publicly traded corporation
by an independent privately held entity
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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15. Going public
The process of selling the equity of a company that
was privately owned to new investors for the first time,
otherwise known as an Initial Public Offering (IPO).
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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16. Divestitures and asset sales
Approaches to corporate restructuring
• Eliminate underperforming assets
• Capitalize on stronger performing assets
• Prepare for exit from a business
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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17. Buyer or seller?
Often sellers see themselves as buyers
• Lack of reality about strengths and weaknesses
• Unwillingness to let go
• Unwilling to face ‘retirement’
• Concern about how much is ‘enough’ in today’s
post- dot.com and post-recession world
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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18. What are the typical steps in
buying/selling process:
STEPS IN BUYING: STEPS IN SELLING:
• Evaluation of Transactional • Pre-Deal Preparation-Valuation
Assumptions/Marketplace • Confidentiality Agreements
Assessment • Identify Buyers
• Financing/equity partners • Letter of Intent
• Target Selection • Due Diligence
• Letter of Intent • Definitive Agreement
• Due Diligence • Close
• Definitive Agreement • Post Close Execution
• Close and Integration
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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19. Do it right from the beginning
• Clean up balance sheet & P&L
• Get rid of obsolete assets and inventory
• Perform realistic valuation
• Create informative offering package
• Conduct laser-focused prospect search
• Negotiate the deal as objectivity as possible
• Patience to arrive at a comprehensive Letter of
Intent (LOI) – Which often saves a lot of time and
cost on the back end
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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20. Do it right from the very beginning
• Due diligence will reveal every wart
• Asset Sales Agreement has many landmines
• Closing almost never occurs when anticipated or
planned
• Integration is easier once you’ve done it a few
times
• Get all skeletons out of the closet
• Full disclosure of all positives and negatives
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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21. Valuation
• Valuation is a science—and an art
• Numbers often don’t tell the entire story
• Gap between buyer and seller perspectives
• Different levels of valuation
• Both parties have to get real about opportunity
value or cost—or the deal will fail
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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22. Cashing in does not always
mean selling out
If you want to stay on, there are options:
• Employee
• Consultant
• Run the business for a defined period of time
• Grow the business with someone else’s investment
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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23. Other forms/considerations of
deferred compensation
• Company buys back stock – resells to management
• Payout over time – 5 to 10 years
• Secured by life insurance for principal
• Avoid bank borrowing – hopefully, financed by
company cash flow
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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24. When the process gets ugly
• When there are LONG delays in response
• When every conversation results in a new detail
• When every paragraph of the LOI ends with “BUT”
• When the legal bills are double and triple what
were originally estimated
• When post-close integration isn’t well planned
• Misrepresentations
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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25. An Ugly Ride: Company X
Goal: sell company or license technology
• Hidden intention of partners
• Investor rebellion
• Capital call forced short window
• Disrespected manager
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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26. An Ugly Ride: Company X
Goal: sell company or license technology
RESULT
• 9 month project
• Every buyer found flaws in product and declined
• Company ran out of capital and could not fix
product flaws
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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27. Sales process – biggest challenges
• Maintaining confidentiality -- internally and
externally
• Keeping your eye on your business so sales and
profits are not eroded
• Getting the transaction done as quickly as practical
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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28. Tales about self-brokered sale
“I spent so much time on this
“I did not know what my that my business suffered and
business was really at the end the sales price was
worth” reduced”
“I would never
“This was a very painful and
sell my own
expensive process. I ended
home without an
up in countless meetings and
agent and
spent a LOT of money on
shouldn’t have
legal and accounting fees”
sold my business
without an
advisor”
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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29. The future of the industry with fewer
players
• Learn the lessons…some say heavy duty is 5-10 years
behind traditional aftermarket
• Balance of power shifting from suppliers > distribution
• Decreased margins at suppliers
• National chains stronger competitors to independents
• Those with cash have major advantages
• Every segment has a gorilla
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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30. Marx Group Advisors
Mergers & Acquisitions consultants with experience in the
Automotive, Heavy Duty, Commercial Vehicle,
Performance, Motorsports and Specialty Aftermarkets
Consulting Brokerage: Equity and Debt
Services Buy-Sell-Merge Financing
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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31. Our Advisory Board John Nodson /
NEW YORK –
Currently: our VP
of Research.
Former Director of
Marketing at
Standard Motor
Products
Boston-
Chip Carlson /
OHIO – former
Headquarters
General
Director of
Corteco de
San Rafael- Headquarters Mexico
Howard Kesten /
Lou Merz / NEW YORK –
FLORIDA – Executive
Former Recruiter
President of
Borg Warner,
former
Jack Creamer / Chairman of
ARIZONA – AAIA, former
Former Director President of
of Member Automotive
Services for Sales Council
AWDA
David Barbeau-
Used to own
distribution
company, former
head of Delphi’s
global aftermarket
division
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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32. Marx Group Advisors
TOM MARX, CEO PAUL COOPERSTEIN,
President
• Business growth &
• Venture capitalist &
marketing focus investment banker
• 25+ years industry • Business lawyer &
experience mediation specialist
DAVE BARBEAU, Executive CHRISTINE LEMAy, Business
Vice President Development Manager
• Parts distributor & • Sales executive
aftermarket executive • Project Manager
• Management consultant
JOHN NODSON, Vice President
• Research and Analyst
• Technology and marketing
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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33. Subscribe to our monthly
enewsletter today!
http://tinyurl.com/7upr9sw
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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34. THANK YOU
TOM MARX Paul Cooperstein
415.453.0844 ext. 106 617.328.7333
tmarx@marxgroupadvisors.com pcooperstein@marxgroupadvisors.com
Marx Group Advisors are located nationwide:
SAN NEW
BOSTON HOUSTON DETROIT FLORIDA PHOENIX
RAFAEL YORK
www.marxgroupadvisors.com
© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012
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