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I'm a stakeholder... get me out of here!
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2. Deliverables
• Introduction & Key Terms
• Thought Process
SELL SIDE
• What to Know Before you Decide
• Preparing Your Company
• The Deal Itself
BUY SIDE
• Thought Process
• What to Know Before you Decide
• What to Look For Specifically
• Preparing Your Company
SUMMARY
• Current Deal Metrics in Today’s World
• Do You Need a Advisor?
3. Introduction
• Buying a business is a complex process, and it
can be confounding because of the interplay
of business, legal, and people issues.
• It can, however, be a rewarding process if you
have done your diligence and researched the
business thoroughly.
4. Key Terms
• EBITDA
– Earnings Before Interest, Taxes (Income), Depreciation and
Amortization
• Motivation
– Buyer - Expand into new markets
– Buyer - Get into the industry
– Buyer - Tuck-in opportunities
– Seller - Retirement
– Seller - External changes
– Seller - Market/Business opportunity
• Types of Purchases
– Asset Purchase (buying the stuff)
– Stock Purchase (buying the LLC, Sub S…The Company)
5. Definitions (cont’d)
• Representations (“Reps”) and Warranties
– You own the stuff you are selling
– You didn’t lie or purposely omit something
– You didn’t inadvertently omit something
– You paid your taxes
– Properly funded Advance Deposit/Trust accounts
– Business has been operated in the normal course
• Holdbacks or Indemnification Amounts
– Funds held back to make sure your Reps and
Warranties are correct.
7. SELL SIDE
Thought Process
• Why do I want to Sell?
• What am I going to do after? What’s next?
• Do I want to stay on and work for the Buyer?
• Do I REALLY want to Sell?
• Am I READY to sell?
• What goes away if I sell? What changes
– Health Insurance
– Cell Phone
– Car Payments
– Memberships in Country Clubs
8. Getting Started
• Preliminary Items
– Is my business ready to sell?
• Financial statements, Income Statement, Balance Sheet
• Operational foundation
– What is my business worth?
– Consult a transaction Attorney or CPA
– Is it better to do Asset vs Stock deal
– What is the tax effect of transaction?
– What’s included?
• Operating company
• The assets
– Vehicles & Equipment
– Personal guarantees on merchant accounts, leases, Notes, etc
– Assignability
• Owner agreements?
• Leases?
SELL SIDE
10. SELL SIDE
Preparing Your Company
• Data
– 3 Years Financials by Month
– 3 Years Tax Returns
– 3 Years Company Metrics (ADR, Occupancy, Unit
Count, etc)
– Inventory of Main Assets
– All Agreements and Contracts fully Executed?
• Letting Your Key People Know
• Setting Up Off-Site Activities to Handle Due
Diligence
11. The Deal Itself
• 90% of the Transaction can be done electronically/offsite
– Data “War Room” in the Cloud
• 60-90 days typically
• Process
– Initial Review….the “Dance”
– Letter of Intent (LOI) – usually non-binding becoming “hard”
– Due Diligence (root canal)
– Purchase and Sale Agreement Creation (PSA, SPA, etc)
– Close – many times concurrently with PSA execution
• Ancillary Items
– Closing schedules
– Employment Agreements
– Consulting Agreements
– 2-5 years. Make it specific!
SELL SIDE
13. BUY SIDE
Thought Process
• Am I ready to grow?
– Do I have infrastructure in place to manage the
growth. What about my time?
– Do I have the resources financially?
• Off-season bleed?
• Will the two company cultures clash?
• Are the product and service offerings
homogeneous? How much additional
marketing will I need to do?
14. BUY SIDE
What to Know Before you Decide
• In What Structure should I Buy the company?
– Separate LLC, within the company, etc??
• 18 month to 24 month cash flow analysis.
• Is it better to tuck-in, or find a new market.
• Do I have a good attorney to draft
documents?
– Not always your company attorney!
15. BUY SIDE
What to Look For Specifically
• Length of Time Units on the Sellers Program
• How Much the Seller Owner is Involved in the
Day-to-Day
– Can you live/grow without them, even if they stay on.
• Company Metrics Chart over time
– Unit count (not net), ADR, Occupancy, Same Store
Revenues
• Key Staff longevity, retirement age, buy-in
• Can I acquire as a stock deal if I want to?
16. BUY SIDE
Preparing Your Company
• Do I have someone that will handle the
transition, or handle the company while I handle
the transition?
• Do I leave the Selling company name or Re-name
it.
– Company name equity locally
• Telling Your Key Employees
• Make sure you have a Transition Plan
– Procedural (insurance, software, accounting, etc)
– Human (accepting employees into new culture, etc)
17. BUY SIDE
Preparing Your Company (cont’d)
• Prepare for emotions.
• Software integration issues.
– Do you have bandwidth?
– Transfer or termination fees on Seller side.
• Set up a Dropbox/FTP or other Portal for your
team
19. Typical Deal Metrics Today
• 3-6 Times TTM Adjusted Ebitda
– Adjusted for all “Owner Expenses”
– Slightly Less Multiple if Real Estate Brokerage a significant
Portion
• Varies by
– Length of time owner contracts are with the Seller
– Assets included
– Time of Year Acquisition Takes Place (Before or After Season)
– Ease of Purchase
• Assignment issues
• Litigation issues
• Growth potential
– Infrastructure for future growth
– How Much Seller “Has their Act Together”.
20. Typical Deal Metrics Today (cont’d)
• All Cash at Closing
– Used to see more Seller financing requirements
• 50% of Time the Seller Stays Around for 1-2
Years
• Key Management almost always kept around
• More than one qualified Buyer looking at any
given time.
21. Example
Gross Revenue $1,000,000
Cost of Goods Sold -$650,000
Gross Operating Profit $350,000
G&A Expenses -$75,000
Interest -$12,000
Owner Compensation -$50,000
Depreciation -$6,500
Total Net Income $206,500
Add Back:
Interest $12,000
Owner Compensation $50,000
Depreciation $6,500
EBITDA $275,000
x 4 Multiple 4
Purchase Price $1,100,000
Aka: Operating Expenses
Aka: Net Revenue
Assumes Owner Not Working
Directly in the Company.
22. A Real Deal
Asset Deal – Eastern US
• Adjusted EBITDA = $210,000
• Purchase Price = $840,000 (4 multiple)
• Terms
– All cash at closing
– Office Lease at Market Rate for 2 Years
– Seller/Owner gets 1 Year Employment Agreement
w/Bonus
– Seller/Owner signs 3 Year Non-Compete
– Kept original company name “for now”
23. Do You Need an Advisor?
• POSITIVES
– Removes the Emotions & keeps the deal on task
– Makes Sure Little Things Don’t Fall through the Cracks
– Provides market perspective to ensure fair practices
– Keeps Buyer Confidential until later in process
– If larger company involved, puts you on level playing
field
– Access to Buyers/Sellers, National Market
• NEGATIVES
– Costs Money (% of Deal + expenses)
24. Questions?
Thank You
Ben Edwards
Ben@WeatherbyConsulting.com
850-496-7360
Jim Olin
jolin@C2GAdvisors.com
850-699-1828