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What's it Worth? Valuing a Business for Sale
2
Thank you to our Sponsor, Sunburst Digital.
3
Practical and entertaining education for
attorneys, accountants, business owners and
executives, and investors.
What's it Worth? Valuing a Business for Sale
Disclaimer
The material in this webinar is for informational purposes only. It should not be considered
legal, financial or other professional advice. You should consult with an attorney or other
appropriate professional to determine what may be best for your individual needs. While
Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate,
Financial Poise™ makes no guaranty in this regard.
5
Meet the Faculty
MODERATOR:
John Levitske - CPA/ABV/CFF/CGMA, ASA, CFA, CIRA, MCFLC, MBA, JD
PANELISTS:
Hillary Hughes, CFA, ASA- Prairie Capital Advisors, Inc.
Robert Musur- Cohen & Company
James O'Sullivan, Esq.- Tiffany & Bosco
6
About This Webinar
What’s it Worth? Valuing a Business for Sale
Before going to market to sell your business, you or your executive team may want to obtain
an independent appraisal. Likewise, prospective buyers may wish to obtain expert services to
value an acquisition target or discrete portions of a target. This webinar provides a look into
how valuation experts place a value on a going concern.
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About This Series
Valuation 2022
What’s it worth? Whether you are engaged in the sale of an asset or attempting to recover damages in
litigation, valuations are often necessary for convincing the other side that your price is right. In
transactions, valuations assist parties in determining the price they are willing to pay or receive in the sale
of a security, business, or asset. In litigation, valuations play a critical role in setting a baseline for
damages awards. Expert assistance is required to accurately value many assets, whether it is a
business, a security, an intangible asset such as intellectual property or a brand, or lost profits in a
litigation context. Choosing the appropriate valuation expert can make or break your transaction or your
case, given the extensive battles between valuation experts that arise in contested matters. This series
provides an overview of valuation in its many contexts, from business valuations in transactions to battles
between valuation experts in all aspects of litigation.
Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and
executives without much background in these areas, yet is of primary value to attorneys, accountants, and other
seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to
entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that
participants will enhance their knowledge of this area whether they attend one, some, or all episodes.
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Episodes in this Series
#1: What's it Worth? Valuing a Business for Sale
Premiere date: 2/9/22
#2: Valuing Lost Profits for Litigation Purposes
Premiere date: 3/16/22
#3: Selecting the Right Valuation Expert
Premiere date: 4/13/22
#4: Minority and Illiquidity Discounts
Premiere date: 5/11/22
#5: Valuing Your Brand and Other "Soft" Assets
Premiere date: 6/8/22
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Episode #1
What's it Worth? Valuing a Business for Sale
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What is a Business Valuation?
• Generally value is the estimation of price as of a specific date. Price is consideration
actually paid to acquire a specific security.
• The word value means different things to different people. Even to the same person, value
means different things in different contexts.
• No single valuation method is universally applicable to all appraisal purposes.
• Failing to match the business appraisal definition of value with the intended purpose will
likely result in the incorrect conclusion of value.
• Value to whom?
• Under what circumstances?
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Key Terms
Fair Market Value
The amount at which property would change hands between a willing seller and a
willing buyer when neither is acting under compulsion and when both have
reasonable knowledge of the relevant facts.
Market Value
Most probably price which a property should bring in a competitive and open market
under all conditions requisite to a fair sale, the buyer and seller each acting
prudently and knowledgeably, and assuming the price is not affected by undue
stimulus.
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Ownership Transition Alternatives
Internal Sale
External Sale
Strategic buyers
Financial buyers (i.e. private equity)
Whole or partial sale
Employee stock ownership plan (ESOP)
Management buyout (MBO)
Leveraged recapitalization
Family transfer
These paths move ownership in
very different ways; however, each
has its pros and cons
13
Valuation Concepts
The value of the business will equal the sum of all the cash
flows it will generate, discounted to present value
• Income approach methods such as discounted cash flow
and capitalized earnings can estimate the intrinsic value
of the business
Intrinsic
Valuation
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Valuation Concepts
Relative
Valuation
• The value of the business will be based on the value of its
competitors or industry peers that either trade(d) on a
public exchange or sold in a third-party transaction
• Market approach methods such as guideline public
comparables and guideline transactions can be used to
assess the value of a business on a relative basis
15
Valuation Concepts
Intrinsic Valuation vs. Relative Valuation
(is one better?)
• They are both important
• Intrinsic valuation is based on widely accepted academic methods and is created
using assumptions, which makes manipulation very easy
• Relative valuation is based on actual market dynamics. However, finding true
comparables can be a challenge, especially with valuing smaller companies
• It is best practice to compare each valuation in order to provide a sanity check
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Valuation Basics
Enterprise Value
• Synonymous with the value of the entire operating
business
Equity Value
• Enterprise value minus debt plus cash plus/minus
other non-operating assets
• Equity value is the portion of the entire business that
belongs to equity holders
Net
Operating
Assets
Total Funded
Debt
Market Value
of Equity
Enterprise
Value
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Valuation Basics
Net
Operating
Assets
Enterprise
Value Total Debt
Equity
Unlevered Cash Flows
Enterprise Value Based
Levered Cash Flows
Equity Value Based
• Un-levered or “debt-free” earnings streams
provide a return on invested capital
• Cash flow available to debt and equity holders
• Discounting them using a weighted average
cost of capital leads to Enterprise Value
• Debt-free earnings streams include:
• EBITDA and EBIT
Equity
Value
Net
Operating
Assets
Total Debt
Equity
• Levered or “equity” earnings streams provide a
return on equity
• Cash flow available to only equity holders
• Discounting them using a cost of equity leads to
Equity Value
• Equity earnings streams include:
• Net Income
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Valuation Basics
What Factors Impact Valuation?
INTERNAL
Strong Business Model
Growth Prospects
Profitability
Revenue Sources
Balance Sheet
Intangible Assets
Management Team
Size
Capital Requirements
EXTERNAL
Market Multiples
Lending Conditions
Interest Rates
Industry Trends
Investor Psychology
Economic Policies
Political Environment
International Markets
Competitive Landscape
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Valuation Basics
Earnings Normalization
Normal
Operations
Normal
Operations
Normal
Operations
One-Time
Event
• Adjustments are made to reflect an accurate representation of the Company’s true earnings
Common Adjustments
Non-continuing compensation
Excess compensation
Personal expenses
Transaction fees
Start-up costs
Excess employee benefits
Extraordinary bad debt write-
off
Extraordinary legal fees
Extraordinary professional
fees
Discontinued ops
Settlement income / expenses
Gain on the sale of assets
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Valuation Basics
How are Valuation Multiples Calculated?
• A valuation multiple presents the value of a business as a multiple of a particular earning stream
• Since all businesses are different, we do not compare absolute values, rather multiples are used to
standardize the comparison
• When calculating multiples, it is critical the level of value (equity or enterprise value) is matched with the
correct earning stream
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Valuation Approaches
• Income
• Market
• Asset
• Operating companies are generally going to focus on income and market
approaches, unless capital intensive (i.e., significant amount of tangible assets)
• Holding companies are generally going to focus on the value of the underlying
assets and liabilities (e.g., investment fund or real estate holding company)
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Income Approach
• Values the future economic-benefit streams (typically, cash flow) in present-value
dollars at the date of valuation
• Methods
o Capitalized cash flow (CCF) method
▪ Single forward-looking period
o Discounted cash flow (DCF) method
▪ Multiple forward-looking periods
23
Income Approach
Pros
• Widely used in practice and
academically
• Includes all major assumptions
about a business
• Very detailed analysis
• Tailored to the subject company
• Can run multiple financial
performance scenarios
• Useful in analyzing M&A
transactions
Cons
• Garbage in, garage out analysis
• Requires a large number of
assumptions
• Can be overly complex –
forecasting is a challenge
• Small changes in key
assumptions can have large
impacts
• Assumptions can be manipulated
24
Market Approach
Identify transactions that have occurred that involve ‘target’ companies …
OR
Identify publicly-traded companies …
… that are sufficiently similar to the subject company.
25
Market Approach
Pros
• Current market pricing and
investor sentiment
• Easy to compare and benchmark
• Public data is accessible and
verifiable
• Avoids making assumptions about
future performance
• Recent transactions tend to reflect
prevailing M&A, capital market,
and general economic conditions
Cons
• Lack of direct public comparables
or comparable transactions
• Data requires “subjective”
adjustments for private valuations
• Market pricing can be skewed by
speculation and panic
• Not all transaction data is publicly
disclosed
• Older transactions may not reflect
current market conditions
26
Asset Approach
• Asset accumulation (net asset value) method
o Obtain a balance sheet with information as of, or that precedes, the date of
valuation
o Adjust the balance sheet to reflect generally accepted accounting principles
o Adjust the assets and liabilities to reflect their appraised values
o Identify and quantify unrecorded assets and liabilities
o Quantify goodwill or other intangible value
o Make adjustments (if necessary) to reflect the deferred income tax effect on
any gains or losses
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Ways to Help a Company
• Cash Flow is the Critical Element:
o Cash flow models are essential for evaluating where a Company is
operationally and how long it may be able to weather a storm under different
performance assumptions
o Ability to Pivot?
▪ Is it possible for a Company to move into a safer business line to save
some time and ride out the Covis-19 pandemic and fallout?
▪ Identified ways or areas to cut costs if necessary?
▪ Secured additional financing options?
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Contingent Considerations/Earn Out
• Provision in acquisition agreement in which buyer agrees to pay additional future
consideration to a seller based on the target company meeting benchmarks
specific in the agreement
• Used in situations of uncertainty of price and allows the buyer and seller to share
in the risks of future performance (valuation gap)
• Common financial benchmarks used by buyers include EBITDA, gross profit, net
income, revenue, earnings per share, units sold, and regulatory approval
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Key Issues to Consider
•Post-closing settlement
✓ Working capital accounts
✓ Environmental liabilities
✓ Product warranties
30
Fairness Opinions
• Is a valuation a fairness opinion or vice versa?
• What is a “Fairness Opinion”?
• What is a “Solvency Opinion”?
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Are We There Yet? Start Discussion Early
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Non-Disclosure Agreement (NDA)
Keeping Your Exit Plan
On the “Down Low”
• You May be Negotiating with a Competitor
• Protecting Client Confidences
• Referral Sources Could be Impacted
• Employee Raiding/Fleeing
33
Due Diligence: Giving Diligence Its Due
34
Navigating the Buy/Sell Highway
• Inventory and review all governing documents
o Articles of Incorporation/Organization
o Other Public Records
o Tax Filings
o Bylaws
o Operating Agreements
o Buy-Sell Agreements
o Estate Planning and Other Succession Planning Documents
35
Pop the Hood & Check Your Tire Pressure
36
Letters of Intent
The LOI may be the only agreement the parties sign.
37
ABA Short Form Template
• In progress project of the Short Form M&A Documents Joint Task Force of the
American Bar Association’s (“ABA”) Business Law Section’s Mergers &
Acquisitions and Middle Market & Small Business Committees
• All critical elements of a well-drafted M&A deal document
▪ Address fear of unknowingly deleting a “market standard” liability protection
• Pro-buyer
• Purchase price in the $500,000 to $15 million range
38
Disclaimer
• There are many options when it comes to planning an exit strategy.
• Your personal objectives and circumstances will have the greatest impact on
which strategy is appropriate.
• No matter the exit strategy, the business must be on strong legal and tax footing
to maximize value and ensure a successful transition.
• Start to assemble your team of lawyers, accountants, intermediaries and financial
planners early in the process!
39
About the Faculty
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About The Faculty
John Levitske, CPA/ABV/CFF/CGMA, ASA, CFA, CIRA, MCFLC,
MBA, JD - jlevitske@gmail.com
41
About The Faculty
Hillary Hughes, CFA, ASA - hhughes@prairiecap.com
Hillary Hughes joined Prairie Capital Advisors in 2011 and is a shareholder in the firm. She
provides strategic insights to assist business owners and boards of directors to address long-term
ownership transaction goals. Hillary has been highly involved in the structuring and valuation
related to employee stock ownership plans (ESOPs) on behalf of ESOP Trustees as well as
business owners. Hillary provides financial advisory services to clients ranging from small family-
owned businesses to large multi-national conglomerates. She specializes in the valuation of
businesses and business interests for purposes of mergers and acquisitions (M&A), ESOPs, gift
and estate planning and strategic planning. Hillary is also instrumental in developing Prairie’s trust-
side ESOP practice. In addition, Hillary is a frequent speaker in forums around the country on
topics including valuation, ESOPs and ownership transition planning.
To read more about Hillary, please visit : https://www.financialpoise.com/financial-poise-
faculty/hillary-hughes/
42
About The Faculty
Robert Musur- rmusur@cohencpa.com
Robert Musur, ASA, MBA, JD serves as a business valuation professional and
advisor. He provides business valuation and management of tax related, financial
reporting and transactional related valuation engagements. He has an expertise in
the valuation of business interests, options, purchase price analysis and intangible
assets, in several industry segments, including technology, communications,
manufacturing, consumer products and financial services. He has also previously
testified in dispute related engagements involving shareholder and marital disputes.
He is frequently consulted regarding M&A transactions and transactions involving
contingent consideration.
43
About The Faculty
James O'Sullivan, Esq.- jpo@tblaw.com
For over 30 years, Jim O’Sullivan has guided businesses and their owners through their most
important stages: from business formation to succession planning and sale transactions,
including negotiating and preparing agreements to strategically grow and protect the
business, as well as resolving disputes among the owners.
Jim received the State Bar of Arizona’s 2019 Diversity and Inclusion Leadership Award and
2013 Continuing Education Award. He also received the 2016 Champions Award from the
M&A Source.
Best Lawyers recently named Jim the 2022 Lawyer of the Year for Closely Held Companies
and Family Businesses in Phoenix, Arizona.
44
Questions or Comments?
If you have any questions about this webinar that you did not get to ask during the live
premiere, or if you are watching this webinar On Demand, please do not hesitate to email us
at info@financialpoise.com with any questions or comments you may have. Please include
the name of the webinar in your email and we will do our best to provide a timely response.
IMPORTANT NOTE: The material in this presentation is for general educational purposes
only. It has been prepared primarily for attorneys and accountants for use in the pursuit of
their continuing legal education and continuing professional education.
45
About Financial Poise
46
Financial Poise™ has one mission: to provide
reliable plain English business, financial, and legal
education to individual investors, entrepreneurs,
business owners and executives.
Visit us at www.financialpoise.com
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Weekly, updates you on new articles published
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What's it Worth? Valuing a Business for Sale

  • 2. 2 Thank you to our Sponsor, Sunburst Digital.
  • 3. 3 Practical and entertaining education for attorneys, accountants, business owners and executives, and investors.
  • 5. Disclaimer The material in this webinar is for informational purposes only. It should not be considered legal, financial or other professional advice. You should consult with an attorney or other appropriate professional to determine what may be best for your individual needs. While Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate, Financial Poise™ makes no guaranty in this regard. 5
  • 6. Meet the Faculty MODERATOR: John Levitske - CPA/ABV/CFF/CGMA, ASA, CFA, CIRA, MCFLC, MBA, JD PANELISTS: Hillary Hughes, CFA, ASA- Prairie Capital Advisors, Inc. Robert Musur- Cohen & Company James O'Sullivan, Esq.- Tiffany & Bosco 6
  • 7. About This Webinar What’s it Worth? Valuing a Business for Sale Before going to market to sell your business, you or your executive team may want to obtain an independent appraisal. Likewise, prospective buyers may wish to obtain expert services to value an acquisition target or discrete portions of a target. This webinar provides a look into how valuation experts place a value on a going concern. 7
  • 8. About This Series Valuation 2022 What’s it worth? Whether you are engaged in the sale of an asset or attempting to recover damages in litigation, valuations are often necessary for convincing the other side that your price is right. In transactions, valuations assist parties in determining the price they are willing to pay or receive in the sale of a security, business, or asset. In litigation, valuations play a critical role in setting a baseline for damages awards. Expert assistance is required to accurately value many assets, whether it is a business, a security, an intangible asset such as intellectual property or a brand, or lost profits in a litigation context. Choosing the appropriate valuation expert can make or break your transaction or your case, given the extensive battles between valuation experts that arise in contested matters. This series provides an overview of valuation in its many contexts, from business valuations in transactions to battles between valuation experts in all aspects of litigation. Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and executives without much background in these areas, yet is of primary value to attorneys, accountants, and other seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that participants will enhance their knowledge of this area whether they attend one, some, or all episodes. 8
  • 9. Episodes in this Series #1: What's it Worth? Valuing a Business for Sale Premiere date: 2/9/22 #2: Valuing Lost Profits for Litigation Purposes Premiere date: 3/16/22 #3: Selecting the Right Valuation Expert Premiere date: 4/13/22 #4: Minority and Illiquidity Discounts Premiere date: 5/11/22 #5: Valuing Your Brand and Other "Soft" Assets Premiere date: 6/8/22 9
  • 10. Episode #1 What's it Worth? Valuing a Business for Sale 10
  • 11. What is a Business Valuation? • Generally value is the estimation of price as of a specific date. Price is consideration actually paid to acquire a specific security. • The word value means different things to different people. Even to the same person, value means different things in different contexts. • No single valuation method is universally applicable to all appraisal purposes. • Failing to match the business appraisal definition of value with the intended purpose will likely result in the incorrect conclusion of value. • Value to whom? • Under what circumstances? 11
  • 12. Key Terms Fair Market Value The amount at which property would change hands between a willing seller and a willing buyer when neither is acting under compulsion and when both have reasonable knowledge of the relevant facts. Market Value Most probably price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. 12
  • 13. Ownership Transition Alternatives Internal Sale External Sale Strategic buyers Financial buyers (i.e. private equity) Whole or partial sale Employee stock ownership plan (ESOP) Management buyout (MBO) Leveraged recapitalization Family transfer These paths move ownership in very different ways; however, each has its pros and cons 13
  • 14. Valuation Concepts The value of the business will equal the sum of all the cash flows it will generate, discounted to present value • Income approach methods such as discounted cash flow and capitalized earnings can estimate the intrinsic value of the business Intrinsic Valuation 14
  • 15. Valuation Concepts Relative Valuation • The value of the business will be based on the value of its competitors or industry peers that either trade(d) on a public exchange or sold in a third-party transaction • Market approach methods such as guideline public comparables and guideline transactions can be used to assess the value of a business on a relative basis 15
  • 16. Valuation Concepts Intrinsic Valuation vs. Relative Valuation (is one better?) • They are both important • Intrinsic valuation is based on widely accepted academic methods and is created using assumptions, which makes manipulation very easy • Relative valuation is based on actual market dynamics. However, finding true comparables can be a challenge, especially with valuing smaller companies • It is best practice to compare each valuation in order to provide a sanity check 16
  • 17. Valuation Basics Enterprise Value • Synonymous with the value of the entire operating business Equity Value • Enterprise value minus debt plus cash plus/minus other non-operating assets • Equity value is the portion of the entire business that belongs to equity holders Net Operating Assets Total Funded Debt Market Value of Equity Enterprise Value 17
  • 18. Valuation Basics Net Operating Assets Enterprise Value Total Debt Equity Unlevered Cash Flows Enterprise Value Based Levered Cash Flows Equity Value Based • Un-levered or “debt-free” earnings streams provide a return on invested capital • Cash flow available to debt and equity holders • Discounting them using a weighted average cost of capital leads to Enterprise Value • Debt-free earnings streams include: • EBITDA and EBIT Equity Value Net Operating Assets Total Debt Equity • Levered or “equity” earnings streams provide a return on equity • Cash flow available to only equity holders • Discounting them using a cost of equity leads to Equity Value • Equity earnings streams include: • Net Income 18
  • 19. Valuation Basics What Factors Impact Valuation? INTERNAL Strong Business Model Growth Prospects Profitability Revenue Sources Balance Sheet Intangible Assets Management Team Size Capital Requirements EXTERNAL Market Multiples Lending Conditions Interest Rates Industry Trends Investor Psychology Economic Policies Political Environment International Markets Competitive Landscape 19
  • 20. Valuation Basics Earnings Normalization Normal Operations Normal Operations Normal Operations One-Time Event • Adjustments are made to reflect an accurate representation of the Company’s true earnings Common Adjustments Non-continuing compensation Excess compensation Personal expenses Transaction fees Start-up costs Excess employee benefits Extraordinary bad debt write- off Extraordinary legal fees Extraordinary professional fees Discontinued ops Settlement income / expenses Gain on the sale of assets 20
  • 21. Valuation Basics How are Valuation Multiples Calculated? • A valuation multiple presents the value of a business as a multiple of a particular earning stream • Since all businesses are different, we do not compare absolute values, rather multiples are used to standardize the comparison • When calculating multiples, it is critical the level of value (equity or enterprise value) is matched with the correct earning stream 21
  • 22. Valuation Approaches • Income • Market • Asset • Operating companies are generally going to focus on income and market approaches, unless capital intensive (i.e., significant amount of tangible assets) • Holding companies are generally going to focus on the value of the underlying assets and liabilities (e.g., investment fund or real estate holding company) 22
  • 23. Income Approach • Values the future economic-benefit streams (typically, cash flow) in present-value dollars at the date of valuation • Methods o Capitalized cash flow (CCF) method ▪ Single forward-looking period o Discounted cash flow (DCF) method ▪ Multiple forward-looking periods 23
  • 24. Income Approach Pros • Widely used in practice and academically • Includes all major assumptions about a business • Very detailed analysis • Tailored to the subject company • Can run multiple financial performance scenarios • Useful in analyzing M&A transactions Cons • Garbage in, garage out analysis • Requires a large number of assumptions • Can be overly complex – forecasting is a challenge • Small changes in key assumptions can have large impacts • Assumptions can be manipulated 24
  • 25. Market Approach Identify transactions that have occurred that involve ‘target’ companies … OR Identify publicly-traded companies … … that are sufficiently similar to the subject company. 25
  • 26. Market Approach Pros • Current market pricing and investor sentiment • Easy to compare and benchmark • Public data is accessible and verifiable • Avoids making assumptions about future performance • Recent transactions tend to reflect prevailing M&A, capital market, and general economic conditions Cons • Lack of direct public comparables or comparable transactions • Data requires “subjective” adjustments for private valuations • Market pricing can be skewed by speculation and panic • Not all transaction data is publicly disclosed • Older transactions may not reflect current market conditions 26
  • 27. Asset Approach • Asset accumulation (net asset value) method o Obtain a balance sheet with information as of, or that precedes, the date of valuation o Adjust the balance sheet to reflect generally accepted accounting principles o Adjust the assets and liabilities to reflect their appraised values o Identify and quantify unrecorded assets and liabilities o Quantify goodwill or other intangible value o Make adjustments (if necessary) to reflect the deferred income tax effect on any gains or losses 27
  • 28. Ways to Help a Company • Cash Flow is the Critical Element: o Cash flow models are essential for evaluating where a Company is operationally and how long it may be able to weather a storm under different performance assumptions o Ability to Pivot? ▪ Is it possible for a Company to move into a safer business line to save some time and ride out the Covis-19 pandemic and fallout? ▪ Identified ways or areas to cut costs if necessary? ▪ Secured additional financing options? 28
  • 29. Contingent Considerations/Earn Out • Provision in acquisition agreement in which buyer agrees to pay additional future consideration to a seller based on the target company meeting benchmarks specific in the agreement • Used in situations of uncertainty of price and allows the buyer and seller to share in the risks of future performance (valuation gap) • Common financial benchmarks used by buyers include EBITDA, gross profit, net income, revenue, earnings per share, units sold, and regulatory approval 29
  • 30. Key Issues to Consider •Post-closing settlement ✓ Working capital accounts ✓ Environmental liabilities ✓ Product warranties 30
  • 31. Fairness Opinions • Is a valuation a fairness opinion or vice versa? • What is a “Fairness Opinion”? • What is a “Solvency Opinion”? 31
  • 32. Are We There Yet? Start Discussion Early 32
  • 33. Non-Disclosure Agreement (NDA) Keeping Your Exit Plan On the “Down Low” • You May be Negotiating with a Competitor • Protecting Client Confidences • Referral Sources Could be Impacted • Employee Raiding/Fleeing 33
  • 34. Due Diligence: Giving Diligence Its Due 34
  • 35. Navigating the Buy/Sell Highway • Inventory and review all governing documents o Articles of Incorporation/Organization o Other Public Records o Tax Filings o Bylaws o Operating Agreements o Buy-Sell Agreements o Estate Planning and Other Succession Planning Documents 35
  • 36. Pop the Hood & Check Your Tire Pressure 36
  • 37. Letters of Intent The LOI may be the only agreement the parties sign. 37
  • 38. ABA Short Form Template • In progress project of the Short Form M&A Documents Joint Task Force of the American Bar Association’s (“ABA”) Business Law Section’s Mergers & Acquisitions and Middle Market & Small Business Committees • All critical elements of a well-drafted M&A deal document ▪ Address fear of unknowingly deleting a “market standard” liability protection • Pro-buyer • Purchase price in the $500,000 to $15 million range 38
  • 39. Disclaimer • There are many options when it comes to planning an exit strategy. • Your personal objectives and circumstances will have the greatest impact on which strategy is appropriate. • No matter the exit strategy, the business must be on strong legal and tax footing to maximize value and ensure a successful transition. • Start to assemble your team of lawyers, accountants, intermediaries and financial planners early in the process! 39
  • 41. About The Faculty John Levitske, CPA/ABV/CFF/CGMA, ASA, CFA, CIRA, MCFLC, MBA, JD - jlevitske@gmail.com 41
  • 42. About The Faculty Hillary Hughes, CFA, ASA - hhughes@prairiecap.com Hillary Hughes joined Prairie Capital Advisors in 2011 and is a shareholder in the firm. She provides strategic insights to assist business owners and boards of directors to address long-term ownership transaction goals. Hillary has been highly involved in the structuring and valuation related to employee stock ownership plans (ESOPs) on behalf of ESOP Trustees as well as business owners. Hillary provides financial advisory services to clients ranging from small family- owned businesses to large multi-national conglomerates. She specializes in the valuation of businesses and business interests for purposes of mergers and acquisitions (M&A), ESOPs, gift and estate planning and strategic planning. Hillary is also instrumental in developing Prairie’s trust- side ESOP practice. In addition, Hillary is a frequent speaker in forums around the country on topics including valuation, ESOPs and ownership transition planning. To read more about Hillary, please visit : https://www.financialpoise.com/financial-poise- faculty/hillary-hughes/ 42
  • 43. About The Faculty Robert Musur- rmusur@cohencpa.com Robert Musur, ASA, MBA, JD serves as a business valuation professional and advisor. He provides business valuation and management of tax related, financial reporting and transactional related valuation engagements. He has an expertise in the valuation of business interests, options, purchase price analysis and intangible assets, in several industry segments, including technology, communications, manufacturing, consumer products and financial services. He has also previously testified in dispute related engagements involving shareholder and marital disputes. He is frequently consulted regarding M&A transactions and transactions involving contingent consideration. 43
  • 44. About The Faculty James O'Sullivan, Esq.- jpo@tblaw.com For over 30 years, Jim O’Sullivan has guided businesses and their owners through their most important stages: from business formation to succession planning and sale transactions, including negotiating and preparing agreements to strategically grow and protect the business, as well as resolving disputes among the owners. Jim received the State Bar of Arizona’s 2019 Diversity and Inclusion Leadership Award and 2013 Continuing Education Award. He also received the 2016 Champions Award from the M&A Source. Best Lawyers recently named Jim the 2022 Lawyer of the Year for Closely Held Companies and Family Businesses in Phoenix, Arizona. 44
  • 45. Questions or Comments? If you have any questions about this webinar that you did not get to ask during the live premiere, or if you are watching this webinar On Demand, please do not hesitate to email us at info@financialpoise.com with any questions or comments you may have. Please include the name of the webinar in your email and we will do our best to provide a timely response. IMPORTANT NOTE: The material in this presentation is for general educational purposes only. It has been prepared primarily for attorneys and accountants for use in the pursuit of their continuing legal education and continuing professional education. 45
  • 46. About Financial Poise 46 Financial Poise™ has one mission: to provide reliable plain English business, financial, and legal education to individual investors, entrepreneurs, business owners and executives. Visit us at www.financialpoise.com Our free weekly newsletter, Financial Poise Weekly, updates you on new articles published on our website and Upcoming Webinars you may be interested in. To join our email list, please visit: https://www.financialpoise.com/subscribe/