Middle Market Finance. Beware of 'Sell the Business Hammers' Business Transfers. Owner Transfer Motives. Transfer Timing. Market Timing. Owner Motives Matter.

1. © 2010 MidasNation, LLC. All Rights Reserved. 1
Presented by
Rob Slee, CBA, CM&AA, MA, MBA
Strolling the Transfer Spectrum

2. Strolling the Transfer SpectrumSlee
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 Middle Market Finance
• The study of how private companies make
investment and financing decisions
• Value Relativity: Value is relative to the reason for
an appraisal
• The Bizarre Bazaar: Private capital is allocated in
a bazaar
• Transfer Spectrum: Business transfer comprises
a spectrum of alternatives
• You are lost until you understand the integrated
structure of private finance

3. Strolling the Transfer SpectrumSlee
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 Beware of ‘Sell the Business Hammers!’
• Many brokers offer just one way to transfer the
business
• Every business owner looks like a nail that must
be driven to a 100% sale
• But this violates Private Capital Markets Theory

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 Business Transfer
• Business transfer reflects all possible ways or
methods to transfer or exchange a private
business interest
• An owner’s transfer motive selects a transfer
channel (e.g., Employee channel)
• Each channel contains numerous transfer
methods (e.g., ESOP or MBO)
• Transfer methods select value worlds!

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 Business Transfer Spectrum
Employees Family Co-Owners
Outside
[Retire]
Outside
[Continue] Public
Charitable
Trusts
T R A N S F E R M O T I V E S
T R A N S F E R M E T H O D S
ESOPs
Management
Buyouts/Ins
Phantom
Stock
Stock Appre-
ciation Rights
Charitable
Remainder
Trusts
Charitable
Lead Trusts
Outright
Gifts
SCINs
Annuities
GRATs
FLPs
IDGTs
Negotiated
One-Step
Private
Auctions
Two-Step
Private
Auctions
Consolidate
Roll-ups
Buy and
Build
Recapitali-
zations
Initial Public
Offerings
Direct Public
Offerings
Reverse
Mergers
Going
Private
INTERNAL
TRANSFERS
EXTERNAL
TRANSFERS
Buy/Sell
Russian
Roulette
Dutch
Auction
Right of
First
Refusal
T R A N S F E R C H A N N E L S

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 Owner Transfer Motives
• Private owners want to:
 Create a family legacy
 Change lifestyle
 Empower employees
 Diversify estate
 Give to charity
 Use transfer to create liquidity
BTW – what are the 3 most important things in RE valuation?

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 Transfer Timing
• Owners should play the transfer timing slots …
PERSONAL BUSINESS MARKET

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 Market Timing
What’s a Business Owner to Do?
Ten Year Transfer Cycle
Deal Recession Prime Selling Time Almost Recession
(Buyer’s Market) (Seller’s Market) (Neutral Market)
1980 1983 1988 1990
1990 1993 1998 2000
2000 2003 2008 2010

10. Strolling the Transfer SpectrumSlee
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 Owner Motives Matter – PrivateCo’s Values
Business Owners Choose a Transfer Value!
Method Value World Value
Buy/Sell Asset Market Value $ 2.4 MM
MBO Investment Value 7.5 MM
ESOP Fair Market Value 9.2 MM
Equity Recap Financial Market Value 12.0 MM
Negotiated Owner Value 15.8 MM
Auction Synergy Market Value 16.6 MM

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 Some Final Thoughts
• There are hundreds of transfer options from which
to choose – selling your biz is just one choice
• As soon as an owner chooses a transfer method,
he/she also chooses a transfer value
• We may be in for a 2-3 year hiatus for external
transfers