The good bad_and_ugly ppt_final

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The good bad_and_ugly ppt_final

  1. 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. 2. When was your lastMergers & Acquisitions round-up… © Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012 2
  3. 3. Heavy DutyMergers &AcquisitionsOutlook © Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012 3
  4. 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 4
  5. 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 5
  6. 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 6
  7. 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 7
  8. 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 8
  9. 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 9
  10. 10. M & A options – typical deal structuresMERGERS JOINT VENTURES ACQUISITIONS GOING PUBLIC DIVESTITURES & OR ASSET SALES PRIVATE © Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012 10
  11. 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 11
  12. 12. Mergers & Acquisitions A C A B BMerger 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 12
  13. 13. Joint ventures and alliancesIndependent entity created between parties fora specific undertaking – usually jointly owned bythe parties contributing:• Intellectual property• Capital and assets• Marketing and sales © Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012 13
  14. 14. Going privateAcquisition of the equity of a publicly traded corporationby an independent privately held entity © Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012 14
  15. 15. Going publicThe process of selling the equity of a company thatwas 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 15
  16. 16. Divestitures and asset salesApproaches 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 16
  17. 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 17
  18. 18. What are the typical steps inbuying/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 18
  19. 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 19
  20. 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 20
  21. 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 21
  22. 22. Cashing in does not always mean selling outIf 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 22
  23. 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 23
  24. 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 24
  25. 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 25
  26. 26. An Ugly Ride: Company X Goal: sell company or license technologyRESULT• 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 26
  27. 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 27
  28. 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 28
  29. 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 29
  30. 30. Marx Group AdvisorsMergers & 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 30
  31. 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 deSan 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 31
  32. 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 32
  33. 33. Subscribe to our monthly enewsletter today! http://tinyurl.com/7upr9sw© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012 33
  34. 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 34

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