28. What Does the Deal Look Like?
• Step 1: Confidentiality Agreement
– Agree to keep proprietary information confidential
– Can’t use the information except to analyze the
purchase
– Non-solicitation of employees
29. What Does the Deal Look Like?
• Step 2: Letter of Intent (LOI)
– Describes all material terms
• Deal structure
• Purchase price
• Other matters
– Too long v. too short
• Does it cover all “deal killers”?
– Legally binding v. non-binding
– Your point of greatest leverage
30. What Does the Deal Look Like?
• Step 3: Due Diligence
– Seller should fully cooperate
– Bad news will come out – get ahead of it
– Customer contact?
31. What Does the Deal Look Like?
• Step 4: The Purchase Agreement
– Stock purchase
– Asset purchase
– Merger
– Why and who cares?
– Common elements and indemnity
32. What Does the Deal Look Like?
• Ancillary Items
– Employment Agreements
– Consulting Agreements
– Non-compete Agreements
– Financial Advisory Agreements
33. What Does the Deal Look Like?
• Realistic Timetable
– Controlled by Buyer
– Frequent Seller frustration
– 2-3 months
– May take longer if……
35. Maximizing Value Prior to Engaging in a Transaction
• Understanding the two components of
valuation
– EBITDA
– Multiple
36. Maximizing Value Prior to Engaging in a Transaction
• EBITDA
– Repeatable cash flows
– Quality of Earnings – Cash vs. Accrual basis of
accounting
– Quality of Assets (Net Working Capital)
37. Maximizing Value Prior to Engaging in a Transaction
• Multiple
– Market – What are similar companies selling for?
– Systems/data & Professionalization
– Operations
•
•
•
•
Customer concentration
Vendor concentration
Market – Is the sales market increasing/decreasing
Backlog and ability to meet customer demands
40. How Does the Deal Get Done?
Highly Structured, Leveraged Finance
“…when a company is purchased with a combination of equity and
significant amounts of borrowed money, structured in such a way that the
target’s cash flows or assets are used as the collateral (or “leverage”) to
secure and repay the money borrowed to purchase the target company.
“As financial sponsors increase their returns by employing a very high
leverage (i.e. a high ratio of debt to equity), they have an incentive to
employ as much debt as possible to finance an acquisition.”
Source: Wikipedia
41. How Does the Deal Get Done?
Source: Wikipedia
High
yield /
Mezzani
ne debt
42. How Does the Deal Get Done?
What SURPRISES Business Owners?
“You’re not in Kansas anymore”
• Pace
• Structure and Controls
• Internal / Organizational
44. How Does the Deal Get Done?
• Structure and Controls
– Lots of Variables…
– Multiples, Industry, EBITDA, etc.
– Every Transaction is Unique
– “He who has the money, makes the rules”
45. How Does the Deal Get Done?
• Internal / Organizational Issues
– Operational Changes
– Management and Accountability
49. Maximizing Value Prior to Engaging in a Transaction
• Tax Implications of Transaction
– Tax due diligence – State and Federal
– LLC/Partnership
– Corporations
– NOL Limitations
50. Maximizing Value Prior to Engaging in a Transaction
• Advance Tax Planning
– Ownership structure
– Estate planning and gifting – wealth preservation
51. Q&A, Next Steps
• Next Steps = Attend Sessions 2 & 3
– Session 2: April 3, 2014
– Session 3: May 8, 2014
