How to Value Your Insurance Agency - Mordy Rothberg, Confie Seguros
Private Co Exit
1. M1 International
Private Company Valuation and Exit
Strategy
Tom Corrigan, MBA
tomas@m1international.com
www.m1international.com
+1.714.756.1185
M1 Proprietary
3. M1 International
Executive Summary
Entrepreneurs and business owners work very hard to build successful
companies. When it comes time to value and sell the entity there are
many considerations. The process can be complex and should start
twelve to twenty four months in advance of the event
The goal is the greatest tax advantaged value to the business owner and
a buyer who is satisfied with the transaction
M1 Proprietary
4. M1 International
Operations
The owner is usually the key manager/leader of the business and
many times a business can fail without that leadership
Owner/Seller commitment to remain on board for two years can
alleviate these concerns. Succession planning is key, to ensure you
have a replacement who knows operations, customers, sales,
marketing, finance, etc.
Detailed Standard Operating Procedures (SOPs) are mandatory.
Documented maintenance records for machinery, equipment, and
facilities. Regulatory compliance is vital
Due Diligence – Open and honest communication between buyer and
seller is key
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Accounting
Reviewed or Audited Financials including income statement and
balance sheet is essential as the numbers provide the basis for the
transaction. Three to five years of data is preferable
The quality of the income/cash-flow important; consistency
Level of debt; in general the greater the debt the greater the risk
Internal accounting controls are vital over the period of performance
detailed in the financials
Important to ensure the financials contain only direct expense
associated with the business. Personal vs. Business expense need to
be separate
Book vs. tax treatment
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6. M1 International
Valuation
Three Methods of Valuation:
Discounted Cash-Flow or Net Present Value – The beta or measure of risk is an outsize
determinant of value. Growth forecast that has data to back it up
Multiple of EBITDA or Revenue Comparables – Private vs. Public Co Multiples
Asset Sale – Does not take into account future earnings value
Maximize accounting profit and cash-flow. The Quality is important, clear and audited
financial statements are key
Intellectual Property (IP) Valuation: What is the future value of IP, can it be sold, leased, or
other value extracted. Patents, research and development, trademarks, customer lists,
enterprise goodwill, personal goodwill of the owner
Human Capital: Owner, Staff, Consultants, Customers, Bankers
Customer concentration: could one or two customers significantly alter the valuation –
revenue and earnings. Concentration can negatively affect valuation
M1 Proprietary
7. M1 International
Valuation (cont.)
Strategic Buyer vs. Financial Buyer:
Strategic buyer interested in long term value creation. This buyer can
increase the value by improving margins, new markets, new customers,
and other methods.
Financial buyers usually interested in a multiple of purchase price within
five years
Revenue and Earnings consistency over time can increase the
valuation. The perception is reduced risk
Tax consequences of both buyer and seller can affect the structure of
the sale
Risk is negatively correlated with value. The goal is for financials and
operations to be low risk
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8. M1 International
Legal
Corporate Structure:
C Corporation - Preferable
S Corporation – Very Limited
Limited Liability Corporation - Flexible
Sole Proprietorship – Limited
Voting vs. Non-Voting Shares
Entity free of: liens, suits, legal action, back taxes, delinquent accounts
Due Diligence – Important to lay all the cards on the table for both parties to the
transaction. Seller to lead the discussion to frame it properly
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9. M1 International
Estate Planning – Wealth Transfer
Must be completed well in advance of the transaction
Transfer to a family trust at lower value than eventual sale value
Complex tax considerations require an expert: Transfer Tax Planning,
Estate Tax, Gift Tax, Income Tax
Key Man or Whole Life insurance can be an asset and monetized
Gift sale to grant or trust – transfer assets to a trust for the benefit of
spouse or children – tax advantaged treatment
There can be a huge discount to the after tax value if estate planning
is done after the sale vs. in advance. Only one shot to do it right
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