Falcon Invoice Discounting: The best investment platform in india for investors
M+A
1. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
DUE DILIGENCE
CONQUERING FINANCIAL AND LEGAL OBSTACLES IN A
PURCHASE / SALE OF
A PCO BUSINESS
By: Daniel S. Gordon, CPA
John P. Corrigan, CPA, Esq.
2. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Introduction
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3. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Chronology of a
Successful Deal
Request for Information /
Acquisition Questionnaire
Due Diligence - Buyer Due Diligence - Seller
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4. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Financing the
Deal
Purchase / Sale
Agreement
Details not Addressed in
the LOI
Closing
the Deal
What’s Next?
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5. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Chronology of a
Successful Deal
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6. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Negotiating
Price and
other items of
importance
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7. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Prior to beginning the Information Request
The buyer and seller should promise in writing to keep confidential
the fact that negotiations are proceeding, and promise not to
disclose any information learned during the investigation or
negotiations. This provides the parties with some protection if the
deal falls through.
A Confidentiality Agreement is Standard:
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8. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
The Request for Information
The Buyer provides Seller
a written questionnaire
concerning matters of
importance:
• Assets Purchased
• Liabilities Assumed
• Key Business Points
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9. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Letter of Intent
“LOI”
• The buyer outlines the terms and price informally agreed to in a written,
nonbinding Letter of Intent (aka Memo of Understanding).
Due Diligence
• Each party has limited time (30-60 days) in which to investigate each
other to see whether they wish to proceed or not.
Financing
• While sellers prefer cash only deals at closing, buyers usually propose
outside or seller financing. We will explore later
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10. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Purchase
Agreement
• If there are no nasty surprises uncovered during due diligence, the parties'
respective lawyers hash out the details of the Purchase / Sale Agreement
Other
Considerations
• Such as HR, Leases, and complying with State Laws, etc.
Closing the
Deal
• Sign the Purchase/ Sale Agreement and other related documents and
subsequently close the deal by fulfilling any conditions as defined earlier
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11. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Request for Information /
Acquisition Questionnaire
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12. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
General Information
Name of Company?
Years in Business?
Operate in the following State (s)?
Describe geographic area?
( i.e. Cities, Counties)
Form of Organization?
C Corp
S Corp
Sole Proprietorship
LLC
Year and State Formed?
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13. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Technician Information
Number of Full Time Technicians?
Number of Part Time Technicians?
How Are Technicians Compensated?
is the pay plan?
If Hourly, what are the rates of pay? If Route, what
Hourly
% of Route
Both
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14. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Non–Technician
Information
Number of Sales People?
Number of Office People?
How Are Sales People Paid?
Number of Managers / Supervisors?
How Are Office People Paid?
How are Managers / Supervisors Paid?
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15. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Also attach the following:
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16. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Other Information
How many advertised phone lines and internet
Any contractual obligations?
i.e. Yellow Page Contracts
Is the company obligated under any office leases?
Does seller seek employment with buyer?
payment? If so, is the lease assignable?
domain names does the company own?
If so, for how long and what is the monthly
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17. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Other Information
Is the company currently involved in or does it
If yes, please attach information including
insurance coverage
If no, please attach explanation
Has the company filed all tax returns required by
QuickBooks
Yes No
Yes
expect to be involved in any lawsuits?
Software Used:
No
Service Pro
Pestpac
Other (Please List)
Please attach a copy of any customer service
agreements the company uses
Federal, State and Local Authorities?
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18. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Operational
Information
Revenue:
Commercial Recurring
Commercial Non-Recurring
Residential Recurring
Residential Non-Recurring
Termite Jobs
Termite Renewals
Other Services Recurring
Other Services Non-Recurring
Total Revenue
Proj. Current Yr 2012 2011 2010
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19. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Customer
Information
Weekly PC
Semi MPC
EOM PC
Quarterly PC
Monthly PC
Other Recurring
# of Accounts Revenue Per Period Annual Revenue
Annual Term Renewals
Other Annual Renewals
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20. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Accounts Receivable:
Accounts Payable:
Number of Vehicles (Attach Schedule) Estimated Value $
Equipment (Attach Schedule) Estimated Value $
Current 30 Day 60 Day Over 90 Total
Any Notes Payable Due on Vehicles or Equipment? Please attach schedule.
Asset / Liability
Information
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Analysis of Write offs
21. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Due Diligence - Buyer
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22. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Formulating an Offer
Once the seller provides the completed Request for Information /
Acquisition Questionnaire and the Confidentiality Agreement, the
buyer makes an offer based on the seller’s answers to the
questionnaire, subject to due diligence procedures.
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23. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Generally, the buyer uses this due
diligence phase to:
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24. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
In order make these
determinations, the
buyer will want to see
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25. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Buyer will want to see any management reports used:
• Sales reports
• Inventory records
• Detailed lists of assets
• Aged receivables and payables
• Payroll and Benefits records
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26. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Due Diligence - Seller
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27. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
If you are selling to one of the larger players in the
industry you have a good idea of who they are and
their ability to close the deal.
However, if you are doing
a deal with a smaller
player you'll want to find
out the buyer's…
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28. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Seller due diligence, finding out about the buyer -why is it
important?
• If the seller plans to work for the buyer after the sale
• Part of the purchase price will be paid in the future though a
financing arrangement or an earn-out.
Even if you plan to collect all your cash
at the closing, walk away, and never
look back, you should satisfy yourself that
there's at least a reasonable likelihood
that the buyer will be able to operate
the business successfully.
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29. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Financing the Deal
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30. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Types of Financing
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31. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Elements of a Purchase
Agreement
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32. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
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33. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Stock Purchase
Agreement (“SPA”)
vs.
Asset Purchase
Agreement (“APA”)
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34. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Stock Purchase
vs.
Asset Purchase
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35. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Restrictive
Covenants
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36. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Representations
and
Warranties
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37. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Representations
and
Warranties
37
38. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Details not
Addressed in the LOI
38
39. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
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40. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
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41. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
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42. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
Closing the Deal
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43. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
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44. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
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45. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
45
How Can We Help?
For over a decade PCO Bookkeepers has been providing comprehensive
financial and operational reporting services to PCOs nationwide:
Over that period, we have worked with various companies to analyze
enterprise value as well as negotiate and structure appropriate
purchase and sale agreements
We are pleased to announce that co-presenter of today’s
discussion, John Corrigan has joined PCO Bookkeepers as an advisory
consultant to strengthen our M&A capabilities
46. THE PEST CONTROL INDUSTRY’S
MOST TRUSTED ACCOUNTING FIRM
PCO
BOOKKEEPERS
46
Bookkeepers M&A Services include:
• “Getting your Feet Wet” – Thinking about buying or selling but don’t know where
to start? We provide individualized consulting services – “the
who, what, where, when and how”
• For Sellers – Let us help you refine your thinking as to sell or not to sell -
considering all the facts. We can also help with the best way to structure a deal
from the sell side
• For Buyers – Found a company to buy? We can help analyze it, perform due
diligence and help with the best way to structure the deal from the buy side
Contact us:
Dan Gordon, CPA
John P Corrigan, Esq, CPA
info@pcobookkeepers.com
or
Call us at 973-300-0288 x 201
Editor's Notes
Word Doc
Frame Out The Talk
OK - Lets do the run down of how it works – We’ll look at all these items in detail but lets do a quick overviewConfidentiality Agreement / Info Request – This is where we startMost Buyers and sellers would rather keep a deal or potential deal secret until it closesWhat are you selling? The questionnaire defines all items for sale as well as learning “the lay of the land”Letter of Intent / Due DiligenceOnce we understand what is being sold, we can make an offer, which is done through the letter of IntentDD is done to determine – if the understanding of value on both sides (buyer and seller) – is truly what has been representedFinancing the deal – Is it all cash? Is it over time? What are the options and how can that affect overall value as well as the ability to get the deal donePurchase and sale agreement – This is where the lawyers earn their moneyOther considerations – HR Issues, Leases Etc.Closing the deal – the mechanics –John will explore thisJOHNS QUESTION on Attorneys
This is where we get an understanding of what is being bought or Sold. Again we aren’t purchasing a single asset like a car, there are many moving parts to the box of value we are purchasing so this is where it all gets showcased
LOI – Based on the answers given on the Questionnaire – and subject to DD an offer is madeDD – The field work to prove the value on the questionnaire or reveal other issues that may not have been disclosedFinancing – John will go through this but there are many ways to finance a trx. These different methods will have differing tax consequences as well in many cases effect the value of the deal
Purchase Agreement – This is the lawyers work and it takes a skilled lawyer on both sides – There needs to be a meeting of the mindsOther Considerations – contingent liabilities (Leases, Deferred Comp etc.) – how are these dealt with?Closing the deal – Other items post closing like assigning leases, transferring contracts, transferring title to vehicles etc. – A checklist is useful to create in this regard and make sure all items are ultimately closed
JOHNS QUESTION – Data RoomMany Times as the seller we put together a dossier that includes History of the company, the owners, the market as well as most answers to most standard questions. In affect it’s a document to market our business to potential buyers and that can be stored and accessed electrontically in a data room such as smart vault, sky drive, etc. Or a hard copy
Essentially the buyer wants to not only understand the value and number of tangible and intangible assets to be purchased but also the actual selling price may not be the amount the buyer pays and the seller receives.Tax considerations can take a large bite out of the gross amounts, so knowing the type of entity allow the CPAs on both sides to distribute the tax benefits to both the buyer and seller. The Caveat: Make sure you have a good CPA or you may get some unintended surprises
We want to know revenue per technician to support the revenue numbers and valuationWe want to get a feel for compliance with DOL regs and Fair labor Standards ACT
In this regard, I’m looking for ratios:How many office people does it take to run a certain number of field force membersSales folks to techniciansSupervisors to techniciansThese are all items that based on ratios and industry rules of thumb and experience help support revenue and profitability claimsIn addition, Value can be assigned to an assembled workforce. So we need to understand the org chart
We want to protect the asset that we are purchasing! Standard Employment Agreements in our industry usually contain employee non competes. We don’t want employees quitting and stealing customersBenefits – are they similar to ours. Employee expectations?List of employees – Again we want to protect the intangible asset! We need to know that no one is stealing or redirecting or customers Workers Comp / Safety records – Any looming lawsuits, our hiring practices? To many out on WC
Is there synergy between buyer and seller? If not an employment agreement may not workPhone lines and InternetContingent or scheduled Liabilities? Leases, yellow page contracts etc
Lawsuits? Covered by Insurance?Tax Returns? Outstanding Liabilities or Liens?Software Used – We at PCO bookkeepers work with the 3 majors, PP, Service Pro and Real Green. Having an expert like us go through the sellers data file can result in some pretty interesting informationSoftware used – Integrated our companies – it’s a lot easier if we are on the same platformCustomer agreements – what are we responsible for – any lifetime warranties out there?
Contrary to popular belief Value is based on profitability then calculated back to multiple of revenues so that 1x 1.5x etc needs to beanalized for profitability:Later during DD - u have to look at recurring revenue and dollars per hour to figure that outExample: 1 mil – 10 techs, 5 techsTherefore its important to look at recurring, renewals and non recurring revenue
Does the types of work (Schedule types) blend well with our business?
Health of A/R, A/PNet Value of Hard Assets
The most valuable single Asset – Customer List – Get under the hood, look at $ per hour, types of workRoute WorkRenewalsOne TimeTitlesFinancing AgreementsLiens UCC filigsDoes the business fit with ours – people, software, service contracts?
