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Anatomy Of An M&A Deal. Build Target List/Make Contact Send/Receive “Teaser” Execute NDA Send/Receive “Book” Execute LOI (“Indicative Bid”) Negotiate & Draft PSA Negotiate & Draft Escrow Pre-Closing Adjustments & Close Post-Closing Integration. Anatomy Of An EIN Deal.

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Anatomy Of An M&A Deal

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Anatomy of an m a deal

Anatomy Of An M&A Deal

Build Target List/Make Contact

Send/Receive “Teaser”

Execute NDA

Send/Receive “Book”

Execute LOI (“Indicative Bid”)

Negotiate & Draft PSA

Negotiate & Draft Escrow

Pre-Closing Adjustments & Close

Post-Closing Integration

Anatomy of an m a deal

Anatomy Of An EIN Deal

Build Deal Flow

Pitch The 3 x 3 x 3

Negotiate Your Deal (NDA?)

Sign Equity Agreement

Implement The Fix

Monthly Fee


Anatomy of an m a deal

Notes From The Field

Faster Is Better

Negotiation Is Key

LOI Based Multiple

Clear Financial Warts

Recast Financials

Build Bench Strength


Anatomy of an m a deal

THINGS TO KNOW ABOUT EQUITY DEALSOne in ten preliminary discussions leads to a signed LOI60% of signed LOIs actually closeDue diligence typically costs $25k whether the deal closes or not2/3 of closed transactions produce expected value

This is a numbers game

This is a numbers game

Deal flow

Deal Flow

Where to get deals

Where To Get Deals

  • Networking Groups

  • Toastmasters

  • Chamber Commerce

  • Live Conferences

  • Angel Funds (AIN)

  • VC Firms

  • Business Plan Comps

  • SBDCs

  • Ad Agencies

  • Trade Shows

  • Attorneys

  • CPAs

  • Business Appraisers

  • Bankers

  • Real estate Brokers

  • M & A Firms

  • MeetUp

  • LinkedIn

Where to get deals1

Where To Get Deals

  • Pink Sheet Companies

  • PR Firms

  • Press Releases

  • WSJ/IBD/FT/Barrons

  • Craigslist

  • Gust

  • Caplink

  • Industry/Trade Pubs

  • Inc. 500 List

  • Local Paper (Biz Opps)

  • Business Brokers

  • Online Forums

  • Church

  • Magazines

  • YPO

  • BK Filings

  • Vistage

  • CEO Roundtable

Your m a team investment banker industry expert finance expert attorney cpa cve

Your M & A TeamInvestment BankerIndustry ExpertFinance ExpertAttorneyCPACVE

Structuring your equity deal step 1 define what you will provide

Structuring Your Equity DealStep 1: Define What You Will Provide

Structuring your equity deal step 2 define what you will receive

Structuring Your Equity DealStep 2: Define What You Will Receive

Structuring your equity deal step 3 create triggering events

Structuring Your Equity DealStep 3: Create Triggering Events

Structuring your equity deal step 4 define the comp structure

Structuring Your Equity DealStep 4: Define The Comp Structure

Structuring your equity deal step 5 grant yourself access to financial info

Structuring Your Equity DealStep 5: Grant Yourself Access To Financial Info

Structuring your equity deal step 6 plan your exit

Structuring Your Equity DealStep 6: Plan Your Exit

Structuring your equity deal decide what type of entity to use for your deal s

Structuring Your Equity DealDecide What Type Of Entity To Use For Your Deal(s)

Loi terms

LOI Terms

Loi terms1

LOI Terms

  • Price

  • Form of Purchase

  • Structure Of Purchase

  • Mgmt Contracts

  • Closing Costs

  • Due Diligence

  • Reps/Warranties

  • Broker Fees

  • Timeline for Closing

  • Insurance

  • Standstill

  • Break-Up Fee

  • Earnings Disposition

  • Pre-Closing Access

  • “Special” Disclosures

  • Confidentiality

  • Seller’s Role Post-Close

  • Non-Compete

Anatomy of an m a deal

Negotiating The LOIBuyers pay more in asset sale than stock saleExclude items from sale to reduce PP (e.g. AR, FFE, RE)Payment Terms

Items needed to draft loi

Items Needed To Draft LOI

  • Financial Statements

  • Shareholder List

  • Key Manager List

  • Incentive Comp Plans

  • ESOPs

  • List Of All Contracts

  • List of Major Customers

  • Key Person Ins. Policies

  • List of A/R

  • Add-backs For Non-Customary Expenses

  • RE & FFE Appraisals

  • Inventory WIP Breakdown

  • Capital Exp. Over Past 5 Years

  • Anticipated Cap Exps.

  • Copies of Loan Docs

  • Holder Buy/Sells

Preparing for sale start preparing for sale the day you buy

Preparing For SaleStart Preparing For Sale The Day You Buy

3 critical management functions coo cfo cmo

3 Critical Management FunctionsCOOCFOCMO

Anatomy of an m a deal

Employee Retention PoliciesBonus Pool On SalePhantom Equity PlanEquity Option PlanEquity Sale Plan

Create written policies procedures

Create Written Policies & Procedures

Policies procedures

Policies & Procedures

  • Roles & Responsibilities

  • Recurring Mgmt. Meetings

  • Bus Dev Strategies

  • Marketing Methods

  • Sales reporting, quotas & commissions

  • Bidding, estimating, contract review & approval

  • Project management process and responsibilities

  • Product development, QC and delivery

  • Customer Services and warranties

  • Billing, AR, discounts, credits, returns, refunds and special orders

Policies procedures1

Policies & Procedures

  • Purchasing and PO approval process

  • Shipping & Receiving

  • Cash management

  • Business hours/holidays

  • Equipment operations, maintenance & repair

  • Computer operations & security

  • Email, web usage, website postings

  • Process for collecting changes to P&P manual, usually best done on a wiki

Recasting financial statements family member benefits salaries to children auto club expenses

Recasting Financial StatementsFamily Member BenefitsSalaries To ChildrenAuto & Club Expenses

Anatomy of an m a deal

Recasting Financial StatementsYour Salary & BenefitsInvestment IncomeGains/Losses From Sales Of Business Assets

Increasing valuation show revenue growth over time 15 cagr

Increasing ValuationShow Revenue Growth Over Time (15% CAGR)

Increasing valuation increase total annual revenue bigger is better 5x 1x

Increasing ValuationIncrease Total Annual Revenue (Bigger Is Better).5x – 1x

Increasing valuation increase ebitda 4x 10x

Increasing ValuationIncrease EBITDA4X – 10X

Increasing valuation documented history of meeting projections

Increasing ValuationDocumented History of Meeting Projections

Increasing valuation increase current assets current ratio 2 0 or

Increasing ValuationIncrease Current AssetsCurrent Ratio 2.0 Or >

Increasing valuation eliminate contingent liabilities

Increasing ValuationEliminate Contingent Liabilities

Increasing valuation stabilize customer relationships long term ks

Increasing ValuationStabilize Customer RelationshipsLong-Term Ks

Increasing valuation improve customer retention document history of repeat customers

Increasing ValuationImprove Customer RetentionDocument History of Repeat Customers

Anatomy of an m a deal

Increasing ValuationIncrease Contracts BacklogUn-invoiced Balance KsDivided By Average Monthly Revenue. Ideally 6 Months or More Backlog

Increasing valuation fill your business pipeline with 3x or annual revenue

Increasing ValuationFill Your Business Pipeline With 3x or > Annual Revenue

Increasing valuation get company certifications

Increasing ValuationGet Company Certifications

Increasing valuation be the direct contractor with clients

Increasing ValuationBe The Direct Contractor With Clients

Increasing valuation build your brand

Increasing ValuationBuild Your Brand

Increasing valuation focus on high profit high barrier to entry niches

Increasing ValuationFocus On High-Profit, High Barrier To Entry Niches

Increasing valuation develop bench strength

Increasing ValuationDevelop “Bench Strength”

Remove financial warts

Remove Financial Warts

  • Unreconciled Balances

  • Uncollectible ARs

  • Excessive Write-Offs

  • Overdue APs

  • Unrecognized APs

  • Non-transferable Licenses

  • Clouded Title To Key Productive Assets

  • Owner Asset Use

  • Personal Property Owned By Company

  • Loans To Owners

  • Unprotected IP

  • Unrecognized Liabilities

  • Expiring/NT Leases

  • Pending Lawsuits

  • Unfunded Retirement

  • Unfunded Warranties

Remove financial warts1

Remove Financial Warts

  • Lack of Budget

  • Lack of Spending Controls

  • Dependence On Few Clients For Revenue

  • Contracts Losing $

  • Understated Cost to Complete Fixed $ Jobs

  • No Bottom-Up Projections

  • No Month-By-Month Accuracy Audits

  • Low Margins & Earnings

  • Hockey Stick Pro Formas

Anatomy of an m a deal

Valuation MethodsPratt’s Stats ( BIZ Miner ( BIZ Comps (

Anatomy of an m a deal


Anatomy of an m a deal

Valuation Methods – Comps(Precedent Transaction Analysis)Select the Universe of CompsLocate necessary financial infoSpread key statistics, ratios and trading multiplesBenchmark comp companiesDetermine valuation

Anatomy of an m a deal

Valuation Methods – DiscountedFuture Cash FlowsStudy target and determine performance driversProject free cash flowCalculate weighted average cost of capitalDetermine terminal valueCalculate present value and determine valuation

Due diligence

Due Diligence

Due diligence1

Due Diligence

  • Market

  • Product

  • Business Model

  • Management

  • Background Investigations

  • Legal

  • Financial

  • HR

Operational due diligence

Operational Due Diligence

  • Business Model

  • Org Chart

  • Ops Manual

  • Production Process

  • Delivery & Shipping Process

  • Customer Base

  • Billing Practices & Contracts

  • Sales & Marketing

  • Staff

  • Production & Service Delivery

  • Litigation/Disputes

Financial due diligence

Financial Due Diligence

  • Trending Reductions in Current Assets

  • Trending AR Increases

  • Trending BDA Increases

  • Inventory Build-ups

  • Asset Replacements

  • Increasing CL

  • Increasing LTL

  • Decreasing Revenue

  • Increasing Discounts

  • Increasing Returns

  • Increasing COGS

  • Decreasing Line Item Sales

  • Increasing Line Item Expenses

Pro forma financials benchmarking

Pro Forma FinancialsBenchmarking

Ratio analysis current quick days sales receivable days payable

Ratio AnalysisCurrentQuickDays Sales ReceivableDays Payable

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