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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

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

Build Deal Flow

Pitch The 3 x 3 x 3

Negotiate Your Deal (NDA?)

Sign Equity Agreement

Implement The Fix

Monthly Fee

Exit


Notes From The Field

Faster Is Better

Negotiation Is Key

LOI Based Multiple

Clear Financial Warts

Recast Financials

Build Bench Strength

Systems/Documentation


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




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 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


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



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



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


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


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


Valuation MethodsPratt’s Stats (https://www.bvresources.com) BIZ Miner (https://www.bvresources.com) BIZ Comps (https://www.bvresources.com)



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


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 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



Ratio analysis current quick days sales receivable days payable
Ratio AnalysisCurrentQuickDays Sales ReceivableDays Payable


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