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Positioning Your Franchise Company for Capital or Sale

Positioning Your Franchise Company for Capital or Sale. Mark Dayman, Managing Director The McLean Group, LLC January 26, 2011. Positioning for Capital or Sale. Need Early Focus of Attention (“Ready, Aim, Shoot”):

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Positioning Your Franchise Company for Capital or Sale

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  1. Positioning Your Franchise Company for Capital or Sale Mark Dayman, Managing Director The McLean Group, LLC January 26, 2011

  2. Positioning for Capital or Sale Need Early Focus of Attention (“Ready, Aim, Shoot”): • What’s the objective? Are you seeking an exit?? Or are you looking for an expansion opportunity?? Or seeking core capital? • What’s it worth? • How can value be enhanced in the short run??

  3. The Objective – Sell or Expand?? 3 If you want to sell – each type of exit carries different value outcomes 1. Family transfers • “Fair Market Value” is the driver. • Host of inter-family issues to overcome.

  4. The Objective – Sell or Expand?? 2. Sell to third parties – Employees 3. Sell to third parties- Management 4 If you want to sell – each type of exit carries different value outcomes

  5. The Objective – Sell or Expand?? 4. Sell to third parties – Working investors 5. Sell to third parties- Financial investors (Individuals, Small Groups, PEGs) 5 If you want to sell – each type of exit carries different value outcomes

  6. The Objective – Sell or Expand?? 6. Sell to third parties – Strategic Buyers 6 If you want to sell – each type of exit carries different value outcomes

  7. The Objective – Sell or Expand?? Middle Market Buyer Trends 7

  8. The Objective – Alternatives • Take some of the current investment off the table, provide new capital, take business to new level. • Capital sources may require equity of 25-75%. • Use new capital for expansion. • Resell company in 3-5 years, everybody exits. • Attractive to investors seeking high quality and stable management, proven product & market trends, can overcome barriers to growth. 8 Recaps – Sell Some, Expand Some

  9. The Objective – Alternatives • It is the most difficult capital to raise. • AKA early stage, venture capital. • Might want 25% +/- of equity with upside rewards. • Common is tech, biomed/healthcare, Pharma. • Other fields require more than simply potential monetary rewards – previous track record, aspirational investors with BIG EGOs. 9 Core Capital

  10. The Objective – What’s It Worth? • Earnings potential – frequently EBITDA • Risk delineated in terms of multiples • Terms of the deal 10 Value Drivers

  11. The Objective – What’s It Worth? • Earnings potential – frequently EBITDA • Historic performance • Clean v. a mess • Normalized • Projected performance • Documented and continuing trends? • New concepts and strategies 11 Value Drivers

  12. The Objective – What’s It Worth? • Risk • Buyer’s/investor’s perception • Market and buyer demands for returns • Likelihood that expected performance can be achieved (versus alternative opportunities) • Transparency – how easy is it for a buyer or capital source to see the value? • Size matters. • Industry matters. 12 Value Drivers

  13. The Objective – What’s It Worth? • Terms of the Deal • Buyer’s and seller’s perceptions of “value” are normally balanced by the terms of the deal. • Seller’s are normally forced to take paper back. • Variances to balance: • 1. Earnings - potential v. actual • 2. Perceived risks • 3. Skin in the deal • 4. Other issues – taxes, credit, classifications 13 Value Drivers

  14. The Objective – Make It Better • Enhance EBITDA • 1. Make it bigger and better and sustainable. • 2. Clean up P&L and B/S. • 3. Clean up the operations – customers, markets, products, distribution systems, etc. • 4. Develop a strategic business plan and start implementing the action plan. 14 How Can I Enhance Value??

  15. The Objective – Make It Better • Reduce perceived risks • 1. Develop a strategic business plan and start implementing the action plan. Simplicity, focus, measurable results, scalability. • 2. Create & enhance transparency. Make it easy for capital sources to see and understand your business and where the value is. • 3. Make yourself obsolete, especially in a sale. • 4. Have a close team of advisors – lawyer, CPA, investment banker. 15 How Can I Enhance Value??

  16. Wrap-Up • Decide what it is you want to accomplish? Stay and build? Sell now? • If you seek core capital, you’ll need an especially robust compelling message. • Enhance value • Build EBTIDA • Develop a business plan, implement it • Reduce perceived risk 16

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