Justin Lurie, Gottesman Company, Mergers & Acquisition (M&A) Webinar for United Kingdom Trade & Investment

Mergers & AcquisitionsUnited States & United Kingdom

Overview, Key Players, Factors to consider before Buying or Selling

www.Gottesman-Company.com

Q&A to Follow Presentation

Meet Your Presenter

Justin LurieThe Gottesman Company of New York (Justin’s office is in Houston, Texas)

Buy Side & Sell Side Clients

• Author: The Profit, Guide to Corporate Strategy

• MIB: University of Sydney

Key Information to Cover Today

Concepts

The ‘Journey’

Players

Entities Involved

Considerations

5 Factors to Consider

Before Buying

5 Factors to Consider

Before Selling

Is Your Goal to:A. Acquire a US Company?

B. Be Acquired by a US Company?

C. Something else?

Poll Question

Why Sell? - Two Major Factors for M&A

Cash Out

Retire

Deleverage

Moving On

Expansion

60 / 40 Arrangement

Cash Infusion

Grape vs Watermelon

Corporate Growth

Inorganic Growth

Geography, Market Share

IP, Goodwill

Investment

Financial &/or Management Engineering

Roll Up, or Add-On

Profit, IPO, Exit

Why Buy? - Two forms of M&A

Rules of Thumb

1 in 10 60% >$20

k 2 of 3

Discussion to LOI

LOIs Close Professional Fees

Meet Expected Value in Long

Term

Who are the People and Entities?

The Players, Macro Level

Sellers

Public Companies

Private Companies

Connectors

Gottesman Company

Investment Banks

Clients, Friends, Rumours

Buyers

Private Equity

Strategic

The Players, Micro Level – Your Team

• International Transaction? • Contracts, Agreements, etc.Legal

• Pre-Acquisition Readiness• Due Diligence PeriodCFO/CPA

• Your Tax Consequences • Your Lifestyle & Family

Personal Finances

What are Private Equity Companies?

• Investment Managers

• Raise Funds through institutional investors (pension funds, mutual funds, endowments, etc.) and high net worth individuals

• Purchase Companies and Sell / Exit with Profit (ROI)

• Some specialize in industries, geography, business stage / lifecycle, or turnarounds / distress

Who are the Private Equity Companies?

Only a small sample of PE Groups worldwide

What is the M&A

Process?

Meet Bob

Bob owns a manufacturing company

Ready for the next chapter of his life

Reviews his options

The M&A Process

Meet PatrickPatrick is the ‘Connector’ or ‘Intermediary’

Through Blind Profiles, finds Buyers for Bob’s Manufacturing Company

The M&A Process

Gordon, a Buyer

Gordon works in a Private Equity firm and is searching for manufacturing companies.

Patrick (the connector) has a business relationship with Gordon and presents Bob’s company

The M&A Process

Steps for Gordon:

1. Evaluates blind profile

2. Signs NDA

3. Studies Details of Company

4. Meets Bob

5. Signs Letter of Intent (LOI)

The M&A Process

Gordon, Private Equity Buyer

The M&A Process

Bob, Seller

Patrick, Connector

Gordon, PE Buyer

Due Diligence Process Begins

Team:Lawyer,Accountant, CFOSenior Managers

Team:Lawyer,Accountant,Analysts,Industry Experts

Closing – Check Writing

What is the M&A Process?

Seller Comes to

Market

Intermediary Finds

Buyers

Buyer Evaluates

Seller Profile

Seller & Buyer Meet

LOI is written

Due Diligence

Period

Closing

How much is my (or their)

Company Worth?

Has your Company performed a Valuation?

A. Yes, at least once

B. No, not yet

C. We’re a Public Company

Poll Question

Valuation Rule of Thumb

Assets (property, equipment) & Cash +

[(adjusted) EBITDA] * [current Industry Multiple]+

IP & Goodwill+

Earn-Outs-

Liabilities, Debt=

Purchase Price (in theory)

Industry Multiple is often a range (eg: 4 to 6)

Settled Multiple is dependent upon several factors, including:

Concentration of customersStrength of management teamLongevity of current cash flowRole of current ownershipQuality of IP & Goodwill

5 Factors to Consider Before Purchasing a Company

All Things Considered…

THE Company

Deal Structure

Your Limitations

Productive Due

DiligenceIntegration

5 Considerations before Purchase…(1) Not any, but THE

Company

• Does this company fit within Buyer’s Strategic Objectives?

• Is Seller Prepared for Due Diligence?

• Why are they Selling?• Can Buyer gain the

Seller’s trust?• Will There be an ROI?

(2) Structure Appropriately

• $1 a year, forever• Not glamour,

Substance• Buyer’s financial house

in order?• Escrow as a safety

net?• Design Financial

Leverage • Earn-outs, Milestones

5 Considerations before Purchase…

(3) Buyer’s Limitations

• Management, Financial• Distance of Technology,

Geography, Core Business Expertise

• Integration Costs• Synergies: 4-6% savings

(4) Productive Due Diligence Period

• Plan the Integration during the Due Diligence Period• Involve management

team• Discover potential red flags

before you own them• Objectives:

• No unstated HR, financial, operational, legal issues

• Financial and Operational Soundness as claimed

5 Considerations before Purchase…

(5) Integration Complexities

• Cultural Differences• Need to Create new Culture, Values,

and Success Stories• Products & Services Cross-Selling to

new & existing Clients• Realistic Revenue & Performance

Goals

5 Factors to Consider Before Selling a Company

If you’re an Owner, do you have an Exit Strategy?

A. Yes, it is in writing and detailed

B. Somewhat, have considered it

C. It will just figure itself out

D. Not applicable to me

Poll Question

All Things Considered…before Selling

Objectives & Exit Strategy

Transferability & Processes

Executive Team

Balance Sheet

Blemishes

Expectations & Post Exit

Life

5 Considerations before Selling…

What is the Goal of Selling Your Company?(1) Objectives • Understand the emotional element and avoid it, be logical• By what date, or event, to exit the company?• Leave completely, or partially? Could or would you work as an employee?• Grow the company together in a partnership?

Is the Business Process Effective without You?(2)

Transferability• What is the Buyer really purchasing?• Are the written procedures effective?• Will the key customers remain?• How will employees and customers be effected by your exit?

• Employee agreements, benefits, political hierarchy• Preferred customers, written customer contracts, relationships


The Management Holds the Key to Value(3) Executive

Team

• Does management make independent and correct decisions?• Are they empowered to do so?• The more the current owner is involved, the less the company is worth

What is Hiding on the Balance Sheet?(4) Balance

Sheet Blemishes• Eliminate the Ugly

• Unreconciled balances • Uncollectable receivables or excessive write-offs

• Liabilities: lawsuits, problematic leases, underfunded retirement plan, etc.• Annual audits?


Is the Company ‘Worth’ as much as You ‘Need’ or want?

(5) Expectations & Post Exit

Lifestyle

• How will you manage and invest the proceeds?

• Do you need cash up front, or can you provide financing to the Buyer?

• Possible earn-outs? That should only be the Gravy

• What will you do next?

• Can you have a new identity? (no longer President of ….)

M&A Summary

Intermediaries Create Transactions

Private Equity & Corporate Strategic Buyers Dominate Buy SideBe Prepared, Strategic, & Decisive, so the Options are Yours

Buyer

Connector

Seller

Questions & Answers; Thank you for Attending!

• Contact Details for offline assistance, Q&A, M&A: • Justin Lurie• The Gottesman Company of New York• [email protected] • +1.832.777.1168 office• +1.646.342.3168 mobile

(located in Houston, Texas)

• Buy & Sell Side Clients• Specialize in Mid-Market Transactions

• Established 1985, 100+ staff in the US & Canada