Business Succession Planning April Howard E. Johnson

Transcription

1 Business Succession Planning April 2016 Howard E. Johnson MBA, FCPA, FCA, FCMA, FCBV, CPA, CFA, ASA, CF, C.DIR

2 Speaker Howard E. Johnson MBA, FCPA, FCA, FCMA, FCBV, CPA, CFA, ASA, C.Dir Managing Director, Veracap M&A International Inc. (416) ; Howard is a Managing Director of Veracap M&A International and its sister firm, Campbell Valuation Partners Limited. He advises business owners and executives on acquisitions, divestitures, financing and shareholder value matters. Howard also serves as the Chairman of M&A International, which comprises 650 professionals in 43 countries. Howard is the author of nine books on the subjects of business valuation and corporate finance, and has acted as an expert witness on valuation matters before the courts. 2

3 Disclaimer This material is for educational purposes only. It deals with technical matters which have broad application and may not be applicable to a particular set of circumstances and facts. As well, the course material and references contained therein reflect laws and practices which are subject to change. For these reasons, the course material should not be relied upon as a substitute for specialized advice in connection with any particular matter. Although the course material has been carefully prepared, the author does not accept any legal responsibility for its contents or for any consequences arising from its use. Howard E. Johnson,

4 Transition Trade-offs Family Mgmt. 3 rd Party Usual time requirements 2-4 months 3-6 months 6-12 mo. s Complexity Low-med Med-high High Valuation & Pricing Low-med Medium Med.-High Cost Lowest Moderate Highest Risk (deal failure, info. leak, etc.) Lowest Moderate Highest Deal structuring flexibility Good Fair good Fair - good Tax efficiency opportunities Very good Good Fair - good

5 Elements of Value to the Business Owner STATED PURCHASE PRICE VALUE RECEIVED BY THE BUSINESS OWNER ECONOMIC TERMS OF THE DEAL INTANGIBLE ASPECTS OF THE DEAL 5

6 The Sale Process V A L U E E N H A N C E M E N T PLANNING PHASE EXECUTION PHASE Timing of the Sale Preparing For the Sale Estimating Value and Price Engaging Buyers Conveying Info to Buyers Deal Structuring Negotiations Closing 6

7 Timing of the Sale Business owner readiness Company readiness M&A market conditions Key = Time the sale to coincide with favourable personal and business conditions 7

8 Timing of the Sale Profit Level Historical Forecast Time 8

9 Preparing for the Sale Operational and financial structuring Income tax and estate planning Transaction advisors Key = Structure the affairs of the company to increase its attractiveness to buyers 9

10 Operational and Financial Matters Customer and market analysis Management and employees Ability to transition the business Key employee issues Product and service offerings Financial matters Income statement management Balance sheet management General operational matters Administrative matters 10

11 Valuation Cash Flow Rates of Return / Multiples The Balance Sheet Key = Identify opportunities for value enhancement before approaching prospective buyers 11

12 Determinants of Valuation Multiples Company size Revenue stability and concentration Proprietary products and services Management and employees Growth potential Capital expenditure requirements Buyer synergy expectations Terms of the transaction Comparable transactions 12

13 Components of Value & Price Post- Acquisition Synergies Intangible Assets & Goodwill Tangible Net Worth 13

14 Engaging Buyers Identifying prospective buyers Initial buyer contact The NDA Key = Establish a sufficient number of qualified buyers to establish the platform for the effective auction 14

15 Where to Find Buyers Previous solicitations Competitors Industry transactions Public company disclosures Industry associations Customers / suppliers (value chain analysis) Financial buyers websites Importance of thinking outside of the box 15

16 What are Private Equity Investors Looking for? Strong business fundamentals Differentiation Strong management team Alignment of interests Exit strategy alternatives 16

17 The MBO Opportunity Availability of capital from financial investors coupled with a lack of quality opportunities for investment Quicker and more confidential than a 3 rd party sale Deal structuring opportunities Possible lucrative upside for owner and management Personal sentiment of the owner 17

18 Conveying Info to Buyers The Confidential Information Memorandum The Data Room Management Presentations Key = Control the flow of information to increase the perceived value of the company among buyers 18

19 Management Presentations Meeting protocol Who attends Where held What is discussed Setting the agenda Preparing for meetings Conveying information to the buyer Obtaining information from the buyer Key role of management vs. business owner 19

20 Transaction Structuring Assets vs. shares Forms and terms of payment The Management Contract Key = Evaluate each proposal based on its risk-reward parameters and income tax efficiency 20

21 Forms of Consideration Cash at closing Holdback Seller take-back / Promissory Notes Share exchange Earn-out 21

22 Negotiations Preparing for negotiations Negotiating strategies and tactics The Letter of Intent Key = Secure a comprehensive letter of intent that offers the best value to the business owner 22

23 The Buyer/Seller Advantage Curve Seller Buyer Management Presentation Multiple Offers LOI Negotiations Exclusivity to Buyer Closing 23

24 Closing Detailed due diligence The purchase agreement Final closing Key = Stay focused on running the business 24

25 Why Deals Fail to Close Buyer and seller have different expectations Secure a comprehensive, unambiguous LOI / term sheet New issues uncovered in detailed due diligence Ensure full disclosure of major issues prior to the LOI / term sheet Material adverse change in the company s operations Adopt a business as usual attitude during closing External circumstances Negotiate a relatively short exclusivity period 25

26 Resources Visit for a variety of publications and other resources