Cashin In! Selling Your Family Entertainment Center. Friday, November 17, :30 PM to 5:45 PM Room # B405

Transcription

1 Cashin In! Selling Your Family Entertainment Center Friday, November 17, :30 PM to 5:45 PM Room # B405

2 A Professionals Checklist Fundamentals To Maximize Company Value The Basic Premise: 10/31/2006 Edition

3 A basic checklist to help middle market business owners prepare to maximize corporate value The Sunbelt Network Sunbelt

4 Table of Contents 1. MARKETING AND SALES FOR PROFITABLE GROWTH OPERATIONAL/PRODUCTION ASSETS FOR PROFITABLE GROWTH ACCURATE FINANCIAL REPORTING FOR PROFITABLE GROWTH PLANNING FOR PROFITABLE GROWTH

5 Checklist for Growth 1. Marketing and Sales for Profitable Growth Check When Done Maximize Value Factor 1 Customer Sales: track by customer three years 2 Customer Concentration: if any, reduce 3 Customer Personal Relationships: reduce owner dependency 4 Advertising And Promotional Investments: maintain, if not increase 5 Competition: track historical growth 6 Sales Force: improve incentive programs. 7 Price Increases: launch campaign and measure response 8 Industry Visibility: participate in industry events - 4 -

6 Note Page for Growth - 5 -

7 Checklist for Growth 2. Operational/Production Assets for Profitable Growth Check When Done 1 Facility: organize and clean Maximize Value Factor 2 Computers and Equipment: upgrade, document, and carefully maintain. 3 Non-Productive Equipment: remove 4 Operational Process: document the critical steps. 5 Quality: document continuous improvement 6 On-Time Delivery: document continuous improvement 7 Personnel: document job descriptions 8 Personnel Performance: document performance to unit production/output

8 Note Page for Growth - 7 -

9 Checklist for Growth 3. Accurate Financial Reporting for Profitable Growth Check When Done Maximize Value Factor 1 CPA financial statements: upgrade quality 2 Receivables: in-line with industry 3 Payables: in-line with industry 4 Inventory: remove non-productive 5 Inventory: upgrade accounting 6 Financial Ratios: in-line with industry 7 Benefit Programs: in-line with industry 8 Non-performing personnel: remove 9 Environmental Issues: survey and correct potential issues 10 Legal Issues: document potential impact and remove efficiently - 8 -

10 Note Page for Growth - 9 -

11 Checklist for Growth 4. Planning for Profitable Growth Check When Done Maximize Value Factor 1 Business Planning Process: assign parts and set process 2 Key Management: professional agreements 3 Suppliers and distributors: document agreements 4 Training and Development: creative programs 5 Competition as Guide: new product and new market success examples. 6 New Products/Services: survey for demand levels. 7 New Markets: survey for demand levels. 8.Promotional Programs: identify (advertising, trade shows, etc.) requirements to support new products and markets 9 Growth Facility: track requirements for growth 10 Growth Equipment: identify requirements for growth 11 Growth Personnel: identify requirements for growth

12 Notes Page for Growth - 11 N:\Education\Attractions Expo\2006 Atlanta\Handouts\ pm B405 Cashin In Skripsky.doc

13 Cashin In by Selling Your FEC (A Buyer s s Perspective) For further information, please contact Doug Honey at: Trancas Capital 15 Enterprise Suite 150 Aliso Viejo, CA Main: (949) Direct: (949) Fax: (949) dhoney@trancascapital.com Executive Summary Personal experience with 50+ acquisitions of FECs and Water Parks as a buyer Valuation Considerations EBITDA Calculation Typical reasons for selling Ideas for where to start if you are considering selling Questions FEC Acquisition Experience Acquired 51 FECs and Water Parks ($300+ million combined purchase price) Co-Founder, CFO and VP Acquisitions for Palace Entertainment. 37 Acquisitions. Malibu Grand Prix (10 locations) Huish Family Fun Centers (7 locations) Camelot Family Entertainment Centers (7 locations) Wet N Wild(2), Raging Waters(2), Splish Splash, Water Country, Big Kahuna Founder of Trancas Capital. 14 Acquisitions. Fiddlesticks and Funtasticks (3 AZ locations) Celebration Station (4 locations) now Zuma Fun Centers Mountasia (1 location in Dallas) Camelot (1 location in Bakersfield) Grand Prix Tampa 1

14 Factors Impacting Valuation Value of land (if owned) Value of Buildings, Improvements, and Equipment Sustainable Cash Flow (EBITDA) Valuation: Land Can have a big impact on the value of your business if land value is greater than the operating business value Land Value is based on comparable land sales (if available) Major components impacting land value are: Property size Property location Zoning Visibility Access Valuation: Property, Plant & Equipment Generally not a major factor in determining business value unless major expenditures are required to get facility into an acceptable condition Cost to repair deferred maintenance items is generally deducted from the fair value of the business 2

15 Valuation: Multiple of EBITDA Generally the most important factor in determining a business value Starting point is to determine current EBITDA. Earnings Before Interest Taxes Depreciation Amortization Multiples vary significantly, but the typical range is: 4X - 7X EBITDA Adjustments to EBITDA Buyer will typically normalize the EBITDA based on the following: Average over past 2-3 years Eliminate non-recurring revenue items (i.e. one time sales of assets) Eliminate owner-related expenses or other nonrecurring expenses that will not recur after closing Make adjustments based on new competitors, new attractions, or other major items that would impact the EBITDA for future periods EBITDA Calculation Typical summary Profit & Loss Statement Revenue 2,350,000 Expenses: Cost of Sales 200,000 Labor 650,000 Operating Expenses 300,000 Advertising 100,000 Rent/Property Tax 300,000 Interest Expense 150,000 Depreciation & Amortization 175,000 Net Income Before Tax 475,000 Tax 190,000 Net Income 285,000 3

16 EBITDA Calculation (Continued) Standard adjustments made to calculate EBITDA Net Income 285,000 Add: Interest Expense 150,000 Taxes 190,000 Depreciation & Amortization 175,000 EBITDA 800,000 Valuation Range 4X EBITDA 3,200,000 5X EBITDA 4,000,000 6X EBITDA 4,800,000 7X EBITDA 5,600,000 Factors Impacting EBITDA Multiple The general rule is that the higher the risk that the EBITDA is not sustainable, the lower the EBITDA multiple. Low Multiple Characteristics: Leased land (at some point the lease will end) Highly variable EBITDA High % of adjustments to EBITDA Short history of operations New competitors Property in poor condition High Multiple Characteristics: Land is owned and represents significant portion of value (not a lot of down side risk due to land value) Consistent track record of EBITDA (good predictor of future EBITDA) No or few adjustments needed to EBITDA Property in good condition Land vs. Business Value A common mistake some sellers make is to assume that a buyer will pay the value of the land plus a multiple of EBITDA This is typically not the case. The general rule is as follows: If land value is greater than business value, then a buyer will pay the land value If the business value is greater than the land value, then a buyer will pay the business value The reason for this is simple. The buyer is either buying to operate the business or is buying for a real estate investment. Operate: Buyer needs to pay a reasonable multiple of EBITDA in order to generate their target return on investment Real Estate: Buyer needs to pay a price that is in line with the market price of land in the area, otherwise they can just purchase another piece of vacant property Some buyers do evaluate a deal with land plus a multiple of EBITDA. However they subtract a market rent from the EBITDA before applying the multiple which gets you about the same amount as described above. 4

17 Reasons for Selling Want to cash out Partnership disputes Estate planning Need cash to pursue other opportunities Diversification of assets Ready to retire Where to Start Business Brokers. There are many business brokers that will sell your business for a fee. Generally, the fee is 10% of the sale price. Online Listings. There are several online business listing services that will advertise your business for sale: Newspaper Ads. Most local businesses have a classified section that includes local businesses for sale Trancas Capital will provide a free, no obligation evaluation of your business and is actively looking to acquire FECs across the country Speaker Background Doug Honey: Chief Executive Officer, Trancas Capital Over 15 years experience in development, operations, acquisitions, and financial aspects of the amusement industry Founder of Trancas Capital / Zuma Fun Centers. Growing portfolio of 12 family entertainment centers across the country. Co-founder of Palace Entertainment. Grew from startup to the largest operator of local parks in the country with 10+ million annual visitors, over 7,000 employees, and 37 parks in 5 years. As CFO of Palace, Mr. Honey oversaw the acquisition of 9 companies and was responsible for raising $300 million in debt, equity, and sale/leaseback financing Mr. Honey has a B.S. in Electrical Engineering from the University of California, San Diego and an MBA from the Wharton School at the University of Pennsylvania 5