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Selling Mid-Market Companies AT MAXIMUM VALUE © Alpha Omega Capital Partners LLC 2006
Since 1999… Investment Bankers Providing Services Tailored  To Privately Held Mid-Market Businesses  ALPHA  OMEGA  CAPITAL  SECURITIES, LLC An NASD Registered Broker/Dealer Richmond, VA  ♦   New York, NY  ♦   Lexington, KY  ♦  Orlando, FL ~~~~~ Partners ~~~~~ Regional Vice Presidents Analysts IT & Admin.
Full Range Of Services Sell-Side Representation Engaged Buy-Side Representation Certified Valuations Capital Raise Value Coaching   Our Firm ALPHA  OMEGA  CAPITAL  PARTNERS
Planning Your Exit At Maximum Value Overview Part I:   Valuation Methodology Part II:   Considerations Before Selling   Part III:   Timing of the Sale Part IV:   Value Maximization Part V:   How To Sell  Part VI:   How Much  You Really Get ALPHA  OMEGA  CAPITAL  PARTNERS
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Overview Part I: Valuation Methodology   ALPHA  OMEGA  CAPITAL  PARTNERS
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Valuation Methodology ALPHA  OMEGA  CAPITAL  PARTNERS Definition of Value
When Risk Is Minimized For The Buyer, Maximum Value Is Obtained For The Seller!  Our Goal: How To Sell At Maximum Value Valuation Methodology ALPHA  OMEGA  CAPITAL  PARTNERS Definition of Value
Discount Factors  are tangible and intangible conditions that exist in a company that reduce its value below the theoretical Market Value (Maximum) of the same company if those conditions did not exist.  In other words,  discounts  a buyer will levee based on specific elements of risk that the buyer discovers during the buyer’s due diligence.  To maximize seller value, buyer risk must be minimized. Discount Factors include but are not limited to the following: Valuation Methodology ALPHA  OMEGA  CAPITAL  PARTNERS The BIG Four Organizational Factors Operational Factors ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Financial Factors Product & Marketing Factors Miscellaneous Factors ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
1. Size of Business –  Larger businesses sell at higher values Valuation Methodology ALPHA  OMEGA  CAPITAL  PARTNERS Financial Factors That Affect Value Company Revenues Selling Price Value
2. Business Type –  Selling Prices Vary Significantly by Industry  Valuation Methodology ALPHA  OMEGA  CAPITAL  PARTNERS Financial Factors That Affect Value Industry Type Value As % of Revenues ,[object Object],[object Object],[object Object],35% to 50% (low end) (high end) Generic Retail (Increases with revenues) 30% to 35% Generic Distribution (Increases with revenues) 30% to 50% Value Added Distribution (Increases with revenues) 40% to 60% ,[object Object],[object Object],[object Object],20% 30% Contract Manufacturing (Increases with revenues) 60% to 80% Proprietary Manufacturing (Increases with revenues) 80% to 110%
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Valuation Methodology ALPHA  OMEGA  CAPITAL  PARTNERS Financial Factors That Affect Value
[object Object],[object Object],Valuation Methodology ALPHA  OMEGA  CAPITAL  PARTNERS Financial Factors That Affect Value $$$ Time Fixed Cost Variable Cost Sales Profit BE
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],IDENTIFY ELIMINATE DISCOUNT Valuation Methodology ALPHA  OMEGA  CAPITAL  PARTNERS Financial Factors That Affect Value
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],IDENTIFY ELIMINATE DISCOUNT Valuation Methodology ALPHA  OMEGA  CAPITAL  PARTNERS Financial Factors That Affect Value
EBITDA (ĒBǏT-D-A) Pretax Earnings + Interest Expense + Income Taxes + Depreciation Expense + Amortization EBITDA SDE + EBITDA + Owner’s Comp - Replacement Salaries Seller Discretionary Earnings What are EBITDA and SDE? Valuation Methodology ALPHA  OMEGA  CAPITAL  PARTNERS
[object Object],[object Object],[object Object],[object Object],[object Object],AOCP’s Valuation Preparation Procedure Valuation Methodology ALPHA  OMEGA  CAPITAL  PARTNERS
Methodologies for Determining Value Valuation Methodology ALPHA  OMEGA  CAPITAL  PARTNERS ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],VALUES PROVIDED TO SELLER Strategic Buyer – Public Strategic Buyer – Private Private Equity Fund Private Buyer
Planning Your Exit At Maximum Value Overview Part I:   Valuation Methodology Part II:   Considerations Before Selling   Part III:   Timing of the Sale Part IV:   Value Maximization Part V:   How To Sell  Part VI:   How Much  You Really Get ALPHA  OMEGA  CAPITAL  PARTNERS
[object Object],[object Object],[object Object],[object Object],[object Object],Overview Part II: Considerations Before Selling ALPHA  OMEGA  CAPITAL  PARTNERS
ALPHA  OMEGA  CAPITAL  PARTNERS Timing of the Sale Weighing The Facts ~ No Simple Answer Factors That Influence the Decision to Sell External Discount Factors Internal Discount Factors Personal Needs Decision To Sell
Considerations Before Selling Personal Factors Retirement Health Problems Divorce Boredom Other Opportunities To Reduce Stress Load Spiritual Pursuits You Want to Travel Family/Children To Reduce Personal Financial Risk! Others? Internal Factors The Company Life Cycle Organizational Issues Operations Problems  Facilities Problems Financial Problems Intellectual Property Others? External Factors Economic Conditions Lending Climate Interest Rates Industry Trends Tax Rates Buyer Offer Others? Factors that Can Influence the Decision to Sell ALPHA  OMEGA  CAPITAL  PARTNERS Understanding Our Circumstances (Factors) Do I Have Enough Money?
ALPHA  OMEGA  CAPITAL  PARTNERS Timing of the Sale Sell?
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],“ Going Solo ~ Save Some Money?”  Considerations Before Selling ALPHA  OMEGA  CAPITAL  PARTNERS The Cost of Selling the Business Yourself
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],~The True John D Story~ Considerations Before Selling ALPHA  OMEGA  CAPITAL  PARTNERS The Cost of Selling the Business Yourself
ALPHA  OMEGA  CAPITAL  PARTNERS Dead End Choices ,[object Object],[object Object],[object Object]
Succession Issues ~80% Want Family <10% Transfer To Family Kids Aren’t Interested Kids Aren’t Qualified Money Needed For Retirement Reality Check ALPHA  OMEGA  CAPITAL  PARTNERS Considerations Before Selling You Want to Keep the Business in the Family
Considerations Before Selling ALPHA  OMEGA  CAPITAL  PARTNERS ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Dead End Choices
ALPHA  OMEGA  CAPITAL  PARTNERS Considerations Before Selling Fear of Change Reading List Dead End Choices About Attitude! Bad Things Often Happen When We Fail To Take Action! A Job Is Not A Life Sentence!
Considerations Before Selling ALPHA  OMEGA  CAPITAL  PARTNERS ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Dead End Choices
Why To Create a Decision Making Environment of Emotive-Logic Designed To Minimize Risk Considerations Before Selling ALPHA  OMEGA  CAPITAL  PARTNERS Logical Decisions  Based On Emotional Objectives Benefits of an ‘Advisory Board’
Investment Banker Attorney Accountant CFA Corporate Structure Intellectual Property Tax Consequences Short-Term Long-Term Personal Trusts/Planning Investments Insurance Issues   Annual Tax Work   Short-Term Tax Plan   Accounting Methods   Market Value of Business   Strategic Business Plan   Value Mentoring Exit Strategies ALPHA  OMEGA  CAPITAL  PARTNERS Considerations Before Selling Benefits of an ‘Advisory Planning Board’ Others?
Considerations Before Selling Maslow’s Hierarchy of Needs- “An Idealistic View” Understanding Our Needs  Determining How Much Is Enough? ALPHA  OMEGA  CAPITAL  PARTNERS
Physiological Needs = Fixed Cost  Food, Water, Shelter Health Care Expenses Assisted Living Expenses Considerations Before Selling Needs Converted to Financial Reality ALPHA  OMEGA  CAPITAL  PARTNERS
Fixed Cost Safety Cost (Needs) = Financial Cushion Property Insurance Health Insurance Financial Cushion Cash Reserves “ To Protect Fixed Cost Issues” Considerations Before Selling ALPHA  OMEGA  CAPITAL  PARTNERS Needs Converted to Financial Reality
Fixed Cost Financial Cushion Clubs Faith Family Charity Legacy Education Love & Belonging = Feel Good Cost Considerations Before Selling ALPHA  OMEGA  CAPITAL  PARTNERS Needs Converted to Financial Reality
Fixed Cost Financial Cushion Best & Biggest Feel Good Cost Esteem (Discuss) Considerations Before Selling ALPHA  OMEGA  CAPITAL  PARTNERS Needs Converted to Financial Reality
Fixed Cost Financial Cushion Feel Good Cost Esteem Cost Actualization Cost Pursuing Your Dreams Considerations Before Selling ALPHA  OMEGA  CAPITAL  PARTNERS Needs Converted to Financial Reality
Financial Cushion Considerations Before Selling ALPHA  OMEGA  CAPITAL  PARTNERS Needs Converted to Financial Reality Fixed Cost Feel Good Cost Esteem Cost Dream Cost Pursuing Your Dreams Best Biggest Clubs Faith Family Charity Legacy Insurance Security Financial  Cushion Food, Water, Shelter Health Care Expenses Assisted Living Expenses
The Number ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Considerations Before Selling ALPHA  OMEGA  CAPITAL  PARTNERS How Much is Enough
Considerations Before Selling ALPHA  OMEGA  CAPITAL  PARTNERS *Distribution Yield Estimates March 2006 Per Leonard Levitch of Kasch, Levitch, McAleer, & Associates Decision Rules and Maximum Initial Withdrawal Rates  by Johathan Guyton –  Journal of Financial Planning  – March 2006 How Much ‘Per Year’ is Enough Amount Invested Low Risk 4.0%* Medium Risk 5.0%* High Risk 6.0%* $1,000,000 $40,000 $50,000 $60,000 $2,000,000 $80,000 $100,000 $120,000 $3,000,000 $120,000 $150,000 $180,000 $4,000,000 $160,000 $200,000 $240,000 $5,000,000 $200,000 $250,000 $300,000 $6,000,000 $240,000 $300,000 $360,000 $7,000,000 $280,000 $350,000 $420,000 $8,000,000 $320,000 $400,000 $480,000
Considerations Before Selling Per Lee Eisenberg ALPHA  OMEGA  CAPITAL  PARTNERS How Much is Enough The Number  by Lee Eisenberg (Bottom Line) To Be Here And Live Like This You Need $  Per Year COMFORTABLE Live one place, modest lifestyle but better than most, etc. $50,000 to $100,000 COMFORTABLE PLUS Occasional upgrades, mid-priced country club, small second home. $175,000 to $250,000 KIND OF RICH Like finer things, lives well, gives $ away, couple of nice houses. $350,000 to $500,000 RICH Spends weeks/months abroad, exclusive club, gated community, multiple homes, fractional jets, sets on boards. >$1,000,000
Planning Your Exit At Maximum Value Overview Part I:   Valuation Methodology Part II:  Considerations Before Selling  Part III:   Timing of the Sale Part IV:   Value Maximization Part V:   How To Sell  Part VI:   How Much  You Really Get ALPHA  OMEGA  CAPITAL  PARTNERS
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Overview Part III: Timing of the Sale  ALPHA  OMEGA  CAPITAL  PARTNERS
S ELL AT  M AX  V ALUE? Liquidation Value GIVE UP? S ELL  W HEN  E VENTS  D ICTATE? ALPHA  OMEGA  CAPITAL  PARTNERS Timing of the Sale Company (Product Line) Life Cycle Stages TIME REVENUE 3) Cash Flow 1) Start-Up  2) Growth 4) Declining Value  5) Obsolescence
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],ALPHA  OMEGA  CAPITAL  PARTNERS Causes of Flat, Declining or Low Value Timing of the Sale
Buy Time Gain Value Timing of the Sale Extending Life & GAINING Value ALPHA  OMEGA  CAPITAL  PARTNERS $ Time
Timing of the Sale M&A Volume ALPHA  OMEGA  CAPITAL  PARTNERS
 
Timing of the Sale ALPHA  OMEGA  CAPITAL  PARTNERS Macroeconomic Conditions – Weak Dollar Exchange Ratio: Chinese Yuan/1$
Timing of the Sale Macroeconomic Conditions - Wealth ALPHA  OMEGA  CAPITAL  PARTNERS Create New Project   Create New Activity Log   Create New Comp Set   Create New Task   My Projects   US Dollar    Currency Profile Charting    Chart Builder   Relationship Management    Activity Logs   (Add)    Tasks   (Add)    Document Management    Audit History US Dollar ($USDUSD) > Currency Profile           Exchange Rate as of May-04-2007 Last Close 1.3603 Change 0.0000 Prev. Last Close 1.3603 % Change 0.0000 Exchange Rate Chart   [ Chart Builder ] Modify Chart  Time Frame:    From:              To:            (mm/dd/yyyy)    Currency Conversion:  Historical Equity Pricing Data supplied by                               GDP is shifting from developed countries like the USA and European Union  to 3 rd  world markets.       Expense Code:  Assign                             Search:                                                                                                          © 2000-2007 Capital IQ, Inc., a division of Standard & Poor's. All Rights Reserved.          2007 GDP Growth Forecasts by Country Source: Asian Development Bank
Timing of the Sale Macroeconomic Conditions - Wealth ALPHA  OMEGA  CAPITAL  PARTNERS Create New Project   Create New Activity Log   Create New Comp Set   Create New Task   My Projects   US Dollar    Currency Profile Charting    Chart Builder   Relationship Management    Activity Logs   (Add)    Tasks   (Add)    Document Management    Audit History US Dollar ($USDUSD) > Currency Profile           Exchange Rate as of May-04-2007 Last Close 1.3603 Change 0.0000 Prev. Last Close 1.3603 % Change 0.0000 Exchange Rate Chart   [ Chart Builder ] Modify Chart  Time Frame:    From:              To:            (mm/dd/yyyy)    Currency Conversion:  Historical Equity Pricing Data supplied by                               >4X increase in 15 years!       Expense Code:  Assign                             Search:                                                                                                          © 2000-2007 Capital IQ, Inc., a division of Standard & Poor's. All Rights Reserved.         
Timing of the Sale Macroeconomic & Political Conditions ALPHA  OMEGA  CAPITAL  PARTNERS U.S. Imports of Goods and Services Past Trend Present Value & Future Projection Billion US Dollars ~ Quarterly Monthly Trade Deficit ,[object Object],[object Object],[object Object]
Timing of the Sale Macroeconomic & Political Conditions Geopolitical Events ALPHA  OMEGA  CAPITAL  PARTNERS 9-11-01
Timing of the Sale Macroeconomic Indicators - Inflation ALPHA  OMEGA  CAPITAL  PARTNERS inflation ,[object Object],[object Object],[object Object],[object Object],inflation
Prime rate forecast Source:   the Financial Forecast Center Timing of the Sale Macroeconomic Indicators – Interest Rates ALPHA  OMEGA  CAPITAL  PARTNERS
Timing of the Sale Cap Gains Tax Rate Issues ALPHA  OMEGA  CAPITAL  PARTNERS When Should You Sell? Scheduled Increase To 20% in 2010!
Timing of the Sale State Tax Rate Issues ALPHA  OMEGA  CAPITAL  PARTNERS
Timing of the Sale ALPHA  OMEGA  CAPITAL  PARTNERS Buyer Trends
Buyer Type Effects Price & Deal Size Small Deals <$3 million   Yield Lowest Multiples  Minimums Sales >$10  million   EBITDA >$1  million Deal >$5  million Large Deals & High Multiples (Prices) Timing of the Sale ALPHA  OMEGA  CAPITAL  PARTNERS Foreign Strategic Public < 10 Strategic  Private < 100 Private   Equity Finance (a few hundred possible) Private Equity Purchase (a few thousand possible) Private Buyers (large number of individuals)
Timing of the Sale Example ~ Large Deal Selling Multiples ALPHA  OMEGA  CAPITAL  PARTNERS
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],ALPHA  OMEGA  CAPITAL  PARTNERS Buyer Type ~ Private & Job Seeking Buyers Timing of the Sale
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],ALPHA  OMEGA  CAPITAL  PARTNERS Buyer Type ~ Internal Buyers Timing of the Sale
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],ALPHA  OMEGA  CAPITAL  PARTNERS Buyer Type ~ Private Equity Groups Timing of the Sale
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],ALPHA  OMEGA  CAPITAL  PARTNERS Buyer Type ~ Strategic Private & Public Timing of the Sale
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],ALPHA  OMEGA  CAPITAL  PARTNERS To Attract Foreign Buyers You Must Timing of the Sale
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Timing of the Sale ALPHA  OMEGA  CAPITAL  PARTNERS Conditions In Your Industry/Buyer Type ~ Roll-Ups Caution Is Warranted ,[object Object],[object Object],[object Object],[object Object]
Timing of the Sale Conditions In Your Industry/Buyer Type ~ Roll-Ups A Few Large Players Can Dominate M&A Transactions  In the Short-Term ALPHA  OMEGA  CAPITAL  PARTNERS 1999 – 2000 Cenveo acquired 73 of 158 companies or 46% of M&A printing transactions.  2005 – Cenveo acquired 2 of 52 companies or 4% of M&A printing transactions.  2005 – Consolidated Graphics acquired 4 of 52 or 8% and own over 70 printing companies in North America.  Market Making
Timing of the Sale Conditions In Your Industry ~ Distribution ALPHA  OMEGA  CAPITAL  PARTNERS ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Survival Is Directly Linked To Value Added Services
Timing of the Sale Conditions In Your Industry ~ Global Trends  ALPHA  OMEGA  CAPITAL  PARTNERS 11/9/89 – The Fall of the Berlin Wall 5/22/90 – Windows 3.0 shipped 1991 – India abolished trade controls 8/9/95 – World Wide Web, Netscape, & Open Protocols – FTP, HTTP, SMTP, POP, TCP/IP, etc. Work Flow Software - EBay, Pay Pal Up-Loading – Apache, Linux  Outsourcing – India & Y2K Off-shoring – 12/11/01 China joined the World Trade Organization Supply-Chaining: Wal-Mart, Dell In-sourcing: UPS & FEDEX (Toshiba, Ford) Informing – Collaboration: Google, Yahoo, MSN  Steroids – Digital, Mobile, Personal & Virtual (Other Than War)
Timing of the Sale Conditions In Your Industry ~ Manufacturing ALPHA  OMEGA  CAPITAL  PARTNERS Proprietary technology, perishable, infrastructure related, or defense Or Exit! Made In China!
Business to Business Timing of the Sale Conditions In Your Industry ~ Where Have They All Gone? ALPHA  OMEGA  CAPITAL  PARTNERS Retail  Fine Dining  80,000 Employees Eight Brands Outback Steakhouse Carrabba’s Roy’s Bonefish Grill Flemings Lee Roy Selmon’s Cheeseburger Paradise Paul Lee’s Out Sourcing Wal-Mart & Other Big Boxes Corporate Takeover of Family Markets Corporate Pressure to Mfg. Off-Shore Competitive Pressure to Out-Source
Our Workshop Objective: Planning Your Exit At Maximum Value Overview Part I:  Valuation Methodology Part II:  Considerations Before Selling  Part III:  Timing of the Sale Part IV:   Value Maximization Part V:   How To Sell  Part VI:   How Much  You Really Get ALPHA  OMEGA  CAPITAL  PARTNERS
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],ALPHA  OMEGA  CAPITAL  PARTNERS Value Maximization Discount Factors
ALPHA  OMEGA  CAPITAL  PARTNERS Discount Factors Value Maximization ,[object Object],[object Object],[object Object]
Cause One Customer or  Limited Customer Base Cause Out of Touch Cause Serving a Single Market Cause Not Reinvesting Systems Equipment Etc. Cause Limited Marketing Effort ALPHA  OMEGA  CAPITAL  PARTNERS Value Maximization Dropping Market Share Customers Are Single  Sourcing  Customer  Sold Lost On Price Need QC Cert. Quality Poor >Competition Economy E-Commerce Don’t Know Moved Offshore Customer’s Sales Off Excuses or Symptoms
ALPHA  OMEGA  CAPITAL  PARTNERS ,[object Object],[object Object],Value Maximization Discount Factors
ALPHA  OMEGA  CAPITAL  PARTNERS Value Maximization Typical Business Strategy It’s A Bloody Red Ocean  Existing Products To New Customers Current Geographic Region New Geographic Region Advertising New Reps/Agents Direct Sales Same As Current Acquisitions New Products To Old Customers Product Development Acquisitions Licensing
Compete in existing market space, Beat the competition, Exploit existing demand, Make the value/cost trade-off, and Align the whole system of a company’s  activities with its strategic choice of  differentiation or low cost. Create uncontested market space, Make the competition irrelevant, Create & capture new demand, Break the value/cost trade-off, and Align the whole system of a company’s  activities in pursuit of differentiation and low cost. ALPHA  OMEGA  CAPITAL  PARTNERS -  Blue Ocean Strategy  by Kim & Mauborgne 2004 “ Bloody Red Ocean” “ Blue Ocean” Value Maximization Uncontested Market Space Business Strategy
ALPHA  OMEGA  CAPITAL  PARTNERS Cut Everything That is Not Mission Critical Value Maximization Buy/Mfg. Off Shore Assembly Only Vertical Integration Mission Critical Only Uncontested Market Space Business Strategy Certifications & Culture Systems & Procedures Integrated Supply No Sacred Cows Product Development Licensing  Acquisitions No Grandfathered Items Internet Productive Reps Direct No Sacred Cows Innovative Products Highest Quality Most Effective Route To Market Lowest Cost New And Existing Customers
ALPHA  OMEGA  CAPITAL  PARTNERS Value Maximization You Don’t Risk Flying Without Feedback of Information Flight Plan Altimeter Compass Fuel Gauge Air Speed Indicator Oil Temp. Outside Temp. Tachometer Fuel Pressure
ALPHA  OMEGA  CAPITAL  PARTNERS Value Maximization Don’t “Fly” Your Business Without Measurements Learning & Growth Objectives Measures Targets Business Processes Objectives Measures Targets Customer Objectives ~ Measures ~ Targets Vision  & Strategy If You Don’t Measure, You Don’t Control! Financial Objectives ~ Measures ~ Targets
ALPHA  OMEGA  CAPITAL  PARTNERS Value Maximization Leadership – Read It! Lead or get out of the way
ALPHA  OMEGA  CAPITAL  PARTNERS ,[object Object],[object Object],[object Object],Value Maximization Discount Factors
ALPHA  OMEGA  CAPITAL  PARTNERS Supplier Problems? Value Maximization Declining Quality Limited (Uncertain)  Supply Increasing Price Limited Negotiating Power DANGER SIGNS
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Supplier Problems Or Opportunities? Value Maximization ALPHA  OMEGA  CAPITAL  PARTNERS ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
ALPHA  OMEGA  CAPITAL  PARTNERS ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Value Maximization Discount Factors
ALPHA  OMEGA  CAPITAL  PARTNERS MGMT ISSUES: Escalating Benefit Cost Value Maximization
I’m Seymour, the Big Cheese! I AM the BUSINESS! Deduct 15% - 30% from the value. ALPHA  OMEGA  CAPITAL  PARTNERS Value Maximization MGMT ISSUES: Limited Depth If the Seller is the source of ALL knowledge, what happens?  VALUE REDUCED   QUICK EXIT  is  UNLIKELY !
ALPHA  OMEGA  CAPITAL  PARTNERS Every Key Person Should Have a  CROSS-TRAINED BACKUP ! ‘ especially the owner’ Value Maximization MGMT ISSUES: Cross-Training  (One Owner) Owner VP Finance VP Sales VP Operations Assistant Assistant Assistant Assistant
Value Maximization MGMT ISSUES: Age of Workforce Matters ALPHA  OMEGA  CAPITAL  PARTNERS Does this trend affect the value of your business? Trying to pass this problem on to the next owner?
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Value Maximization MGMT ISSUES: Age of Workforce Matters ALPHA  OMEGA  CAPITAL  PARTNERS ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],ALPHA  OMEGA  CAPITAL  PARTNERS MGMT ISSUES: Excessive Overhead Issues Value Maximization
ALPHA  OMEGA  CAPITAL  PARTNERS MGMT ISSUES: Non-Compliance Value Maximization ,[object Object],[object Object],[object Object]
ALPHA  OMEGA  CAPITAL  PARTNERS ,[object Object],[object Object],[object Object],[object Object],[object Object],Value Maximization Discount Factors
Value Maximization ALPHA  OMEGA  CAPITAL  PARTNERS You MUST be Able to Pinpoint the Inflows & Outflows ,[object Object],[object Object],[object Object],Revenue Analysis Example: Dropping or Unstable Earnings ~ Vague Financials
Value Maximization ALPHA  OMEGA  CAPITAL  PARTNERS Cost of Goods Sold (COGS) Analysis Example: Dropping or Unstable Earnings ~ Vague Financials
There are always alternative routes to market – Know Your Costs Value Maximization ALPHA  OMEGA  CAPITAL  PARTNERS Dropping or Unstable Earnings ~ Vague Financials
What Do Those Executive Perks Cost?...............Can You Prove What You Make? Value Maximization ALPHA  OMEGA  CAPITAL  PARTNERS Dropping or Unstable Earnings ~ Vague Financials
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],“ AOCP Analytic Rules” ALPHA  OMEGA  CAPITAL  PARTNERS Value Maximization Dropping or Unstable Earnings ~ Vague Financials
ALPHA  OMEGA  CAPITAL  PARTNERS ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Value Maximization Discount Factors
Value Maximization ALPHA  OMEGA  CAPITAL  PARTNERS Reasons for Owning  Company Occupied RE ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Geographic Region No Longer Viable
ALPHA  OMEGA  CAPITAL  PARTNERS Value Maximization Challenges of Owning  Company Occupied RE ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Geographic Region No Longer Viable
[object Object],[object Object],[object Object],[object Object],Value Maximization Poorly Maintained Equipment & Facilities ALPHA  OMEGA  CAPITAL  PARTNERS
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],ALPHA  OMEGA  CAPITAL  PARTNERS Intellectual Property Value Maximization NOT Documenting Systems & Procedures Can Significantly REDUCE Value When a Buyer is Concerned About Maintaining Continuity.
Our Workshop Objective: Planning Your Exit At Maximum Value Overview Part I:  Valuation Methodology Part II:  Considerations Before Selling  Part III:  Timing of the Sale Part IV:  Value Maximization Part V:  The Selling Process   Part VI:  How Much You  Really Get ALPHA  OMEGA  CAPITAL  PARTNERS
ALPHA  OMEGA  CAPITAL  PARTNERS Overview Part V: The Selling Process ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Propose  Marketing Plan  Financial Analysis  & Valuation  Initial Consultation &  Execute Listing Agreement Prepare Descriptive Offering Memorandum  Screen Buyers &  Coordinate Offer Implement  Marketing Plan Due Diligence & Arrange Financing 1 2 4 5 6 8 3 7 Client Decides to Proceed  or Retainer Refunded     ALPHA  OMEGA  CAPITAL  PARTNERS The AOCP Selling Process ~ Duration: Six to Twelve Months ~
Determine The Best Option For You? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],ALPHA  OMEGA  CAPITAL  PARTNERS Public Stock Offering
[object Object],[object Object],[object Object],AOCP does everything else! ALPHA  OMEGA  CAPITAL  PARTNERS Owner’s Involvement in the Selling Process The Selling Process
5 ALPHA  OMEGA  CAPITAL  PARTNERS ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Timeline- What to Expect The Selling Process
5 ALPHA  OMEGA  CAPITAL  PARTNERS ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Timeline- What to Expect The Selling Process
5 ALPHA  OMEGA  CAPITAL  PARTNERS ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Timeline- What to Expect The Selling Process
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],ALPHA  OMEGA  CAPITAL  PARTNERS Why Does It Take So Long? The Selling Process
Propose  Marketing Plan 1 Week  Financial Analysis  & Valuation 2-3  Weeks  Initial Consultation &  Execute Listing Agreement Prepare Descriptive Offering Memorandum 3-4 Weeks Screen Buyers &  Coordinate Offers 6-26 Weeks Implement  Marketing Plan 2 Weeks Due Diligence & Arrange Financing 8-12 Weeks 1 2 4 5 6 8 3 7 Client Decision Proceed or Retainer  Refunded End of Week #4 Latest     ALPHA  OMEGA  CAPITAL  PARTNERS The AOCP Selling Process ~ Six to Twelve Months ~
ALPHA  OMEGA  CAPITAL  PARTNERS The Market Valuation Process ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],ĒBǏTDĂ ĒBǏT-D-A Pretax Earnings + Interest Expense + Income Taxes + Depreciation Expense + Amortization EBITDA SDE + EBITDA + Owner’s Comp - Replacement Salaries Seller Discretionary Earnings
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],“ We Should Have Sold Before …….” ALPHA  OMEGA  CAPITAL  PARTNERS The Selling Process Low Value ~ Options
ALPHA  OMEGA  CAPITAL  PARTNERS Void Agreement Return Retainer Establish Value Market & Sell Value Mentoring The Selling Process Value Too Low Value Acceptable Sign & Pay Retainer Decide! AOCP Value Coaching to Maximize Value
Propose  Marketing Plan 1 Week  Financial Analysis  & Valuation 2-3  Weeks  Initial Consultation &  Execute Listing Agreement Prepare Descriptive Offering Memorandum 3-4 Weeks Screen Buyers &  Coordinate Offers 6-26 Weeks Implement  Marketing Plan 2 Weeks Due Diligence & Arrange Financing 8-12 Weeks 1 2 4 5 6 8 3 7 Client Decision Proceed or Retainer  Refunded End of Week #4 Latest     ALPHA  OMEGA  CAPITAL  PARTNERS The AOCP Selling Process ~ Six to Twelve Months ~
Domestic Competitors  Complementary Markets Similar Foreign Markets Research PEG Objectives Proprietary  Data Base Research Public  Data Base Research Seller Suggestions Internet Research ALPHA  OMEGA  CAPITAL  PARTNERS Marketing Planning ~ Buyer Search Process Capital IQ D&B Goldmine
Propose  Marketing Plan 1 Week  Financial Analysis  & Valuation 2-3  Weeks  Initial Consultation &  Execute Listing Agreement Prepare Descriptive Offering Memorandum 3-4 Weeks Screen Buyers &  Coordinate Offers 6-26 Weeks Implement  Marketing Plan 2 Weeks Due Diligence & Arrange Financing 8-12 Weeks 1 2 4 5 6 8 3 7 Client Decision Proceed or Retainer  Refunded End of Week #4 Latest     ALPHA  OMEGA  CAPITAL  PARTNERS The AOCP Selling Process ~ Six to Twelve Months ~
Offering Memo Sample ALPHA  OMEGA  CAPITAL  PARTNERS
ALPHA  OMEGA  CAPITAL  PARTNERS The Selling Process Moving Forward: Offering Memorandum (OM) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
The Selling Process ALPHA  OMEGA  CAPITAL  PARTNERS Our Electronic Approach Allows For Extensive Use Of Graphics After execution of a rigid NDA, every OM is accessible at the Client Log-In porthole of our website using a unique, encrypted password. Every OM includes a section with: Unadjusted Financial History, Common Size & Benchmarking, Adjusted Cash Flow, and Other Sections as needed. The Offering Memorandum
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],ALPHA  OMEGA  CAPITAL  PARTNERS The Selling Process Why Such a Detailed Descriptive OM?
Propose  Marketing Plan 1 Week  Financial Analysis  & Valuation 2-3  Weeks  Initial Consultation &  Execute Listing Agreement Prepare Descriptive Offering Memorandum 3-4 Weeks Screen Buyers &  Coordinate Offers 6-26 Weeks Implement  Marketing Plan 2 Weeks Due Diligence & Arrange Financing 8-12 Weeks 1 2 4 5 6 8 3 7 Client Decision Proceed or Retainer  Refunded End of Week #4 Latest     ALPHA  OMEGA  CAPITAL  PARTNERS The AOCP Selling Process ~ Six to Twelve Months ~
We Can Use Phased Marketing To Reach  The Right Buyer At The Right Time  To Maximize Value! Direct Mail To  Strategic Buyers Telephonic Follow Up Direct Mail & Email To Financial Buyers (Private Equity Groups) Telephonic Follow Up Internet Advertising For High Net Worth Job Seeking Buyers Screening & Coordination Of Buyers ALPHA  OMEGA  CAPITAL  PARTNERS The ‘Phased Marketing’ Option
Propose  Marketing Plan 1 Week  Financial Analysis  & Valuation 2-3  Weeks  Initial Consultation &  Execute Listing Agreement Prepare Descriptive Offering Memorandum 3-4 Weeks Screen Buyers &  Coordinate Offers 6-26 Weeks Implement  Marketing Plan 2 Weeks Due Diligence & Arrange Financing 8-12 Weeks 1 2 4 5 6 8 3 7 Client Decision Proceed or Retainer  Refunded End of Week #4 Latest     ALPHA  OMEGA  CAPITAL  PARTNERS The AOCP Selling Process ~ Six to Twelve Months ~
“ A Value Differentiator” ALPHA  OMEGA  CAPITAL  PARTNERS The Selling Process Our Approach is Different We Provide Monthly or Weekly Reports- at the Sellers Discretion Buyer Name And/or Company  Buyer Status  Pending FU
Propose  Marketing Plan 1 Week  Financial Analysis  & Valuation 2-3  Weeks  Initial Consultation &  Execute Listing Agreement Prepare Descriptive Offering Memorandum 3-4 Weeks Screen Buyers &  Coordinate Offers 6-26 Weeks Implement  Marketing Plan 2 Weeks Electronic Due Diligence & Arrange Financing 8-12 Weeks 1 2 4 5 6 8 3 7 Client Decision Proceed or Retainer  Refunded End of Week #4 Latest     ALPHA  OMEGA  CAPITAL  PARTNERS The AOCP Selling Process ~ Six to Twelve Months ~
Our Approach is Different!  Arrange Financing Appraisal Buyer Agreement Seller Agreement Need A Seller Note? “ We Are The Deal Management Police” The Selling Process Coordinating Due Diligence & Financing ALPHA  OMEGA  CAPITAL  PARTNERS Due Diligence Meetings
Our Workshop Objective: Planning Your Exit At Maximum Value Overview Part I:  Valuation Methodology Part II:  Considerations Before Selling  Part III:  Timing of the Sale Part IV:  Value Maximization Part V:  The Selling Process   Part VI:  How Much You  Really Get ALPHA  OMEGA  CAPITAL  PARTNERS
What Is Your Definition of Deal Value?   How Much You Really Get ALPHA  OMEGA  CAPITAL  PARTNERS
Deal Value Is Not Selling Price! Deal Value Equals The Present Value of the Real Dollars Realized  After Adjustments, Taxes and Fees! What Is Deal Value?  How Much You Really Get ALPHA  OMEGA  CAPITAL  PARTNERS
External Discount Factors – Terms of Sale How Much You Really Get ALPHA  OMEGA  CAPITAL  PARTNERS Terms Price Parity
External Discount Factors – Terms of Sale How Much You Really Get ALPHA  OMEGA  CAPITAL  PARTNERS Notes Earn-Outs Escrows Guarantees Allocations No Debt Working Capital A Flexible Seller Gets A Higher Price Accept More Risk > Price
External Discount Factors – Terms of Sale How Much You Really Get ALPHA  OMEGA  CAPITAL  PARTNERS All Cash Walk Away Closing No Escrows No Guarantees Favorable Allocations Debt Assumption No Working Capital Price Drops As Buyer Risk Increases Dictate Terms <  Price
External Discount Factors – Terms of Sale How Much You Really Get ALPHA  OMEGA  CAPITAL  PARTNERS DEFINITIVE SALE AGREEMENT Notes Earn-Outs Consulting Employment Real Estate Indemnifications Escrow Guarantees Allocations Debt Working Cap Commissions Taxes Legal Fees Non-Compete
Terms of Sale - Notes How Much You Really Get ALPHA  OMEGA  CAPITAL  PARTNERS Typical Historic Structure 1/3, 1/3, 1/3 Buyer Equity, Bank Equity, Seller Note Typical Seller Note Terms: 10 year amortization 5 year balloon Floating rate 1 – 2 points  > Prime Security – 2 nd  lien + personal guarantee
Terms of Sale – Earn Outs How Much You Really Get ALPHA  OMEGA  CAPITAL  PARTNERS Uncertain trends, or Buyer/Seller disagree on value Typical Terms: 3 years ≥ 50% guaranteed ≤ 50% based on performance Tagged to Revenues or EBITDA
Terms of Sale – Employment How Much You Really Get ALPHA  OMEGA  CAPITAL  PARTNERS Often coupled with Earn-Out, or PEG Buyer Typical Terms: Salary + Benefits Bonuses based on performance Stock options and/or gifts Employment agreement
Terms of Sale – Consulting How Much You Really Get ALPHA  OMEGA  CAPITAL  PARTNERS Actual work varies Zero time to a few months Typical Terms: Daily, hourly, weekly Allocated from selling price Buyer writes off as paid Formal agreement
Terms of Sale – Non Compete How Much You Really Get ALPHA  OMEGA  CAPITAL  PARTNERS Must be limited to be enforceable; Geographically, by product type, by customer Typical Terms: 3 – 7 years Allocated from selling price Amortization  = 7 years Formal agreement
Terms of Sale – Indemnifications How Much You Really Get ALPHA  OMEGA  CAPITAL  PARTNERS Stock versus Asset Transaction Prior acts: Products, Employees, Environmental, Tax May require Escrows or Guarantees!
Terms of Sale – Allocations How Much You Really Get ALPHA  OMEGA  CAPITAL  PARTNERS Of Purchase Price to BS Items Accounts Receivable Inventory Fixed Assets Goodwill Tax Allocations greater than book value result in recapture of expense & taxation at income rates.
Terms of Sale – Debt How Much You Really Get ALPHA  OMEGA  CAPITAL  PARTNERS Stock versus Asset Transaction Stock Transaction: Buyer Assumes Debt + Other Consideration Transaction Value to Seller Asset or Stock Transaction: Full Enterprise Value w/o Debt - Seller debt payoff Net to Seller ¹ ¹ Seller sometimes keeps cash, AR & payable
Your debt coverage ratio  ≤  133%.  (most lenders require 125%) Internal return from debt  ≥  alternative uses. When selling, less debt is better. (Transaction Value = market value less debt)  Final Thoughts ALPHA  OMEGA  CAPITAL  PARTNERS Your Balance Sheet - Debt
Terms of Sale – Working Capital Adjustments How Much You Really Get ALPHA  OMEGA  CAPITAL  PARTNERS Asset Sale Cash usually excluded AR may be excluded Inventory acquired at cost Stock Sale Current Assets = 2 times Current Liabilities Price adjusted up/down at closing.
How Much You Really Get ALPHA  OMEGA  CAPITAL  PARTNERS How Legal Structure Affects Taxes of a C-Corp  C Corps are taxed as separate legal entities and  have there own tax schedules, different from individuals’.  C Corps must pay taxes first before distributing profits (Dividends) to shareholders. How to sell the Assets Sale of a C-Corp Without Double Taxation? Call AOCP. How Legal Structure Affects Taxes of a Sub S Corporation  A Sub S corporation is a corporation which elects subchapter S tax treatment under the IRS’s Internal Revenue Code.  This allows the corporation’s profits or losses to pass through to the shareholders and avoid double taxation.
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],ALPHA  OMEGA  CAPITAL  PARTNERS The Selling Process Key Points to Remember About the Price
7202 Glen Forest Drive Ste 300 Richmond, VA 23226 Voice: 804.282.7680 www.aocp.com Thank You

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Selling Your Business Tutorial

  • 1. Selling Mid-Market Companies AT MAXIMUM VALUE © Alpha Omega Capital Partners LLC 2006
  • 2. Since 1999… Investment Bankers Providing Services Tailored To Privately Held Mid-Market Businesses ALPHA OMEGA CAPITAL SECURITIES, LLC An NASD Registered Broker/Dealer Richmond, VA ♦ New York, NY ♦ Lexington, KY ♦ Orlando, FL ~~~~~ Partners ~~~~~ Regional Vice Presidents Analysts IT & Admin.
  • 3. Full Range Of Services Sell-Side Representation Engaged Buy-Side Representation Certified Valuations Capital Raise Value Coaching Our Firm ALPHA OMEGA CAPITAL PARTNERS
  • 4. Planning Your Exit At Maximum Value Overview Part I: Valuation Methodology Part II: Considerations Before Selling Part III: Timing of the Sale Part IV: Value Maximization Part V: How To Sell Part VI: How Much You Really Get ALPHA OMEGA CAPITAL PARTNERS
  • 5.
  • 6.
  • 7. When Risk Is Minimized For The Buyer, Maximum Value Is Obtained For The Seller! Our Goal: How To Sell At Maximum Value Valuation Methodology ALPHA OMEGA CAPITAL PARTNERS Definition of Value
  • 8.
  • 9. 1. Size of Business – Larger businesses sell at higher values Valuation Methodology ALPHA OMEGA CAPITAL PARTNERS Financial Factors That Affect Value Company Revenues Selling Price Value
  • 10.
  • 11.
  • 12.
  • 13.
  • 14.
  • 15. EBITDA (ĒBǏT-D-A) Pretax Earnings + Interest Expense + Income Taxes + Depreciation Expense + Amortization EBITDA SDE + EBITDA + Owner’s Comp - Replacement Salaries Seller Discretionary Earnings What are EBITDA and SDE? Valuation Methodology ALPHA OMEGA CAPITAL PARTNERS
  • 16.
  • 17.
  • 18. Planning Your Exit At Maximum Value Overview Part I: Valuation Methodology Part II: Considerations Before Selling Part III: Timing of the Sale Part IV: Value Maximization Part V: How To Sell Part VI: How Much You Really Get ALPHA OMEGA CAPITAL PARTNERS
  • 19.
  • 20. ALPHA OMEGA CAPITAL PARTNERS Timing of the Sale Weighing The Facts ~ No Simple Answer Factors That Influence the Decision to Sell External Discount Factors Internal Discount Factors Personal Needs Decision To Sell
  • 21. Considerations Before Selling Personal Factors Retirement Health Problems Divorce Boredom Other Opportunities To Reduce Stress Load Spiritual Pursuits You Want to Travel Family/Children To Reduce Personal Financial Risk! Others? Internal Factors The Company Life Cycle Organizational Issues Operations Problems Facilities Problems Financial Problems Intellectual Property Others? External Factors Economic Conditions Lending Climate Interest Rates Industry Trends Tax Rates Buyer Offer Others? Factors that Can Influence the Decision to Sell ALPHA OMEGA CAPITAL PARTNERS Understanding Our Circumstances (Factors) Do I Have Enough Money?
  • 22. ALPHA OMEGA CAPITAL PARTNERS Timing of the Sale Sell?
  • 23.
  • 24.
  • 25.
  • 26. Succession Issues ~80% Want Family <10% Transfer To Family Kids Aren’t Interested Kids Aren’t Qualified Money Needed For Retirement Reality Check ALPHA OMEGA CAPITAL PARTNERS Considerations Before Selling You Want to Keep the Business in the Family
  • 27.
  • 28. ALPHA OMEGA CAPITAL PARTNERS Considerations Before Selling Fear of Change Reading List Dead End Choices About Attitude! Bad Things Often Happen When We Fail To Take Action! A Job Is Not A Life Sentence!
  • 29.
  • 30. Why To Create a Decision Making Environment of Emotive-Logic Designed To Minimize Risk Considerations Before Selling ALPHA OMEGA CAPITAL PARTNERS Logical Decisions Based On Emotional Objectives Benefits of an ‘Advisory Board’
  • 31. Investment Banker Attorney Accountant CFA Corporate Structure Intellectual Property Tax Consequences Short-Term Long-Term Personal Trusts/Planning Investments Insurance Issues Annual Tax Work Short-Term Tax Plan Accounting Methods Market Value of Business Strategic Business Plan Value Mentoring Exit Strategies ALPHA OMEGA CAPITAL PARTNERS Considerations Before Selling Benefits of an ‘Advisory Planning Board’ Others?
  • 32. Considerations Before Selling Maslow’s Hierarchy of Needs- “An Idealistic View” Understanding Our Needs Determining How Much Is Enough? ALPHA OMEGA CAPITAL PARTNERS
  • 33. Physiological Needs = Fixed Cost Food, Water, Shelter Health Care Expenses Assisted Living Expenses Considerations Before Selling Needs Converted to Financial Reality ALPHA OMEGA CAPITAL PARTNERS
  • 34. Fixed Cost Safety Cost (Needs) = Financial Cushion Property Insurance Health Insurance Financial Cushion Cash Reserves “ To Protect Fixed Cost Issues” Considerations Before Selling ALPHA OMEGA CAPITAL PARTNERS Needs Converted to Financial Reality
  • 35. Fixed Cost Financial Cushion Clubs Faith Family Charity Legacy Education Love & Belonging = Feel Good Cost Considerations Before Selling ALPHA OMEGA CAPITAL PARTNERS Needs Converted to Financial Reality
  • 36. Fixed Cost Financial Cushion Best & Biggest Feel Good Cost Esteem (Discuss) Considerations Before Selling ALPHA OMEGA CAPITAL PARTNERS Needs Converted to Financial Reality
  • 37. Fixed Cost Financial Cushion Feel Good Cost Esteem Cost Actualization Cost Pursuing Your Dreams Considerations Before Selling ALPHA OMEGA CAPITAL PARTNERS Needs Converted to Financial Reality
  • 38. Financial Cushion Considerations Before Selling ALPHA OMEGA CAPITAL PARTNERS Needs Converted to Financial Reality Fixed Cost Feel Good Cost Esteem Cost Dream Cost Pursuing Your Dreams Best Biggest Clubs Faith Family Charity Legacy Insurance Security Financial Cushion Food, Water, Shelter Health Care Expenses Assisted Living Expenses
  • 39.
  • 40. Considerations Before Selling ALPHA OMEGA CAPITAL PARTNERS *Distribution Yield Estimates March 2006 Per Leonard Levitch of Kasch, Levitch, McAleer, & Associates Decision Rules and Maximum Initial Withdrawal Rates by Johathan Guyton – Journal of Financial Planning – March 2006 How Much ‘Per Year’ is Enough Amount Invested Low Risk 4.0%* Medium Risk 5.0%* High Risk 6.0%* $1,000,000 $40,000 $50,000 $60,000 $2,000,000 $80,000 $100,000 $120,000 $3,000,000 $120,000 $150,000 $180,000 $4,000,000 $160,000 $200,000 $240,000 $5,000,000 $200,000 $250,000 $300,000 $6,000,000 $240,000 $300,000 $360,000 $7,000,000 $280,000 $350,000 $420,000 $8,000,000 $320,000 $400,000 $480,000
  • 41. Considerations Before Selling Per Lee Eisenberg ALPHA OMEGA CAPITAL PARTNERS How Much is Enough The Number by Lee Eisenberg (Bottom Line) To Be Here And Live Like This You Need $ Per Year COMFORTABLE Live one place, modest lifestyle but better than most, etc. $50,000 to $100,000 COMFORTABLE PLUS Occasional upgrades, mid-priced country club, small second home. $175,000 to $250,000 KIND OF RICH Like finer things, lives well, gives $ away, couple of nice houses. $350,000 to $500,000 RICH Spends weeks/months abroad, exclusive club, gated community, multiple homes, fractional jets, sets on boards. >$1,000,000
  • 42. Planning Your Exit At Maximum Value Overview Part I: Valuation Methodology Part II: Considerations Before Selling Part III: Timing of the Sale Part IV: Value Maximization Part V: How To Sell Part VI: How Much You Really Get ALPHA OMEGA CAPITAL PARTNERS
  • 43.
  • 44. S ELL AT M AX V ALUE? Liquidation Value GIVE UP? S ELL W HEN E VENTS D ICTATE? ALPHA OMEGA CAPITAL PARTNERS Timing of the Sale Company (Product Line) Life Cycle Stages TIME REVENUE 3) Cash Flow 1) Start-Up 2) Growth 4) Declining Value 5) Obsolescence
  • 45.
  • 46. Buy Time Gain Value Timing of the Sale Extending Life & GAINING Value ALPHA OMEGA CAPITAL PARTNERS $ Time
  • 47. Timing of the Sale M&A Volume ALPHA OMEGA CAPITAL PARTNERS
  • 48.  
  • 49. Timing of the Sale ALPHA OMEGA CAPITAL PARTNERS Macroeconomic Conditions – Weak Dollar Exchange Ratio: Chinese Yuan/1$
  • 50. Timing of the Sale Macroeconomic Conditions - Wealth ALPHA OMEGA CAPITAL PARTNERS Create New Project Create New Activity Log Create New Comp Set Create New Task My Projects US Dollar    Currency Profile Charting    Chart Builder   Relationship Management    Activity Logs   (Add)    Tasks   (Add)    Document Management    Audit History US Dollar ($USDUSD) > Currency Profile       Exchange Rate as of May-04-2007 Last Close 1.3603 Change 0.0000 Prev. Last Close 1.3603 % Change 0.0000 Exchange Rate Chart   [ Chart Builder ] Modify Chart Time Frame:   From:          To:        (mm/dd/yyyy)   Currency Conversion: Historical Equity Pricing Data supplied by                             GDP is shifting from developed countries like the USA and European Union to 3 rd world markets.       Expense Code:  Assign                           Search:                                                                                       © 2000-2007 Capital IQ, Inc., a division of Standard & Poor's. All Rights Reserved.        2007 GDP Growth Forecasts by Country Source: Asian Development Bank
  • 51. Timing of the Sale Macroeconomic Conditions - Wealth ALPHA OMEGA CAPITAL PARTNERS Create New Project Create New Activity Log Create New Comp Set Create New Task My Projects US Dollar    Currency Profile Charting    Chart Builder   Relationship Management    Activity Logs   (Add)    Tasks   (Add)    Document Management    Audit History US Dollar ($USDUSD) > Currency Profile       Exchange Rate as of May-04-2007 Last Close 1.3603 Change 0.0000 Prev. Last Close 1.3603 % Change 0.0000 Exchange Rate Chart   [ Chart Builder ] Modify Chart Time Frame:   From:          To:        (mm/dd/yyyy)   Currency Conversion: Historical Equity Pricing Data supplied by                             >4X increase in 15 years!       Expense Code:  Assign                           Search:                                                                                       © 2000-2007 Capital IQ, Inc., a division of Standard & Poor's. All Rights Reserved.       
  • 52.
  • 53. Timing of the Sale Macroeconomic & Political Conditions Geopolitical Events ALPHA OMEGA CAPITAL PARTNERS 9-11-01
  • 54.
  • 55. Prime rate forecast Source: the Financial Forecast Center Timing of the Sale Macroeconomic Indicators – Interest Rates ALPHA OMEGA CAPITAL PARTNERS
  • 56. Timing of the Sale Cap Gains Tax Rate Issues ALPHA OMEGA CAPITAL PARTNERS When Should You Sell? Scheduled Increase To 20% in 2010!
  • 57. Timing of the Sale State Tax Rate Issues ALPHA OMEGA CAPITAL PARTNERS
  • 58. Timing of the Sale ALPHA OMEGA CAPITAL PARTNERS Buyer Trends
  • 59. Buyer Type Effects Price & Deal Size Small Deals <$3 million Yield Lowest Multiples Minimums Sales >$10 million EBITDA >$1 million Deal >$5 million Large Deals & High Multiples (Prices) Timing of the Sale ALPHA OMEGA CAPITAL PARTNERS Foreign Strategic Public < 10 Strategic Private < 100 Private Equity Finance (a few hundred possible) Private Equity Purchase (a few thousand possible) Private Buyers (large number of individuals)
  • 60. Timing of the Sale Example ~ Large Deal Selling Multiples ALPHA OMEGA CAPITAL PARTNERS
  • 61.
  • 62.
  • 63.
  • 64.
  • 65.
  • 66.
  • 67. Timing of the Sale Conditions In Your Industry/Buyer Type ~ Roll-Ups A Few Large Players Can Dominate M&A Transactions In the Short-Term ALPHA OMEGA CAPITAL PARTNERS 1999 – 2000 Cenveo acquired 73 of 158 companies or 46% of M&A printing transactions. 2005 – Cenveo acquired 2 of 52 companies or 4% of M&A printing transactions. 2005 – Consolidated Graphics acquired 4 of 52 or 8% and own over 70 printing companies in North America. Market Making
  • 68.
  • 69. Timing of the Sale Conditions In Your Industry ~ Global Trends ALPHA OMEGA CAPITAL PARTNERS 11/9/89 – The Fall of the Berlin Wall 5/22/90 – Windows 3.0 shipped 1991 – India abolished trade controls 8/9/95 – World Wide Web, Netscape, & Open Protocols – FTP, HTTP, SMTP, POP, TCP/IP, etc. Work Flow Software - EBay, Pay Pal Up-Loading – Apache, Linux Outsourcing – India & Y2K Off-shoring – 12/11/01 China joined the World Trade Organization Supply-Chaining: Wal-Mart, Dell In-sourcing: UPS & FEDEX (Toshiba, Ford) Informing – Collaboration: Google, Yahoo, MSN Steroids – Digital, Mobile, Personal & Virtual (Other Than War)
  • 70. Timing of the Sale Conditions In Your Industry ~ Manufacturing ALPHA OMEGA CAPITAL PARTNERS Proprietary technology, perishable, infrastructure related, or defense Or Exit! Made In China!
  • 71. Business to Business Timing of the Sale Conditions In Your Industry ~ Where Have They All Gone? ALPHA OMEGA CAPITAL PARTNERS Retail Fine Dining 80,000 Employees Eight Brands Outback Steakhouse Carrabba’s Roy’s Bonefish Grill Flemings Lee Roy Selmon’s Cheeseburger Paradise Paul Lee’s Out Sourcing Wal-Mart & Other Big Boxes Corporate Takeover of Family Markets Corporate Pressure to Mfg. Off-Shore Competitive Pressure to Out-Source
  • 72. Our Workshop Objective: Planning Your Exit At Maximum Value Overview Part I: Valuation Methodology Part II: Considerations Before Selling Part III: Timing of the Sale Part IV: Value Maximization Part V: How To Sell Part VI: How Much You Really Get ALPHA OMEGA CAPITAL PARTNERS
  • 73.
  • 74.
  • 75. Cause One Customer or Limited Customer Base Cause Out of Touch Cause Serving a Single Market Cause Not Reinvesting Systems Equipment Etc. Cause Limited Marketing Effort ALPHA OMEGA CAPITAL PARTNERS Value Maximization Dropping Market Share Customers Are Single Sourcing Customer Sold Lost On Price Need QC Cert. Quality Poor >Competition Economy E-Commerce Don’t Know Moved Offshore Customer’s Sales Off Excuses or Symptoms
  • 76.
  • 77. ALPHA OMEGA CAPITAL PARTNERS Value Maximization Typical Business Strategy It’s A Bloody Red Ocean Existing Products To New Customers Current Geographic Region New Geographic Region Advertising New Reps/Agents Direct Sales Same As Current Acquisitions New Products To Old Customers Product Development Acquisitions Licensing
  • 78. Compete in existing market space, Beat the competition, Exploit existing demand, Make the value/cost trade-off, and Align the whole system of a company’s activities with its strategic choice of differentiation or low cost. Create uncontested market space, Make the competition irrelevant, Create & capture new demand, Break the value/cost trade-off, and Align the whole system of a company’s activities in pursuit of differentiation and low cost. ALPHA OMEGA CAPITAL PARTNERS - Blue Ocean Strategy by Kim & Mauborgne 2004 “ Bloody Red Ocean” “ Blue Ocean” Value Maximization Uncontested Market Space Business Strategy
  • 79. ALPHA OMEGA CAPITAL PARTNERS Cut Everything That is Not Mission Critical Value Maximization Buy/Mfg. Off Shore Assembly Only Vertical Integration Mission Critical Only Uncontested Market Space Business Strategy Certifications & Culture Systems & Procedures Integrated Supply No Sacred Cows Product Development Licensing Acquisitions No Grandfathered Items Internet Productive Reps Direct No Sacred Cows Innovative Products Highest Quality Most Effective Route To Market Lowest Cost New And Existing Customers
  • 80. ALPHA OMEGA CAPITAL PARTNERS Value Maximization You Don’t Risk Flying Without Feedback of Information Flight Plan Altimeter Compass Fuel Gauge Air Speed Indicator Oil Temp. Outside Temp. Tachometer Fuel Pressure
  • 81. ALPHA OMEGA CAPITAL PARTNERS Value Maximization Don’t “Fly” Your Business Without Measurements Learning & Growth Objectives Measures Targets Business Processes Objectives Measures Targets Customer Objectives ~ Measures ~ Targets Vision & Strategy If You Don’t Measure, You Don’t Control! Financial Objectives ~ Measures ~ Targets
  • 82. ALPHA OMEGA CAPITAL PARTNERS Value Maximization Leadership – Read It! Lead or get out of the way
  • 83.
  • 84. ALPHA OMEGA CAPITAL PARTNERS Supplier Problems? Value Maximization Declining Quality Limited (Uncertain) Supply Increasing Price Limited Negotiating Power DANGER SIGNS
  • 85.
  • 86.
  • 87. ALPHA OMEGA CAPITAL PARTNERS MGMT ISSUES: Escalating Benefit Cost Value Maximization
  • 88. I’m Seymour, the Big Cheese! I AM the BUSINESS! Deduct 15% - 30% from the value. ALPHA OMEGA CAPITAL PARTNERS Value Maximization MGMT ISSUES: Limited Depth If the Seller is the source of ALL knowledge, what happens? VALUE REDUCED QUICK EXIT is UNLIKELY !
  • 89. ALPHA OMEGA CAPITAL PARTNERS Every Key Person Should Have a CROSS-TRAINED BACKUP ! ‘ especially the owner’ Value Maximization MGMT ISSUES: Cross-Training (One Owner) Owner VP Finance VP Sales VP Operations Assistant Assistant Assistant Assistant
  • 90. Value Maximization MGMT ISSUES: Age of Workforce Matters ALPHA OMEGA CAPITAL PARTNERS Does this trend affect the value of your business? Trying to pass this problem on to the next owner?
  • 91.
  • 92.
  • 93.
  • 94.
  • 95.
  • 96. Value Maximization ALPHA OMEGA CAPITAL PARTNERS Cost of Goods Sold (COGS) Analysis Example: Dropping or Unstable Earnings ~ Vague Financials
  • 97. There are always alternative routes to market – Know Your Costs Value Maximization ALPHA OMEGA CAPITAL PARTNERS Dropping or Unstable Earnings ~ Vague Financials
  • 98. What Do Those Executive Perks Cost?...............Can You Prove What You Make? Value Maximization ALPHA OMEGA CAPITAL PARTNERS Dropping or Unstable Earnings ~ Vague Financials
  • 99.
  • 100.
  • 101.
  • 102.
  • 103.
  • 104.
  • 105. Our Workshop Objective: Planning Your Exit At Maximum Value Overview Part I: Valuation Methodology Part II: Considerations Before Selling Part III: Timing of the Sale Part IV: Value Maximization Part V: The Selling Process Part VI: How Much You Really Get ALPHA OMEGA CAPITAL PARTNERS
  • 106.
  • 107. Propose Marketing Plan Financial Analysis & Valuation Initial Consultation & Execute Listing Agreement Prepare Descriptive Offering Memorandum Screen Buyers & Coordinate Offer Implement Marketing Plan Due Diligence & Arrange Financing 1 2 4 5 6 8 3 7 Client Decides to Proceed or Retainer Refunded   ALPHA OMEGA CAPITAL PARTNERS The AOCP Selling Process ~ Duration: Six to Twelve Months ~
  • 108.
  • 109.
  • 110.
  • 111.
  • 112.
  • 113.
  • 114. Propose Marketing Plan 1 Week Financial Analysis & Valuation 2-3 Weeks Initial Consultation & Execute Listing Agreement Prepare Descriptive Offering Memorandum 3-4 Weeks Screen Buyers & Coordinate Offers 6-26 Weeks Implement Marketing Plan 2 Weeks Due Diligence & Arrange Financing 8-12 Weeks 1 2 4 5 6 8 3 7 Client Decision Proceed or Retainer Refunded End of Week #4 Latest   ALPHA OMEGA CAPITAL PARTNERS The AOCP Selling Process ~ Six to Twelve Months ~
  • 115.
  • 116.
  • 117. ALPHA OMEGA CAPITAL PARTNERS Void Agreement Return Retainer Establish Value Market & Sell Value Mentoring The Selling Process Value Too Low Value Acceptable Sign & Pay Retainer Decide! AOCP Value Coaching to Maximize Value
  • 118. Propose Marketing Plan 1 Week Financial Analysis & Valuation 2-3 Weeks Initial Consultation & Execute Listing Agreement Prepare Descriptive Offering Memorandum 3-4 Weeks Screen Buyers & Coordinate Offers 6-26 Weeks Implement Marketing Plan 2 Weeks Due Diligence & Arrange Financing 8-12 Weeks 1 2 4 5 6 8 3 7 Client Decision Proceed or Retainer Refunded End of Week #4 Latest   ALPHA OMEGA CAPITAL PARTNERS The AOCP Selling Process ~ Six to Twelve Months ~
  • 119. Domestic Competitors Complementary Markets Similar Foreign Markets Research PEG Objectives Proprietary Data Base Research Public Data Base Research Seller Suggestions Internet Research ALPHA OMEGA CAPITAL PARTNERS Marketing Planning ~ Buyer Search Process Capital IQ D&B Goldmine
  • 120. Propose Marketing Plan 1 Week Financial Analysis & Valuation 2-3 Weeks Initial Consultation & Execute Listing Agreement Prepare Descriptive Offering Memorandum 3-4 Weeks Screen Buyers & Coordinate Offers 6-26 Weeks Implement Marketing Plan 2 Weeks Due Diligence & Arrange Financing 8-12 Weeks 1 2 4 5 6 8 3 7 Client Decision Proceed or Retainer Refunded End of Week #4 Latest   ALPHA OMEGA CAPITAL PARTNERS The AOCP Selling Process ~ Six to Twelve Months ~
  • 121. Offering Memo Sample ALPHA OMEGA CAPITAL PARTNERS
  • 122.
  • 123. The Selling Process ALPHA OMEGA CAPITAL PARTNERS Our Electronic Approach Allows For Extensive Use Of Graphics After execution of a rigid NDA, every OM is accessible at the Client Log-In porthole of our website using a unique, encrypted password. Every OM includes a section with: Unadjusted Financial History, Common Size & Benchmarking, Adjusted Cash Flow, and Other Sections as needed. The Offering Memorandum
  • 124.
  • 125. Propose Marketing Plan 1 Week Financial Analysis & Valuation 2-3 Weeks Initial Consultation & Execute Listing Agreement Prepare Descriptive Offering Memorandum 3-4 Weeks Screen Buyers & Coordinate Offers 6-26 Weeks Implement Marketing Plan 2 Weeks Due Diligence & Arrange Financing 8-12 Weeks 1 2 4 5 6 8 3 7 Client Decision Proceed or Retainer Refunded End of Week #4 Latest   ALPHA OMEGA CAPITAL PARTNERS The AOCP Selling Process ~ Six to Twelve Months ~
  • 126. We Can Use Phased Marketing To Reach The Right Buyer At The Right Time To Maximize Value! Direct Mail To Strategic Buyers Telephonic Follow Up Direct Mail & Email To Financial Buyers (Private Equity Groups) Telephonic Follow Up Internet Advertising For High Net Worth Job Seeking Buyers Screening & Coordination Of Buyers ALPHA OMEGA CAPITAL PARTNERS The ‘Phased Marketing’ Option
  • 127. Propose Marketing Plan 1 Week Financial Analysis & Valuation 2-3 Weeks Initial Consultation & Execute Listing Agreement Prepare Descriptive Offering Memorandum 3-4 Weeks Screen Buyers & Coordinate Offers 6-26 Weeks Implement Marketing Plan 2 Weeks Due Diligence & Arrange Financing 8-12 Weeks 1 2 4 5 6 8 3 7 Client Decision Proceed or Retainer Refunded End of Week #4 Latest   ALPHA OMEGA CAPITAL PARTNERS The AOCP Selling Process ~ Six to Twelve Months ~
  • 128. “ A Value Differentiator” ALPHA OMEGA CAPITAL PARTNERS The Selling Process Our Approach is Different We Provide Monthly or Weekly Reports- at the Sellers Discretion Buyer Name And/or Company Buyer Status Pending FU
  • 129. Propose Marketing Plan 1 Week Financial Analysis & Valuation 2-3 Weeks Initial Consultation & Execute Listing Agreement Prepare Descriptive Offering Memorandum 3-4 Weeks Screen Buyers & Coordinate Offers 6-26 Weeks Implement Marketing Plan 2 Weeks Electronic Due Diligence & Arrange Financing 8-12 Weeks 1 2 4 5 6 8 3 7 Client Decision Proceed or Retainer Refunded End of Week #4 Latest   ALPHA OMEGA CAPITAL PARTNERS The AOCP Selling Process ~ Six to Twelve Months ~
  • 130. Our Approach is Different! Arrange Financing Appraisal Buyer Agreement Seller Agreement Need A Seller Note? “ We Are The Deal Management Police” The Selling Process Coordinating Due Diligence & Financing ALPHA OMEGA CAPITAL PARTNERS Due Diligence Meetings
  • 131. Our Workshop Objective: Planning Your Exit At Maximum Value Overview Part I: Valuation Methodology Part II: Considerations Before Selling Part III: Timing of the Sale Part IV: Value Maximization Part V: The Selling Process Part VI: How Much You Really Get ALPHA OMEGA CAPITAL PARTNERS
  • 132. What Is Your Definition of Deal Value? How Much You Really Get ALPHA OMEGA CAPITAL PARTNERS
  • 133. Deal Value Is Not Selling Price! Deal Value Equals The Present Value of the Real Dollars Realized After Adjustments, Taxes and Fees! What Is Deal Value? How Much You Really Get ALPHA OMEGA CAPITAL PARTNERS
  • 134. External Discount Factors – Terms of Sale How Much You Really Get ALPHA OMEGA CAPITAL PARTNERS Terms Price Parity
  • 135. External Discount Factors – Terms of Sale How Much You Really Get ALPHA OMEGA CAPITAL PARTNERS Notes Earn-Outs Escrows Guarantees Allocations No Debt Working Capital A Flexible Seller Gets A Higher Price Accept More Risk > Price
  • 136. External Discount Factors – Terms of Sale How Much You Really Get ALPHA OMEGA CAPITAL PARTNERS All Cash Walk Away Closing No Escrows No Guarantees Favorable Allocations Debt Assumption No Working Capital Price Drops As Buyer Risk Increases Dictate Terms < Price
  • 137. External Discount Factors – Terms of Sale How Much You Really Get ALPHA OMEGA CAPITAL PARTNERS DEFINITIVE SALE AGREEMENT Notes Earn-Outs Consulting Employment Real Estate Indemnifications Escrow Guarantees Allocations Debt Working Cap Commissions Taxes Legal Fees Non-Compete
  • 138. Terms of Sale - Notes How Much You Really Get ALPHA OMEGA CAPITAL PARTNERS Typical Historic Structure 1/3, 1/3, 1/3 Buyer Equity, Bank Equity, Seller Note Typical Seller Note Terms: 10 year amortization 5 year balloon Floating rate 1 – 2 points > Prime Security – 2 nd lien + personal guarantee
  • 139. Terms of Sale – Earn Outs How Much You Really Get ALPHA OMEGA CAPITAL PARTNERS Uncertain trends, or Buyer/Seller disagree on value Typical Terms: 3 years ≥ 50% guaranteed ≤ 50% based on performance Tagged to Revenues or EBITDA
  • 140. Terms of Sale – Employment How Much You Really Get ALPHA OMEGA CAPITAL PARTNERS Often coupled with Earn-Out, or PEG Buyer Typical Terms: Salary + Benefits Bonuses based on performance Stock options and/or gifts Employment agreement
  • 141. Terms of Sale – Consulting How Much You Really Get ALPHA OMEGA CAPITAL PARTNERS Actual work varies Zero time to a few months Typical Terms: Daily, hourly, weekly Allocated from selling price Buyer writes off as paid Formal agreement
  • 142. Terms of Sale – Non Compete How Much You Really Get ALPHA OMEGA CAPITAL PARTNERS Must be limited to be enforceable; Geographically, by product type, by customer Typical Terms: 3 – 7 years Allocated from selling price Amortization = 7 years Formal agreement
  • 143. Terms of Sale – Indemnifications How Much You Really Get ALPHA OMEGA CAPITAL PARTNERS Stock versus Asset Transaction Prior acts: Products, Employees, Environmental, Tax May require Escrows or Guarantees!
  • 144. Terms of Sale – Allocations How Much You Really Get ALPHA OMEGA CAPITAL PARTNERS Of Purchase Price to BS Items Accounts Receivable Inventory Fixed Assets Goodwill Tax Allocations greater than book value result in recapture of expense & taxation at income rates.
  • 145. Terms of Sale – Debt How Much You Really Get ALPHA OMEGA CAPITAL PARTNERS Stock versus Asset Transaction Stock Transaction: Buyer Assumes Debt + Other Consideration Transaction Value to Seller Asset or Stock Transaction: Full Enterprise Value w/o Debt - Seller debt payoff Net to Seller ¹ ¹ Seller sometimes keeps cash, AR & payable
  • 146. Your debt coverage ratio ≤ 133%. (most lenders require 125%) Internal return from debt ≥ alternative uses. When selling, less debt is better. (Transaction Value = market value less debt) Final Thoughts ALPHA OMEGA CAPITAL PARTNERS Your Balance Sheet - Debt
  • 147. Terms of Sale – Working Capital Adjustments How Much You Really Get ALPHA OMEGA CAPITAL PARTNERS Asset Sale Cash usually excluded AR may be excluded Inventory acquired at cost Stock Sale Current Assets = 2 times Current Liabilities Price adjusted up/down at closing.
  • 148. How Much You Really Get ALPHA OMEGA CAPITAL PARTNERS How Legal Structure Affects Taxes of a C-Corp C Corps are taxed as separate legal entities and have there own tax schedules, different from individuals’. C Corps must pay taxes first before distributing profits (Dividends) to shareholders. How to sell the Assets Sale of a C-Corp Without Double Taxation? Call AOCP. How Legal Structure Affects Taxes of a Sub S Corporation A Sub S corporation is a corporation which elects subchapter S tax treatment under the IRS’s Internal Revenue Code. This allows the corporation’s profits or losses to pass through to the shareholders and avoid double taxation.
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  • 150. 7202 Glen Forest Drive Ste 300 Richmond, VA 23226 Voice: 804.282.7680 www.aocp.com Thank You

Notas del editor

  1. WELCOME I am Tony Vincent, President &amp; Founder of AOCP. Introduce others in the room. Our job is to sell privately owned mid-market companies at maximum value. Depending on your time table, we’ll show you that this can mean selling at a deep discount compared to potential value; or It can mean selling at the highest price possible compared to your peer companies. B/F I go on, I’d like to explain the schedule for the workshop. Note that I said, Workshop. There will be exercises for each section of the presentation to help you focus what you are learning on your business. Rest Rooms Breaks Questions – after each topic, there we will take questions.