Best Practices in Incentive Due Diligence. IEDC Annual Conference 2014

1. BEST PRACTICES IN
INCENTIVE DUE DILIGENCE
IEDC Annual Conference
Fort Worth, TX
October 21, 2014

2. About Us
• Business Development Advisors is an economic
development consulting firm
• Works with leaders at the local, state and national levels to
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increase business investment and job growth in their communities
• Founded 1999
• Smart Incentives helps communities make sound
decisions throughout the economic development
incentives process
• Due diligence and business case analysis for incentive projects
• Processes for monitoring compliance and evaluating effectiveness
• Launched 2013

3. Smart Incentives 4x4 Framework
Recipient
Deal
Compliance
Effectiveness
Data and
analysis to
enable better
decision-making
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Greater
transparency
and
accountability

4. Incentives and Due Diligence
• Incentives should be used to accomplish community goals
– not just win a deal.
• Incentives are part of a community’s financing toolkit and should be
used and evaluated in that light
• Incentives policy is one element of a business attraction strategy,
which is one element of a good economic development strategy
• Why due diligence is important
• To reduce risk
• To understand if an incentive deal can generate net benefits for
your community
• To refine strategies and recommendations
• To explain and build support for decisions
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5. Due Diligence on Prospective Companies
• Recipient
• Background research on the applicant
• Deal
• Business case analysis of the project
• Cost-benefit analysis for the community
• Project benefits
• Economic & fiscal impact analysis
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6. 6
Recipient: Background Research
• Why?
• The more you know about a company, the better deal you can
create for both the business and your community
• To minimize the damage associated with problem prospects
• What you need to know
• Company facts: location, year established, revenue & employees
• Description of their products or services
• Location of existing operations
• Executive or owner background
• Recent news

7. Recipient (2)
• What else you should know:
• Major customers
• Growth projections and strategies
• Recent restructuring and management changes
• History of past incentives negotiations
• Ownership details
• Company credit rating
• Financial structure
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8. Recipient (3)
• Research resources
• Business directories (not just one)
• Hoover’s – 40,000 companies
• Reference USA – 14 million US businesses
• LexisNexis – 43 million companies
• News aggregator and search sites
• Local business journals
• SEC’s EDGAR for public companies and prospectuses
• Experian, D&B for credit ratings
• State corporation commissions
• Social media accounts, blogs
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9. Deal: Business case analysis
• Why?
• What could possibly go wrong?
• Understanding “the pitch” versus “the reality”
• What you need to know – Seven M’s Model
• Market
• Market size and growth - verify
• Management
• Who leads the company
• Who is in charge of the project
• Magic
• Why do they think they will be successful?
• What factors are critical to their success?
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10. Deal (2)
• What you need to know (cont.)
• Model
• Get specifics on their revenue model
• Be clear on their sales model
• Money
• Who else is financing the project?
• Financial projections
• Momentum
• What are the risks to the project’s execution
• Match
• Why do they think your community is a good match?
• What benefits do they bring to your community?
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11. Contact Information
Ellen Harpel
President
571/212.3397
eharpel@businessdevelopmentadvisors.com
www.businessdevelopmentadvisors.com
ellen@smartincentives.org
http://www.smartincentives.org/
Twitter: @SmartIncentives
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