Private Equity 101 is the first presentation in a series of three events that discuss whether or not private equity is right for your company.

1. For Growth or Sale –
Is Private Equity Right for You?
Session 1 – Private Equity 101
February 13, 2014

2. Boris Gremont
Managing Partner

3. 101:
Demystifying
Private Equity

6. Willie Sutton

8. 600
$
Billion

10. What is
Private Equity?

11. First
Myth
Debt

13. Second
Myth
Layoffs

15. Third
Myth
Flip it

17. HIGH
RISK
STEADY
GROWTH

18. GROWTH
STRATEGIC
FINANCIAL

22. Carpeting Trends

25. 201: The Deal

26. 301: Obstacles

27. David H. Oden
Partner

28. What Does the Deal Look Like?
• Step 1: Confidentiality Agreement
– Agree to keep proprietary information confidential
– Can’t use the information except to analyze the
purchase
– Non-solicitation of employees

29. What Does the Deal Look Like?
• Step 2: Letter of Intent (LOI)
– Describes all material terms
• Deal structure
• Purchase price
• Other matters
– Too long v. too short
• Does it cover all “deal killers”?
– Legally binding v. non-binding
– Your point of greatest leverage

30. What Does the Deal Look Like?
• Step 3: Due Diligence
– Seller should fully cooperate
– Bad news will come out – get ahead of it
– Customer contact?

31. What Does the Deal Look Like?
• Step 4: The Purchase Agreement
– Stock purchase
– Asset purchase
– Merger
– Why and who cares?
– Common elements and indemnity

32. What Does the Deal Look Like?
• Ancillary Items
– Employment Agreements
– Consulting Agreements
– Non-compete Agreements
– Financial Advisory Agreements

33. What Does the Deal Look Like?
• Realistic Timetable
– Controlled by Buyer
– Frequent Seller frustration
– 2-3 months
– May take longer if……

34. Daniel Boarder
Transaction Advisory Services
Senior Manager

35. Maximizing Value Prior to Engaging in a Transaction
• Understanding the two components of
valuation
– EBITDA
– Multiple

36. Maximizing Value Prior to Engaging in a Transaction
• EBITDA
– Repeatable cash flows
– Quality of Earnings – Cash vs. Accrual basis of
accounting
– Quality of Assets (Net Working Capital)

37. Maximizing Value Prior to Engaging in a Transaction
• Multiple
– Market – What are similar companies selling for?
– Systems/data & Professionalization
– Operations
•
•
•
•
Customer concentration
Vendor concentration
Market – Is the sales market increasing/decreasing
Backlog and ability to meet customer demands

38. Deb Purvin
Senior Vice President – Corporate Banking

39. How Does the Deal Get Done?

40. How Does the Deal Get Done?
Highly Structured, Leveraged Finance
“…when a company is purchased with a combination of equity and
significant amounts of borrowed money, structured in such a way that the
target’s cash flows or assets are used as the collateral (or “leverage”) to
secure and repay the money borrowed to purchase the target company.
“As financial sponsors increase their returns by employing a very high
leverage (i.e. a high ratio of debt to equity), they have an incentive to
employ as much debt as possible to finance an acquisition.”
Source: Wikipedia

41. How Does the Deal Get Done?
Source: Wikipedia
High
yield /
Mezzani
ne debt

42. How Does the Deal Get Done?
What SURPRISES Business Owners?
“You’re not in Kansas anymore”
• Pace
• Structure and Controls
• Internal / Organizational

43. How Does the Deal Get Done?
• Pace

44. How Does the Deal Get Done?
• Structure and Controls
– Lots of Variables…
– Multiples, Industry, EBITDA, etc.
– Every Transaction is Unique
– “He who has the money, makes the rules”

45. How Does the Deal Get Done?
• Internal / Organizational Issues
– Operational Changes
– Management and Accountability

46. WHY Does the Deal Get Done?

47. WHY Does the Deal Get Done?

48. Jon P. Karp
Tax and Consulting Partner

49. Maximizing Value Prior to Engaging in a Transaction
• Tax Implications of Transaction
– Tax due diligence – State and Federal
– LLC/Partnership
– Corporations
– NOL Limitations

50. Maximizing Value Prior to Engaging in a Transaction
• Advance Tax Planning
– Ownership structure
– Estate planning and gifting – wealth preservation

51. Q&A, Next Steps
• Next Steps = Attend Sessions 2 & 3
– Session 2: April 3, 2014
– Session 3: May 8, 2014