sema 2011 marx group advisors "acquiring or selling: preparing your business to achieve maximum...
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The Art of
Buying & Selling an Aftermarket Business
PRESENTERS:
TOM MARX
CEO AND CO-FOUNDER
PAUL COOPERSTEIN
PRESIDENT & CO-FOUNDER
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Mergers & Acquisitions Advisors with over 25 years of experience in the Automotive, Performance,
Specialty, Heavy Duty, and Commercial Aftermarket
Consulting services
Brokerage: Buy-Sell-Merge
Equity and debt financing
Marx Group Advisors
© 2011 Marx Group Advisors
Marx Group Advisors
TOM MARX
• Business growth & marketing focus
• 25+ years industry experience
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PAUL COOPERSTEIN
• Venture capitalist & investment banker
• Business lawyer & mediation specialist
DAVE BARBEAU
• Parts distributor & aftermarket executive
• Industry management consultant
CHRISTINE LEMAy
• Business development manager
• International specialist
9 Associates in key regions:
Houston, Detroit, New York, Boston, Chicago, Northern California, Southern California, Florida, Phoenix
© 2011 Marx Group Advisors
MORE THAN JUST MEMBERS…
4 © 2011 Marx Group Advisors
TODAY WE WILL COVER:
1. Current state of the M&A landscape
2. Factors for considering selling or buying
3. Deal structures
4. Typical steps in the buy/sell process
5. Valuation methods
6. Perceptions of value – buyer & seller
7. Why hire an intermediary?
5 © 2011 Marx Group Advisors
Understand Your Short, Mid and Long Term Goals
6 © 2011 Marx Group Advisors
70% of all small and midsized businesses don’t sell after they are put on the market
7 © 2011 Marx Group Advisors
Current State of the M&A Landscape
• M&A activity increased starting Q4 2010
• Transactions are being hampered by low valuations, tight fisted banks and cautious buyers
• As competition for acquisitions increases, prices will rise
• We live in times of great uncertainty
8 © 2011 Marx Group Advisors
Sellers
9 © 2011 Marx Group Advisors
When Do You Know It Is Time to Sell?
• You are tired of the hassles
• You want to do something else in life
• Nostalgia – “It ain’t like it used to be”
• You aren’t sleeping at night
• You don’t want to talk with your spouse – or even your dog!
10 © 2011 Marx Group Advisors
What Do You Need To Do During the Sales Process
• Keep making profit
• Maintain adequate inventory, fill rates and margins
• Retain key people
• Keep customers happy
11 © 2011 Marx Group Advisors
What Financial Documents Do You Need to Prepare
• Up to date balance sheet
• Accurate inventory
• Recasted P&L
• Accurate EBITDA
12 © 2011 Marx Group Advisors
Buyers
13 © 2011 Marx Group Advisors
Why Buy?
• Take out a competitor
• Take out low price leader
• Organic growth isn’t enough
• Expand into regions or markets that allow you to grow your business
14 © 2011 Marx Group Advisors
Preparing for the Purchase
• Have strategic plan in place
• Identify focused target profile
• Have proof of financing lined up
• Have experienced management team available
15 © 2011 Marx Group Advisors
General Frameworks
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Typical Deal Structures
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Mergers
Acquisitions &
Divestitures
Joint Ventures
Mgmt. Buy-Out
© 2011 Marx Group Advisors
What Are The Typical Steps In Buying/Selling Process:
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STEPS IN SELLING:
• Pre-Deal Preparation
• Confidentiality Agreements
• Create Offering Memorandum
• Identify Buyers
• Letter of Intent
• Due Diligence
• Definitive Agreement
• Close
• Post-Close Execution
STEPS IN BUYING:
• Evaluation of Transactional Assumptions/Marketplace Assessment
• Financing/Equity Partners
• Target Selection
• Confidentiality Agreements
• Letter of Intent
• Due Diligence
• Definitive Agreement
• Close and Integration
© 2011 Marx Group Advisors
Why Hire an Intermediary or a Succession Planning Expert
• Having someone else find buyers or sellers and negotiate the deal reduces emotions and usually results in higher sell price
• Focus on what you do best: running your business
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“I don’t do my own dental work.”
© 2011 Marx Group Advisors
Reducing the Stress
• Full disclosure of all positives and negatives
• Timely review and response
• Carefully think through all responses so they are complete and accurate
• Have an intermediary do the heavy lifting
20 © 2011 Marx Group Advisors
Cashing In Does Not Always Mean Selling Out
• Stay on in some fashion (if you choose)
– Employee
– Consultant
– Run the business for a defined period of time
• Grow the business with someone else’s investment
• Join acquirer’s team/help them build their business
21 © 2011 Marx Group Advisors
Valuation
22 © 2011 Marx Group Advisors
The Value Lies in the Eye of The Beholder
• Buyer vs. seller
• Sale to company management
• Passing down to family member
• Sale to privately or publicly held company
• Book value
• Industry standards, benchmarks, trends
23 © 2011 Marx Group Advisors
Potential Factors That Increase the Value
Strong revenue & profit growth = higher multiple
Above average margins= higher multiple
Strong buyer marketplace = higher multiple
Valuable assets = higher value
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Potential Factors that Reduce the Value
• Long term debt
• High level of goodwill compared to assets and net income
• High percentage of aged receivables
• Dominance of a few customers
• Lower operating margin than that of buyers
25 © 2011 Marx Group Advisors
Increase the Value of Your Business
26 © 2011 Marx Group Advisors
How to Increase the Value of Your Business if You Are a
Retailer
• Is your store front clean?
• Is your inventory current?
• Are your counter people customer centric and well-informed about products?
• Are uniforms, signs, trucks in good shape?
• Is branding consistent?
27 © 2011 Marx Group Advisors
How to Increase the Value of Your Business if You Are a
Distributor • Have you cleared dead inventory?
• Are the financials up to date and accurate?
• Are margins sufficient to generate profit?
• Do you have a niche that separates you from other distributors?
• Are counter people trained to develop relationship with customers?
• Are your IT systems updated so you can process orders online?
28 © 2011 Marx Group Advisors
How to Increase the Value of Your Business if You Are a
Manufacturer
• Is the concentration of customers well-distributed (i.e. not top-heavy)?
• Did you get obsolete equipment off your books?
• Do your marketing programs truly state your value proposition
• Do you have competitive pricing?
• Do you continually introduce new and innovative products?
29 © 2011 Marx Group Advisors
How to Increase the Value of Your Business if You Are a
Repair Shop
• Do your service advisors have excellent customer service skills?
• Are your technicians using the latest diagnostic equipment
• Are waiting rooms and bathrooms clean and inviting (to both men AND women)?
• Are repairs completed on time and on budget
• Are you able to green face your business?
30 © 2011 Marx Group Advisors
Getting Paid
31 © 2011 Marx Group Advisors
TYPICAL PAY OUT STRUCTURE
• Typically 50%+ paid at closing in cash, balance debt/equity
• Earn-out based on multiples of earnings
• Earn-out based on revenues
• Additional payments over 2 – 5 years based on meeting profit targets
• A kicker for revenue growth
• A hold-back if key customer is lost; key metric is missed; or if AR is uncollectible
• Seller financing
32 © 2011 Marx Group Advisors
Getting Paid: Other Options for Owners
• Management Buyout
• ESOP
• Mezzanine/Equity Partner
• Deferred Compensation Payment
33 © 2011 Marx Group Advisors
Deferred Payment
• Company buys back stock – resells to management
• Payout over time – 5 to 10 years
• Secured by life insurance – in case something happens to principals
• Avoid bank borrowing – hopefully, financed by company cash flow
• Includes sale to family members
34 © 2011 Marx Group Advisors
What to Look For When Hiring a Broker or M&A Consultant
• Industry knowledge
• M&A experience
• References
• Intelligent strategy
35 © 2011 Marx Group Advisors
Summary
• Preparation = Increased ROI
• Buyers & Sellers need to understand each others’ perceptions
• Make sure you understand the basics
• Don’t do this alone – get the support of professionals WHO HAVE EXPERIENCE and KNOW YOUR INDUSTRY
36 © 2011 Marx Group Advisors
If you would like a copy of this presentation or further information on buying or selling, please contact us below:
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TOM MARX 415.453.0844 ext. 106
tmarx@marxgroupadvisors.com
Paul Cooperstein 617.328.7333
pcooperstein@marxgroupadvisors.com
www.marxgroupadvisors.com
BOSTON SAN
RAFAEL HOUSTON DETROIT
NEW YORK
FLORIDA PHOENIX
Marx Group Advisors are located nationwide:
THANK YOU
© 2011 Marx Group Advisors
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