exit-selling biz for max price_wsco

7/29/2019 Exit-Selling Biz for Max Price_WSCo

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Exit:

SellingYour

BusinessFor

MaximumPrice

Jason N. WilcoxFounder and Managing Director

Wilcox | Swartzwelder & Co.

www.WS-ibank.com

2010 Wilcox Swartzwelder & Co., LLC. All rights reserved.


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www.WS-ibank.comPage | 2

2010 Wilcox Swartwelder & Co., LLC. All rights reserved.

IntroductionHave you considered selling your business? Virtually all business owners considerselling their company at some point. A sale is a normal occurrence. Owners take great

risks in building their businesses and wanting to reap the fruits of their labor is natural.

Selling a Business Is a

Life Impacting Decision

Deciding to sell the company in whichyou have labored and invested will beone of the most important businessdecisions you will make; the outcome ofwhich will impact your life, financiallyand emotionally, and can possibly affectyour descendants lives.

Successfully Selling a Business

Is a Systematic Process

Therefore, it is important to understandthe process. Selling a business is nothaphazard or random. Following asystematic process will greatly increasethe odds of achieving your goals anddecrease the odds of a failed sale.Knowing a few basics will help youdetermine whether you are ready topursue a company sale and how toachieve the best deal. Also, professionalassistance can be quite valuable in thesematters and is highly recommended.

Booklet Written For Business

Owners and Entrepreneurs

This booklet is written for the businessowner and entrepreneur whoseultimate objective is to exit the businessfor maximum price. The bookletprovides a brief education on sellingyour business. It raises questions youshould ask of yourself and of yourbusiness. It helps you assess whether

you and your company are prepared. Itprovides a roadmap so the process willnot seem overwhelming or mysterious.It also gives direct advice on specificactions to take.

Whats Inside?

This booklet is based on my experience

as an investment banker working withentrepreneurs and owners who havesuccessfully, and sometimesunsuccessfully, sold their business. Thebooklet is organized to answer thefollowing questions:

Why Sell My Business? PrimaryReasons Why Business Owners Sell

When is the Best Time to Sell MyBusiness? Knowing When to Sell

How Much is My Business Worth?Only the Market Knows - ValuationMethodologies and Estimates

Who is the Best Buyer? Finding theBuyer that Meets Your Goals

Is the Business Ready to Sell?Getting Prepared BeforeCommencing a Company Sale

How Does My Business Rate? TheWilcox Group 10 Point BusinessScorecard

How Do I Sell My Business? EnsuringMaximum Price and a SuccessfulTransaction

The stakes are high, but the outcomecan be very rewarding. Going about acompany sale correctly will paydividends.


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Why Sell My Business?Primary Reasons Why Business Owners Sell

At some point every business owner confronts the prospect of selling the business.Selling a business is as much a personal decision as it is a financial decision and thedecision making process can be quite emotional. A transaction advisor, such as aninvestment banker, can provide an unemotional, objective perspective, which can bequite beneficial. In the end a successful sale can be quite liberating. There are manyreasons for selling a business.

Liquidity and

Diversification of Wealth

Often the majority of an owners wealth

is tied up in the business, which is anilliquid investment. Underlying thiswealth are the constant inherent risksassociated with business performance,which can change and dramaticallyaffect the owners financial position.

Retirement

After spending so much time andinvesting so many resources to build a

successful company, many owners wantto enjoy the fruits of their labor, pursueother passions or spend more time withfamily.

Need For Expansion

Capital and Other

Operational Resources

To support continued growth,

businesses need to reinvest inthemselves, and sometimes, thisinvestment can be significant in termsof dollars, managerial talent andoperational resources. Often, externalcapital is limited, which results in theowners supporting the growth fromtheir own pocketbooks.

Succession Planning

Handing the reins to a successor is oftenquite difficult after having spent anumber of years building the businessas well as having most of ones networth tied up in it. Additionally, manytimes family members show no realinterest in continuing with the businessafter having seen the sacrifices

A sale allows you to leave the

business on your own terms and

deliberately move to the next stage

o our li e.

Through a sale you can realize the

companys value, obtain liquidity,

rationally allocate proceeds among

a diversified set of holdings and

eliminate all ongoing business risk.Best of all, you will have money to

spend as desired and can obtain

peace of mind and security with a

more balanced portfolio.

A sale to a well financed buyer can

provide the funds to finance

continued growth as well asadditional necessary resources.

Further, there is no more enticing

place for larger companies and

financial groups to invest than in a

smaller company with great growth

potential.


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required. Studies by the Small BusinessAdministration and The Wharton Schoolat the University of Pennsylvania haveshown that less than 30% of businessesend up in the hands of the second

generation and less than 10% make it tothe third generation.

Strategic Move

Various industry dynamics, such asconsolidation among suppliers,customer or competitors, may result inuncertainty and increased competition.Without making substantial changes thebusiness could become at risk.

Differing Goals Among Owners

In companies with multiple owners,differing goals and visions sometimesdevelop, which can cause friction,conflict, or at a minimum, lack of cleardirection and stalemate.

Desire to Reduce Fatigue

Or Address Health Concerns

Over time as the business changes,fatigue can occur in which the owner

becomes tired of the ongoingadministrative headaches and businessrisks. Often, the owners role haschanged from performing the job heenjoys, such as sales or engineering, toadministration. Further, during thecourse of building and operating abusiness, sadly some owners facevarious health issues that hinder theirperformance or that are exacerbated bythe responsibilities and demands ofoperating their business.

Estate and Tax Planning

Valuing a private business is a difficultproposition, especially after the death ofthe owner. Without proper estateplanning, heirs may face a large tax billwithout having the financial resourcesto pay it. Likewise, heirs may face otherfamilial strains as they determine thebest course of action with regard to thecompanys future and the inheritance.

By selling as part of the estate plan,

you provide for your heirs and reduce

the burdens and potential for family

conflicts. Most importantly, you will

have received a much higher value for

the company as compared to a quick

sale or liquidation after death.

A sale allows you to pass along your

administrative headaches to a new

buyer, reduce the stresses brought on

by the business and can free you to

refocus your effort on what you enjoy

or on your personal health and

welfare.

A sale is a very effective method for

dealing with succession issues and it

provides for the continuity of the

business benefiting its employees,

customers, suppliers and other

stakeholders.

Often, a sale is a way to deliver a

positive outcome that is palatable to

all owners before the business suffers

and loses significant value.

A sale provides you the opportunity to

place the company in the hands of a

buyer that is better positioned

strategically and financially and allowsyou to step out of the situation intact.


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When is the Best Time to Sell?Knowing When to Sell the Business

Timing is one of the most important factors in achieving a successful sale. So how do youknow when the best time to sell occurs? The best time to sell a business is when you have

no need to do so, when the company has demonstrated solid performance and the future

looks bright. You should also rely on your investment banker, who can provide insightful

information regarding market trends and assist in judging the best time for you to sell based

on your situation.

Sell When the Business

Is Performing Well

and Prospects are Bright

Buyers are attracted to a successful trackrecord. Further, buyers are attracted to

perceived future upside. You should not

be overly concerned about leaving this

future growth for the buyer as you will get

compensated for it through the premium

paid. Bottom line: Sell when things are

going well and the future is promising.

Five Timing

Factors to Consider

There are five primary factors to consider

as you are thinking about timing a sale.

Rarely do all these factors peak

simultaneously, so judging them on a

relative basis is important. However,

timing a sale when the general momentum

is in your favor improves your odds of

achieving a high price. The five items to

consider include:

Macroeconomic Conditions: Astable or growing gross domestic

product, relatively low inflation and

low interest rates provide fundamental

support to a healthy economy,

confidence and deal making.

Industry Trends: Positive underlyingtrends, such as a strong growth cycle,

related to your companys industry

often correlate with heightened levels

of acquisition activity and high

purchase prices.

Company Performance andProspects: The ability to credibly

demonstrate a successful historical

track record of earnings along with

bright future prospects will generate

the most interest from buyers. More

interest from buyers often leads to

competitive bidding, thereby providing

the leverage to achieve the highest

price.

Capital Flows: When there is anabundance of capital from strategic

buyers, financial investors and lenders

competing for deals, the market

becomes very liquid, sometimes

frothy, which fuels transaction activity

and high valuations.

Merger and Acquisition Activity:An active merger and acquisition

market is the manifestation of the

interworking of these factors and

signals that deals are being completed

at compelling prices.


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Other Points to Note

Quality companies with uniquecompetitive advantages, a strong

market position within their niche,

growth prospects and solidmanagement are successfully sold in

just about any market.

Buyers generally pay based on trailingtwelve months earnings and expected

future earnings. So, if company

performance has recently declined, you

should not anticipate buyers paying

based on some level of past average

earnings achieved. Sell before this

happens.

The typical company sale is a complexand lengthy process, taking six to nine

months, or longer. You should sell

your business only when you are

personally committed to the process,both mentally and emotionally. Given

the number of deals buyers review and

their limited transactional resources,

they will not waste their time with

uncommitted sellers. Aligning good

business performance and personal

commitment puts you in a position of

strength, which provides the greatest

opportunity for successfully achieving

your goals.


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How Much is My Business Worth?Only the Market Knows - Valuation

Methods and Estimates

For public companies, an active trading market determines a companys value.However, for private companies, there is no liquid auction market to daily attributevalue to the company. For private companies, a market must be created in order todetermine value.

Creating a Competitive Market

Is the Only Way to Determine

the Actual Maximum Value

In order to obtain the actual maximumvalue for your company, you must run atransaction process that generatesinterest among buyers and creates acompetitive market. Correctlyorchestrating a transaction process andcreating a competitive market is one ofthe most important functions yourinvestment banker provides.

A well constructed market is composedof multiple qualified buyers. Just aswith art, beauty is in the eye of thebeholder when determining acompanys value the buyers eye.Different buyers will have varyingmotivations about why they would liketo buy your company and how muchthey are willing to pay.

No valuation study or analysis can give

you the actual market value of yourcompany. Until you build a market andsee buyers opinions of value firsthand,any preliminary valuation is simply anestimate.

Estimating Business

Value Before a Sale

However, before commencing the sale

of your company, one of the key factorsyou will want to determine is anestimated price range a buyer could payfor your business. It is important to gothrough the exercise of estimating thevalue of your company so you can havean idea of the prices you can expect andthe underlying rationale for thoseprices. An investment banker orvaluation specialist can assist you in thisexercise.

Before committing to undertake theprocess of selling a business, you needto be realistic about price. Otherwise, ifyour price expectations are out of linewith the market, the process will be fornaught and a significant waste ofresources and time.

Businesses Are Valued

On Earnings Past andFuture Expectations

Simply, businesses are valued and soldbased on their ability to generateearnings. It is paramount for you tocredibly demonstrate and clearlycommunicate both historical and future


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earnings of the company. Since mostvaluation methodologies are based onevaluating earning potential, much timeand preparation should be spent in thisendeavor.

Valuation Methods and Tools

There are a number of important toolsand methods to help determineestimated value. By using thesemethods, you can derive a range ofestimated values, which shouldapproximate the actual value achievedthrough a company sale. Further,buyers will use the same methodologies,

so it important to understand what goesinto each. The following provides abrief description of the primarymethodologies.

Earnings Based Approaches

Ultimately, buyers are concerned aboutfuture earnings. There are manymethodologies, short-cuts and rules of

thumb to determine value based onfuture earnings. The three primarymethods are discounted cash flow,leveraged buyout and capitalization ofearnings analyses.

Discounted Cash Flow (DCF)Analysis. This method projects theexpected earnings capacity andeconomic benefits of your businessinto the future, as viewed by the

buyer, and uses a discount rate toderive a net present value today.

Leveraged Buyout Analysis. Thisis akin to the discounted cash flowmethod and is used by privateequity groups. By assuming acertain capital structure (debt and

equity), projected earnings and rateof return hurdle, they calculate animplied value.

Capitalization of Earnings. Thesemethods include a myriad ofvaluation ratios: price to earnings,earnings before interest, taxes,depreciation and amortization(EBITDA) to enterprise value, priceto cash flow, price to book value andthe list goes on. Basically, thesemethods apply some factor to anearnings level to derive a valuation.

Market Based Approaches

The market provides an accuratepredictor for price. You can obtain asense of valuations by reviewing tradingand transaction activity for both publicand private companies. Note thevaluation benchmarks use the earningscapitalization methods discussedpreviously.

Comparable Publicly TradedCompany Analysis. This methodapplies current market valuationmetrics and ratios of publicly tradedcompanies to a private company inorder to imply the value. The publiccompanies used in the analysis mustbe comparable in nature amongthemselves and to the sellersbusiness. Since the comparablepublic companies tend to be larger

than the sellers business and theirsecurities are freely tradable in anopen market, a discount generallyranging from 20% to 50% must beapplied depending on thecharacteristics of the sellersbusiness.


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Precedent Merger and Acquisition(M&A) Transaction Analysis. Thismethod takes a sample set ofpreviously completed M&Atransactions for companies that are

similar in nature to the sellersbusiness. This sample set providesvaluation benchmarks that can beapplied to the sellers company toderive a value.

Concluding Thoughts

On Company Valuation

Estimating company valuation is moreart than science. As a seller, it is

important to establish your priceexpectations prior to embarking on acompany sale.

Additionally, a buyers purchase price isbased as much on perception as fact. Itis important to clearly present to thebuyer credible historical financialinformation as well as demonstratecompelling future earnings potential foryour company.


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Who is the Best Buyer?Finding the Buyer that Meets Your Goals

Determining the best buyer makes sense only in context with your goals. Some ownersmay want to exit completely as soon as possible. Others, who are active in theoperations, may prefer to find a buyer with whom he can continue his involvement,having achieved meaningful liquidity from the business through a partial sale. Someowners may be looking for both a substantial liquidity event as well as an ongoingfinancial or strategic partner for pursuing growth opportunities, such as an acquisitionor other strategic initiatives. Other owners are concerned about leaving a legacy for theemployees and other stakeholders. Of course, underlying these goals is theachievement of a satisfactory purchase price.

Clarifying your goals in advance helps to determine the best buyer. Your investment

banker can help you clarify your objectives, assist in extensively researching andqualifying potential buyers and provide advice about the best buyer based on yoursituation.

A Suitor Is Not

Necessarily a Buyer

Regardless of the type or specificcharacteristics of potential buyers, theymust be qualified, demonstrating theirability to pay and a track record ofsuccessfully closing transactions. Asuitor is not a buyer without those twofactors substantiated. Simplistically,there are three types of buyers.

Strategic or Corporate Buyer

A corporate buyer may highly valueyour business due to some strategicreason, such as market position,

technology or customer base, and itsability to exploit various synergies tocreate shareholder value. Selling to astrategic buyer can offer your companya number of resources to which youmay not have previously had access andcan help it pursue its growth plans.Further, selling to a strategic buyer

provides immediate liquidity to you aswell as frees you from the ongoingbusiness risks.

The best strategic buyers are those thatare not directly competing with yourcompany currently, but are searching

for a way to obtain a strong marketposition within your niche. They maybe domestically focused or internationalplayers. They may be in an adjacentniche and are trying to determinewhether to spend the time andresources to create your nextcompetitor or whether to buy aplatform company, such as yourcompany, within your niche buyversus build analysis. Companies

acquired as industry platformsgenerally realize premium purchaseprices. Additionally, strategic buyerscan often justify paying premium pricesdue to the various synergyopportunities they expect to garner.


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Private Equity Group/

Financial Investor

A private equity group aggregatescapital from institutional investors, such

as pensions and endowments, with amandate to maximize returns byinvesting in privately negotiatedtransactions. They are not operatorsthemselves, but their strategy is tomake investments in companies inwhich they can partner with qualitymanagement teams and assist ingrowing the business. Private equitygroups generally purchase a majority orcontrol position in the company and theexisting owner often maintainsmeaningful minority ownership. Due tothe structure of these private equitypartnerships, they often invest with athree to five year horizon until they sellthe company. During this period, theyare singularly focused on creatingmaximum value and all the owners,including the owners who reinvested atthe time of the initial sale, participate in

this return.

A sale to a private equity group offersyou immediate liquidity for a portion ofyour ownership as well as provides theopportunity for a future return based onthe companys performance and theamount of equity you leave in thebusiness at the time of the transaction.With this structure you can remainactively involved in the business, but

have a partner to lean on as thecompany pursues its strategies. Someowners view this type of transaction as

a transition stage before completelyexiting the business.

Conversely, in the case of a managementbuyout, if your management team is

interested in pursuing the purchase ofyour company, a private equity groupcan provide the capital to support thisacquisition. In effect, the private equitygroup partners with your managementteam and the buyout allows you to exit.

Competitor

When identifying potential buyers for abusiness, many owners believe the

logical ones are their direct competition.Generally, this is wrong. Competitorsbelieve they can grow and expandmarket share at a much lower cost thanthe purchase price of your business.Plus, they understand the operationaland industry dynamics inherent in asimilar business and they can be quiteskeptical of your prospects. Often,when a competitor makes an offer topurchase, it is on the low end of therange of offers received.

You must be very careful whenapproaching a competitor to buy yourcompany. Doing so puts you at a highrisk of divulging confidentialinformation that the competitor coulduse against you later, especially if thedeal falls through. A tire-kickercompetitor is very dangerous. To the

extent you decide to approach a directcompetitor during a sale process, itshould occur only after you havereceived genuine interest from otherlegitimate parties.


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Is the Business Ready to Sell?Getting Prepared Before

Commencing a Sale Process

Just like when you embark on offering a new product or service, you prepare the planand muster the resources required for success. Similarly, a key element in obtaining ahigh purchase price and reaching your transaction goals is preparation. There are anumber of preparatory actions you can take that can significantly and positively affectthe outcome of a sale transaction.

Put Yourself In the

Buyers Shoes

As you prepare, put yourself in thebuyers shoes. Remember that anythingyou can do now that will elevate abuyers impression of the business willbenefit you. Attracting buyers andclosing a transaction is difficult, soupfront preparation is crucial formaking the company as inviting andunderstandable as possible as well asreducing transaction risks.

Perform a Strengths,Weaknesses, Opportunities,

Threats (SWOT) Analysis

A SWOT analysis is a helpful selfassessment tool, identifying andevaluating the companys strengths andcapabilities, its competitive marketposition and its future potential. Byworking through each of these factors,

the seller can be much more deliberateabout how to best position his company.Also, this assessment exercise helps aseller refine and clearly articulate theseitems to a buyer. Additionally, thebuyer will often use a similar analysis.

Build a Capable

Management Team

A company with an experiencedmanagement team is worth much morethan a business that is reliant upon theowner. One of the most valuable areason which to focus is building a tier ofmanagement that can sustain thebusiness and can survive your absence.Buyers generally want the owner toremain for at least some transitionalperiod, but they also want to knowthere is competent talent that can

assume control.

Obtain an Audit

An audit prepared by an objective, thirdparty accounting firm provides a highlevel of credibility to your companyshistorical financial performance. Anaudit provides a level of confidence tothe buyer and reduces the buyers fearthat what he is buying may be a fiction.An audit provides a seal of approval tothe buyer that you manage yourcompany with sophistication and havethe appropriate level of financial andaccounting policies and procedures inplace. Also, given disclosure andcompliance requirements, such as


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Sarbanes-Oxley, for publicly tradedcompanies, an audit is sometimesrequired before a public company willmake any purchase. Although, an auditcosts, think of it as an investment that

will pay off by providing credibility,reducing time related to buyer duediligence, providing a credible financialbasis for valuation.

Favorably Recast Financials

Since so much of the ultimate purchaseprice is based on historical and futurefinancial performance, it is crucial tocredibly, clearly and understandably

present the companys financialsituation to the buyer as positively aspossible.

Most owners operate their business tominimize taxes, rather than maximizingearnings, and run a number of expensesthrough the company for their ownpersonal benefit. Therefore, recastingthe financial information makingvarious adjustments and add-backs willaid in showing the companys trueearnings generating power.

Note that if a company is purchased fora multiple of six times its operatingearnings, any additional dollar you candemonstrate relates to six times thatdollar in purchase price.

Properly documenting the companys

finances, including any adjustednumbers, is important. The buyer willnot purchase something that the sellercannot document.

Clean the House

Just like preparing to sell a house, thereare a number of housekeeping itemsthat should be cleaned up prior to

marketing the company for sale. Notethat a buyer will send in his duediligence team to review these items.Better for you to deal with themproactively and get your business inorder now instead of having to dealwith them during a transaction. Belowis a brief list of the ones that occur mostoften:

Accounts Receivable Write-offstale receivables that have littleprobability of collection.

Inventory Write-off or mark downold, slow moving or obsolescentinventory.

Personal assets Remove personalassets not germane to the businessfrom the balance sheet.

Capital Equipment Ensure thatequipment has been well maintainedand maintenance records are inorder.

Facility Clean the physical plant,repaint, organize the yard, make anysignificant repairs.

Environmental, Employee, Tax andLegal Matters Ensure records areproperly documented and resolveany material outstanding issues.


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Hire Your Team

Of Experienced Advisors

Buyers are experienced andsophisticated, typically having

purchased multiple companies. As anowner, you have been focused onoperating and growing your company,not buying or selling businesses.Therefore, assembling a team ofexperienced transaction advisors thatcan be on your side is important.Typically, these advisors include an

investment banker, corporate securitiestransactional attorney, accountant, taxadvisor and a wealth manager.

Selling a business is complex. You

would not perform surgery on yourselfor represent yourself in court. Why riskjeopardizing something as important asselling your business? Assuming yourteam has a good track record, the valuethese advisors contribute will be fargreater than any fees paid.


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How Does My Business Rate?The Wilcox Group 10 Point Business Scorecard

When preparing for a company sale, an important step is assessing areas of strengthand areas for improvement. The Wilcox Group 10 Point Business Scorecard below willhelp you rate your business on a scale of 1 to 5, with 5 being exceptional. Note thatbelow each point is a set of general questions to help you evaluate the company rating.Very few companies rate a 5 in all categories. However, the closer you can move yourcompany to a score of 5 will stack the deck in your favor, resulting in a larger set ofgenuinely interested buyers and a higher purchase price.

1. Market Share Within Niche and Competitive Advantages

Is the company focused on a definable niche(s)? Does the company have a leadingmarket share? Is the companys reputation favorable? Does the company have specificcompetitive advantages relative to competition (brand, technology, know-how, low coststructure, etc.)?

2. Management Team Strength

How capable is the management team? Does the company have a solid second tier ofmanagement? Could the management team successfully operate the business if theowner departed? Is there a successor identified?

3. Future Business Prospects

Are growth opportunities clearly identified, realistic and achievable? Would growthprospects and growth rate be compelling relative to the companys industry? Whatlevel of capital and labor investment is required to successfully pursue the growthopportunities?

1 2 3 4 5

1 2 3 4 5

1 2 3 4 5


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4. Customer Quality

Are customers considered high quality within the companys sector? Is the customerbase diversified among a number of customers without undue concentration? What isthe duration of customer relationships? Are there repeat customers or contracts inplace? Are customers financially healthy and do they pay timely?

5.Asset Quality

Has the company adequately invested in and routinely maintained facilities and assetbase? What is the age of asset base? Does the asset base provide any technological orproduction advantages relative to competition? How much capital is required tomaintain the asset base?

6. Employee Base

Is the employee base well qualified? How much turnover occurs relative to theindustry? What is the tenure of employees? Are employee compensation and benefitscompetitive? What is the relative ease of attracting new employees?

7. Supplier Quality

What is the quality of the relationship with primary suppliers? Are there other supplyalternatives if required to pursue those? Are there satisfactory supply agreements orcontracts in place?

1 2 3 4 5

1 2 3 4 5

1 2 3 4 5

1 2 3 4 5


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8. Financial Performance Income Statement

Is the company generating solid revenue growth, controlling costs and deliveringappealing margins? Is there continued visibility of revenue and earnings into thefuture? How does return on capital, assets and equity compare to industryparticipants?

9. Financial Performance Balance Sheet

What is the quality of the balance sheet, especially working capital accounts (accountsreceivable, inventory, prepaid accounts, accounts payable and other accrued payables)?Are there items that should be written down, written off or cleaned up?

10. Specific Risks or Areas for Concern

Are there any material legal, tax, employee or environmental risks outstanding? Canthey be resolved? What is the probability of a detrimental outcome and can it bequantified financially? Is all the related and necessary documentation complete andaccessible?

Scoring Guidelines

The Wilcox Group10 Point Business Scorecard is necessarily qualitative and all pointsmay not be applicable to your company. However, the scoring below offers a guidelineand can be adjusted according to your companys situation.

Score Description

40-50 You are in a favorable position and should feel confident inproceeding with a company sale.

30-39 There are a few items that could be improved prior to a sale, butwith some effort, you will be ready to proceed.

Below 30 Focus on making the necessary improvements before proceedingwith a company sale.

1 2 3 4 5

1 2 3 4 5

1 2 3 4 5


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How Do I Sell My Business?Ensuring Maximum Price and a

Successful Transaction

There are two elements of a successful transaction: obtaining the maximum purchaseprice and finding the right buyer that meets your goals. Achieving these two elementsrequires aggressively implementing a well planned, systematic marketing approachtargeting multiple qualified buyers to build a competitive market. Your investmentbanker should be highly skilled in these matters, thereby generating substantial value.

Why Is Creating a Competitive

Market So Important?

Creating a competitive market putspressure on potential buyers to offertheir best deal. The seller maintainsthe leverage pitting buyers againstone another in order to achieve adesirable outcome. Less aggressivebuyers tend to fall away and theprocess whittles the list of potentialcandidates down to the seriousbuyers.

Building a competitive marketallows the seller to simultaneouslyevaluate multiple bids, dealstructures and potential buyers,putting him in a position of strengthto decide which opportunity is bestto pursue.

Building a competitive marketallows the seller to view a broadrange of possible offers. In a

competitive bid situation, it iscommon for the differential fromlow to high bid to be more than50%. Imagine how much money aseller could lose if he pursues onlythe low bidder in a non-competitive,direct negotiation? It is significant.How would the seller know if he is

getting the highest price withoutrunning a transaction process thatbuilds a competitive market?

Further, rarely do non-competitive,direct negotiations, especially onesbased on unsolicited offers, result inthe highest prices. The buyer knowsit is the only party at the table andfeels no pressure in putting forth itsbest offer.

Example of Bid Range

Here is an example showing thepossible range of values received fromfour potential buyers. Although notfrom an actual deal, it is arepresentation based on a number ofactual deals which resulted in a similardisparity among values. (Dollars inmillions).

The differential between the high bidand low bid is almost 50%. What if you

$40$36

$32

$27

$0

$10

$20

$30

$40

$50

Buyer A Buyer B Buyer C Buyer D


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had NOT created a competitive market,and instead, engaged in a one-offnegotiation with Buyer D only? If youclose the deal, you have given up a lot ofmoney. However, you would never

know it.

How Does a Seller

Create a Competitive Market?

In a nutshell, you need to recognize thattaking a proactive approach pays largedividends. A sale process is complex,takes significant effort and time (six tonine months or longer) to complete.

Because the outcome is so important,you need to stack the deck in your favoras much as possible to ensure thehighest probability of success. Thefollowing briefly discusses theimportant elements in a company sale.

Elements of a

Successful Company Sale

Prepare and Commit. Preparation ofthe company as discussed previouslyand committing to the task of selling thebusiness is key. Deals are complex. Fewbuyers will pursue a company whichthey perceive as having multipledifficult issues to fix, is not prepared orwho is not committed to closing a deal.

Buyers review a number of deals and donot want to waste time or resourcespursuing a dead end.

Favorably Position the Company.

Developing well prepared, professionaland compelling marketing materials willproperly position your company,accentuate the investment opportunityand demonstrate that you and thecompany are committed to selling.These materials should catch theattention of potential buyers.

Identify Qualified Prospective

Buyers. Researching, identifying and

screening a broad group allows you totarget the most qualified buyers orinvestors and increases the odds ofgenerating genuine interest amongmultiple bidders.

Create a Controlled, Competitive

Market. Aggressively approachingpotential buyers while maintainingcontrol of the process, allows you tocreate competitive pressure. The

dynamics of a competitive market putyou in a position to evaluate multipleoffers and select the most attractive oneto pursue.

Sell. Just like selling a product orservice, the buyer needs to be excitedabout the business and its prospects.Developing rapport with the buyer tounderstand his rationale for pursuingthe company, what attributes he values

and what concerns he has, is importantto knowing how to sell the deal.

Prepare

Position

Qualify

Buyers

Create

Compet-ition

Sell


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Continue to Run The Business

For the Long Term As If No Sale

Is Imminent.

Remaining focused on running thecompany at a high level of performanceallows the potential buyer to see thesuccess during the transaction process.This performance builds confidence inthe buyer and strengthens his alreadypositive perception of the opportunity.During a transaction process, nothinghampers the outcome more thandeclining operating or financialperformance.

Specific Comments On

Investment Bankers

Due to the importance of a companysale and the complexities that ariseduring a transaction, it is advisable tohire an experienced investment bankeras your advisor and advocate. A skilledinvestment banker can assist in manyways:

Help clarify your goals and evaluateyour strategic alternatives.

Use various valuation techniques toprovide guidance on the anticipatedpurchase price and the underlyingrationale.

Assist in positioning the company ina positive manner, includingrecasting the historical financialstatements and building clear andcredible financial projections.

Prepare professional marketingmaterials that catch buyersattention.

Extensively research and screen forthe most desirable, qualified buyers.

Aggressively market your businessto qualified buyers to generate ahigh level of interest and to create ahighly competitive market.

Manage the flow of information anddiscussions between you andpotential buyers.

Maintain control of the process toreduce the risk of rumors andbreaches of confidentiality.

Act as a buffer between you andpotential buyers to minimizeemotions that could be detrimental.

Navigate through the negotiatingprocess; work to resolve thecomplex financial, legal, structural

and tax issues that arise. Coordinate other professionals and

members from your company thatare involved in the process; act as aquarterback.

Provide steady, consistentendurance; maintaining positivedeal momentum. Extending theduration of the process and losingmomentum kills deals.

Provide helpful, objective advicebased on experience and act as asounding board throughout theprocess.

Make sure your investment banker is aspecialist in selling companies - that it iscore to his business. He shouldencourage you to check his references;and you should do so. Hiscompensation should have strongincentives and be contingent upon

achieving success for you. Last, heshould be completely focused on yourtransaction; actively coordinating theentire effort in order to optimizemanagements time and allowmanagement to concentrate onoperating and growing the business.


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Wilcox Swartzwelder & Co.Investment Banking Experts for the Energy,

Industrial and Infrastructure Sector

Wilcox Swartzwelder & Co. is a boutique investment bank providing sophisticated financialadvice exclusively to middle market companies in the energy, industrial and infrastructuresector. Advisory services include mergers and acquisitions, company sales, divestitures,institutional capital raises and general corporate finance matters. Through its merchantfunding activities, the Firm acts as direct investor providing flexible capital to support small,entrepreneurial companies.

Principals founded Wilcox Swartzwelder & Co. based on a simple philosophy: To be trulyeffective and valuable to clients, must provide in-depth industry knowledge, transactionexperience based on a successful track-record, a willingness to work hard and a genuine desire

to provide a high level of financial advice and customer service. Based on this philosophy,principals provide a consultative approach, customizing each transaction to clients objectivesand market realities.

The principals offer unique expertise not found in many investment banks. Not only do theyhave more than 40 years of combined investment banking experience, closing almost 100transactions with an aggregate value in excess of $3.6 billion, but also, they have acted asinvestors with capital at risk, operators and board members in multiple companies, havingnavigated through various business cycles and completed transactions in both up and downmarkets.

The Firm is fully licensed and registered. Securities are offered through PetroGrowth EnergyAdvisors, LLC, a registered broker-dealer and member of FINRA/SIPC.

433 E. Las Colinas Blvd.Waterway Tower, Suite 1200

Irving, Texas 75039(972) 691-2080(972-831-1300
http://www.wilcox-group.com/boutique-investment-bank-energy-industrial-infrastructure-team-experience/http://www.wilcox-group.com/boutique-investment-bank-transactions-energy-industrial-infrastructure-middle-market/http://www.wilcox-group.com/boutique-investment-bank-transactions-energy-industrial-infrastructure-middle-market/http://www.wilcox-group.com/boutique-investment-bank-energy-industrial-infrastructure-team-experience/

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