for growth or sale - is private equity right for you? = private equity 101
DESCRIPTION
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.TRANSCRIPT
For Growth or Sale – Is Private Equity Right for You?
Session 1 – Private Equity 101February 13, 2014
Boris GremontManaging Partner
Demystifying Private Equity101:
Willie Sutton
$600Billion
What is Private Equity?
FirstMyth
Debt
SecondMyth
Layoffs
ThirdMyth
Flip it
STEADYGROWTH
HIGHRISK
$FINANCIAL
IGROWTH STRATEGIC
^
Carpeting Trends
201: The Deal
301: Obstacles
David H. OdenPartner
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
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
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?
What Does the Deal Look Like?
• Step 4: The Purchase Agreement– Stock purchase– Asset purchase– Merger– Why and who cares?– Common elements and indemnity
What Does the Deal Look Like?
• Ancillary Items– Employment Agreements– Consulting Agreements– Non-compete Agreements– Financial Advisory Agreements
What Does the Deal Look Like?
• Realistic Timetable– Controlled by Buyer– Frequent Seller frustration– 2-3 months– May take longer if……
Daniel BoarderTransaction Advisory Services Senior
Manager
Maximizing Value Prior to Engaging in a Transaction
• Understanding the two components of valuation– EBITDA– Multiple
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)
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
Deb PurvinSenior Vice President – Corporate Banking
How Does the Deal Get Done?
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
How Does the Deal Get Done?
High yield /
Mezzanine debtSource: Wikipedia
How Does the Deal Get Done?
What SURPRISES Business Owners?“You’re not in Kansas anymore”
• Pace• Structure and Controls• Internal / Organizational
How Does the Deal Get Done?
• Pace
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”
How Does the Deal Get Done?
• Internal / Organizational Issues
– Operational Changes– Management and Accountability
WHY Does the Deal Get Done?
WHY Does the Deal Get Done?
Jon P. KarpTax and Consulting Partner
Maximizing Value Prior to Engaging in a Transaction
• Tax Implications of Transaction– Tax due diligence – State and Federal– LLC/Partnership– Corporations– NOL Limitations
Maximizing Value Prior to Engaging in a Transaction
• Advance Tax Planning– Ownership structure– Estate planning and gifting – wealth preservation
Q&A, Next Steps
• Next Steps = Attend Sessions 2 & 3
– Session 2: April 3, 2014– Session 3: May 8, 2014