filejwbt754-bind jwbt754-miller printer: courier westford june 28, 2012 8:44 trim: 6in × 9in index...
TRANSCRIPT
JWBT754-bind JWBT754-Miller Printer: Courier Westford June 28, 2012 8:44 Trim: 6in × 9in
Index
AAAA. See accumulated adjustment
account (AAA)absolute dollar participation,
195accelerated retirement benefits,
110, 119–20accumulated adjustment account
(AAA), 93acquisition
debt, 111, 134of equity in company, 111obligations, 168
adequate consideration, 44–45advantages
employee cooperatives buyouts,268–70
family and management buyouts,246–47
management and ESOPs andtrust buyout, 160–63
non-sponsored managementbuyouts, 104–5
100% ESOP and trust buyout,192–95
parallel company buyouts,236–37
smallest company buyouts,283–84
sponsored buyouts, 146–47sponsored management buyout,
128advisors, selecting, 84
advisory members, 76advisory team, 81–82A&E. See engineering and
architectural firms (A&E)after tax
dollars, 37, 106–8, 118, 290after-tax
cash, 165living costs, 288
aggressive earn-out, 295agreement binding on successors
and assigns, 88AICPA. See American Institute of
Certified Public Accountants(AICPA)
allocation of sales proceeds, 60American Institute of Certified
Public Accountants (AICPA),229
Statement of Position 93-6Employers’ Accounting forEmployee Stock OwnershipPlans (SOP 93-6), 171, 202
amortization, 92–102, 286recovery, 297
anti-abuseprovisions, 212regulations, 213
anti-trust provisions (Scorporations), 187–88
appraiser, independent, 170aptitude testing, 74arm’s-length basis, 47
307
COPYRIG
HTED M
ATERIAL
http:/
/www.pb
ooks
hop.c
om
JWBT754-bind JWBT754-Miller Printer: Courier Westford June 28, 2012 8:44 Trim: 6in × 9in
308 INDEX
articles of incorporation, 48, 88,115
assetcompany, 117loss, 52method to valuation, 59–60purchase, 87purchase agreement, 87–88sales, 93, 95, 99, 101values, verified, 60
attorneys, 69–70, 89attributes of ownership, 47
Bbaby boom generation, retirement
of, 1–2, 65–66bad debt, 1bank financing, 82bankruptcy protection, 23bargain rate, 90behavioral science, 73–75benefits, 89bill of sale, 88binding arbitration, 89board members, 76Board of Accountancy regulations,
230Board of Directors, 37, 196, 199,
209–10, 213Boards of Accountancy, 224bonding, 235BPM. See Burr Pilger Mayer Public
Accounting and Consulting(BPM)
Burr Pilger Mayer PublicAccounting and Consulting(BPM), 228–29
Bush Tax Cuts, 2, 257–58, 261business
acquisition, 40assets, 32brokers, 285
owners, 103, 109–11valuation environment, 47valuations, 43, 54, 216, 225
Business Reference Guide: TheEssential Guide to PricingBusinesses and Franchises(West), 59, 285–86
“buy and hold,” 186buyer commitment, 106buyer resources, 87buyer’s allocation, 296buyer’s market, 3buyer viewpoint, 111–12
employee cooperatives buyouts,272
engineering and architecturefirms, 219–20
family and management buyouts,251–53
management and ESOPs andtrust buyout, 168–69
management consulting firms,231
non-sponsored managementbuyouts, 111–12
100% ESOP and trust buyout,198–201
parallel company buyouts,239–40
public accounting firms, 226–27sponsored buyouts, 151–53sponsored management buyout,
133–37“buy-in” program, 13buyout(s). See also family and
management buyouts; insidebuyouts vs. sale to outsider;non-sponsored managementbuyouts; parallel companybuyouts; professional firmbuyouts; smallest companybuyouts; sponsored buyouts
http:/
/www.pb
ooks
hop.c
om
JWBT754-bind JWBT754-Miller Printer: Courier Westford June 28, 2012 8:44 Trim: 6in × 9in
Index 309
of the initial owner, 121inside initiated, 82–83scalable, 166strategy, 82, 161, 163
bylaws, 115
Ccandidate buyers, 35, 47capital equipment, 207capital gain
about, 91–97, 99, 101taxes, 92–94, 96–97, 101, 296tax rates, 120, 167, 193
capitalizationof earnings, 53of earnings method, 53–54rate, 53
capital structure, 156–57, 194career coaching, 74carried interest, 130carried interest fee, 157cash
and cash equivalents, 98at closing, 41compensation, 109, 287equivalents, 39flow to equity, 55outlays, 297
catastrophic event, 221, 289cautions
employee cooperatives buyouts,270–71
family and management buyouts,248–49
management and ESOPs andtrust buyout, 163–65
non-sponsored managementbuyouts, 105–7
100% ESOP and trust buyout,195–97
parallel company buyouts,237–38
smallest company buyouts,284–85
sponsored buyouts, 147–48C corporation
dividends, 92management and ESOPs and
trust buyout, 161, 165, 167,181, 183–89
stock sale, 96certificates of deposit, 99certified public accountants
(CPAs), 11, 70–71, 82, 108,113, 202
CFAs. See chartered financialanalysts (CFAs)
CFO. See chief financial officer(CFO)
CFR Part 2510 RegulationRelating to the Definition ofAdequate Consideration,Notice of ProposedRulemaking (Regulation), 197
Charles Machine Works, Inc.,255–56
chartered financial analysts (CFAs),72
chartered retirement planningcounselors (CRPC), 72
Chatsworth Products, Inc., 208–9chief financial officer (CFO), 75,
136, 226chief operating officer, 75children’s education, 137club memberships, 137collaborative culture, 82comingling
activities, 284of costs, 285
commercialborrower, 32financing, 29lending, 33
http:/
/www.pb
ooks
hop.c
om
JWBT754-bind JWBT754-Miller Printer: Courier Westford June 28, 2012 8:44 Trim: 6in × 9in
310 INDEX
commercial (Continued )loan appetite, 31loan rates, 167note, 36unsecured lenders, 296
commodity items, 66common goals, 167communications industry, 65Community Banks, 30–33, 35–36community of stakeholders, 193Community Property states,
106company
credit card, 133debt guarantee, 121obligations, 121purse strings, 295
compensation, 42, 89consultant, 251surveys, 220
competitors, 300–301complimentary services, 227composite samplers, 207computer consulting, 173–75,
204–6confidentiality, 104–5, 109
agreement, 87conflict resolution, 74consolidated financial statements,
70construction industry, 66consulting
agreements, 39, 42, 86, 88, 90,100, 119, 263, 290
arrangements, 85firms, 216–17psychologists to industry, 217
contingentcovenants, 39liabilities, 42, 86, 132payments, 39, 87, 295, 297–98
controlposition, 47–49position analysis, 54
controller, 75, 226controlling shareholder, 90control premium, 204Cooperative Home Care
Associates, 275–77copyrights, 94corporate
guarantee, 89officer, 213purchasing, 232resolutions, 88
corporation asset sale, 95–96co-shareholders, 289cost of capital, 53CPAs. See certified public
accountants (CPAs)credit
applications, 33collateralized, 33downgrade, 24
cross buy-sell agreement, 289cross purchase agreements, 123CRPC. See chartered retirement
planning counselors (CRPC)culture of ownership, 207
Dday after the sale of the business,
298–99DCF. See discounted cash flow
(DCF)deal breaker, 294death of family member, 80debt
amortization, 36leveraging, 15obligations, 112, 114, 241principal payments, 37
http:/
/www.pb
ooks
hop.c
om
JWBT754-bind JWBT754-Miller Printer: Courier Westford June 28, 2012 8:44 Trim: 6in × 9in
Index 311
principal repayment, 89ratings, 33
deductible expenses, 92, 102de-facto earn out, 231deferred compensation, 85–86, 89,
100, 108, 110, 119–20,262–63
deferred compensation agreement,111
Department of Labor (DOL), 44,165, 190, 197
depreciation, 100–102depreciation recapture on assets,
94depressed value, 24developmental assessments, 74disclosure regarding litigation,
86discounted cash flow (DCF),
51–54, 85discretionary
bonuses, 220items, 52products, 67
disqualified persons, 188diversification of finances,
160dividend paying capacity, 43dividend payment, 92documents to be delivered at
closing, 88Dodd-Frank Wall Street Reform
and Consumer Protection Act(Dodd-Frank Act), 26
DOL. See Department of Labor(DOL)
“dot.com” meltdown, 64, 209due diligence
for the buyer, 83–86process, 133for the seller, 79–83
Eearnings before interest, taxes,
depreciation, and amortization(EBITDA), 51, 56–58, 131
earnings before interest and taxes(EBIT), 51, 131
earnings capacity of the company,43
earn-out(s), 39, 87, 97, 290, 298aggressive, 295provision, 41
EBIT. See earnings before interestand taxes (EBIT)
EBITDA. See earnings beforeinterest, taxes, depreciation,and amortization (EBITDA)
Economic Growth Tax Recoveryand Reconciliation Act(EGTRRA), 25, 187, 257
effective tax rate, 118, 121EGTRRA. See Economic Growth
Tax Recovery andReconciliation Act (EGTRRA)
emotional attachment, 303emotional value, 46employee cooperatives, 4–5employee cooperatives buyouts
advantages, 268–70buyer viewpoint, 272cautions, 270–71Cooperative Home Care
Associates, 275–77employee cooperatives, 277employee cooperative transaction
considerations, 278–79ESOP, comparison with, 279–81IRC Section 1042, 271, 275,
277–78multi-stakeholder cooperatives,
279professional advisors, 272–73
http:/
/www.pb
ooks
hop.c
om
JWBT754-bind JWBT754-Miller Printer: Courier Westford June 28, 2012 8:44 Trim: 6in × 9in
312 INDEX
employee cooperatives buyouts(Continued )
risk environment, 273–74S corporation, 277–79Select Machine, Inc., 274–75seller viewpoint, 271–72technical matters, 277–81valuations, 271
employee placement firms, 217employee productivity, 193Employee Retirement Income
Security Act (ERISA), 119,163, 201, 279
centric regulations, 223compliance, 281fiduciary rules, 181Section 404(a), 182Section 406(a)(1), 182Section 409(a), 182Sections 401 to 408, 181, 210
employees, strategies tocompensate, 264
employee seniority, 269employee stakeholders, 9Employee Stock Ownership Plans
(ESOPs), 35, 85, 100acquisition debt, 175anti-abuse provisions, 212comparison between C and S
corporation, 189employee cooperatives buyouts,
279–81funding methods and
contribution limits, 183–84,210–11
installing, 40management and ESOPs and
trust buyout, 160–61, 165,181, 190
related acquisition debt, 198repurchase obligation, 164–65,
187, 212
S corporation, 191–92, 194, 214selling stock to, 161as a shareholder, 162–63SRC Holdings Corporation
(SRC), 9–11standard of value for, 44stock value per share, 190traditional uses of, 160–61transaction, 174and trust, selling stock to,
193–94and trust and other shareholders,
188, 190and trust and qualifying stock,
181and trust attributes, 168–69Trust committee, 181and trustee, 181–82Trustee fiduciary responsibilities,
182and trust literate counsel, 170and trust tax issues and
incentives, 184–85, 211–12and trust trustee, 200–201, 210valuations, 165, 170
Employee Stock Ownership PlanTrustee, 279–80
management and ESOPs andtrust buyout, 162–63, 168–70,172, 181–82, 188, 190
100% ESOP and trust buyout,196, 199, 201, 210, 213
Employee Stock Ownership Trust,181
employee termination, 89employment
agreements, 42, 85–86, 88–89,100
agreement to the seller, 111contracts, 75, 86, 90, 115, 174
engineering and architectural firms(A&E), 215–21, 223, 225
http:/
/www.pb
ooks
hop.c
om
JWBT754-bind JWBT754-Miller Printer: Courier Westford June 28, 2012 8:44 Trim: 6in × 9in
Index 313
engineering and architecturefirms
buyer viewpoint, 219–20financing, 224industry guidance, 221professional firm buyouts,
218–24risk environment, 221–22seller viewpoint, 218shareholder agreements, 224technical matters, 223–24transition options, 218–19
enterprise value, 47–49environmental review, 81environmental studies, 86envy ratio, 134–35quity
actual vs. phantom, 264–65to book value, 55investment, 9, 89positions, 224to sales, 55
ERDA. See Engineering Researchand Design Associates (ERDA)
ERISA. See Employee RetirementIncome Security Act (ERISA)
escrowaccounts, 39agreement, 88withholding amount, 297
ESOPs. See Employee StockOwnership Plans (ESOPs)
estate planning vehicles, 252estate tax(es), 43, 165
determination, 40, 44family and management buyouts,
247, 249, 258, 260–61,263–64
returns, 42executive bonuses, 52executive retirement plan,
supplemental, 262–63
exitoptions, 81plan, 80strategies, 35
extended payout option, 168
Ffacilities, 116–17fair market value (FMV)
about, 43–44, 58ESOP and, 169, 193family and management buyouts,
249–50, 258, 261–63management and ESOPs and
trust buyout, 160, 165–66,169, 173, 176, 188
non-sponsored managementbuyouts, 106
100% ESOP and trust buyout,193, 196–97, 204
Treasury Reg. § 20.2031-1(b), 43fair value, 45–46family, 76–77
company ownership, 4company succession, 248member conflicts, 247members, 47, 113–14tax issues, 100
family and management buyoutsadvantages, 246–47buyer viewpoint, 251–53cautions, 248–49competitive, remaining, 249consulting agreement, 263deferred compensation and
supplemental executiveretirement plan, 262–63
diversification, lack of, 254–55employees, strategies to
compensate, 264equity, actual vs. phantom,
264–65
http:/
/www.pb
ooks
hop.c
om
JWBT754-bind JWBT754-Miller Printer: Courier Westford June 28, 2012 8:44 Trim: 6in × 9in
314 INDEX
family and management buyouts(Continued )
estate taxes, 247, 249, 258,260–61, 263–64
experience, practical, 252–53family members, strategies to
provide income to founding,260–61
FMV and, 249–50, 258, 261–63founding generation, 248, 250,
254, 259, 261–62, 266gift and estate taxes post
December 31, 2012, 260gift taxes, 246, 249, 257–61long-term horizon, 247–48private annuities, 261–62professional advisors, 253psychological considerations,
256–57risk environment, 254–56S corporation, 259, 265self cancelling installment note,
262seller viewpoint, 250–51successor family members,
247–48, 251–52, 257tax efficiency, gift taxes and
purchases of stock, 257tax efficient succession strategies,
260taxes, historical perspective on,
257–58tax law update (2010), 245–46Tax Reform Act, 258–60technical matters, 256–65trusts and trust agreements,
263–64valuation, 249–50valuations involving non-family
investors, 250FASB. See Financial Accounting
Standards Board (FASB)
faster cost recovery assets, 99Federal Deposit Insurance
Corporation (FDIC), 30Federal personal income tax rate,
25Federal Reserve, 29female professionals, 225FIDC. See Federal Deposit
Insurance Corporation(FDIC)
fiduciary obligations, 163, 169,181
fiduciary standards, 169FIFO. See First In First Out (FIFO)financial
advisors, 71–72, 113buyer, 43, 46–47condition of the company, 43incentives, 89industry blood bath
(2008–2010), 29meltdown of Wall Street (2008),
1, 22, 29pain of buyer, 85resources, determine, 116statements, 82, 163, 216
Financial Accounting StandardsBoard (FASB), 45
Financial Industry RegulatoryAuthority (FINRA), 73
financing documents, 89FINRA. See Financial Industry
Regulatory Authority(FINRA)
First Bank Financial Centre,Wisconsin, 31
First In First Out (FIFO), 52fixed assets, 286FMV. See fair market value (FMV)FMV. Rev. Rul. 59-60, 43food processors, 65forced sale, 45
http:/
/www.pb
ooks
hop.c
om
JWBT754-bind JWBT754-Miller Printer: Courier Westford June 28, 2012 8:44 Trim: 6in × 9in
Index 315
founding generation, 246, 248,250, 254, 259, 261–62, 266
401(k) plan, safe harbor, 122, 171,183–84, 208, 211
franchises, 66, 216Frank-Dodd Act, 31free cash flow, 51free market capitalistic economy,
22future cash flows, 85–86future returns method, 51
GGAAP. See Generally Accepted
Accounting Principles (GAAP)gain on equipment, 94“gaming” the system, 221Generally Accepted Accounting
Principles (GAAP), 45, 70,171
general market of buyouts, 36general provisions, 88Generation Growth Capital,
14–15gift and estate taxes post December
31, 2012, 260gifting, 39, 42, 44
limit, 246to next generation, 246strategies, 100
gift taxes, 43, 165family and management buyouts,
246, 249, 257–61gift tax legislation, 4global economy, 27goodwill, 44, 94, 96, 99, 124,
235governing state law, 88Great Game of Business, Inc., 10The Great Game of Business
(Stack and Burlingham),9–10
Guideline Company Method,54–55
guideline transaction method,56–58
Hhallmarks of the profession,
228healthcare, 65–66healthcare costs, 25hedge on the risk, 222history of the enterprise, 43HM&M. See Humber Mundie &
McClary (HM&M)hold-back
of proceeds, 41of sale proceeds, 58
home mortgages, 217, 287hostile tax environment, 290house in organizational order,
82–83human relation skills, 74human resource management, 74human resource projects, 74Humber Mundie & McClary
(HM&M), 74–75hypothetical
buyer, 43, 45–46, 58seller, 43, 46
IIBBA. See International Business
Brokers Association (IBBA)incentive payments, 89incentive stock options, 135income tax rate, 290individual retirement accounts
(IRAs), 208individual tax returns, 92inheritance taxes, 43initial public offering (IPO), 35,
142, 264
http:/
/www.pb
ooks
hop.c
om
JWBT754-bind JWBT754-Miller Printer: Courier Westford June 28, 2012 8:44 Trim: 6in × 9in
316 INDEX
inside buyouts vs. sale to outsiderasset or stock sale, 296–97competitors, 300–301contingency payments, 297–98day after the sale of the business,
298–99investment bankers and
intermediaries, 299–300negotiating strength, relative,
293–94private equity firm, 302skin in the game, 295–96strategic buyer, 300suppliers and key customers,
301–2third party buyers, common,
300–302uncertainties of closing or not
closing, 299what are you really getting?,
297where is the money?, 294–96
installmentnote, self cancelling, 262sale election, 97sale opt out election, 98
insurance protection, 113intangible assets, 94intangible value, 44interest expense, 37Internal Revenue Code (IRC)
Section 197, 94, 99, 296Section 338, 101Section 368, 92Section 401(a), 181Section 404, 183–84Section 409(n)(3)(a), 186Section 409(p)(4), 188Section 414(q), 184Section 415, 183–84Section 415(c)(1), 184
Section 1042, 161, 167, 185–87,189, 194, 271, 275, 277–78
Section 1060, 98, 120, 124Section 4975(e)(7), 181
Internal Revenue Service (IRS)Form 8594, 98–99, 296Revenue Ruling 59-60, 43
International Business BrokersAssociation (IBBA), 286
international business community,27
investmentbankers, 72–73, 137, 144banking, 1, 39, 70banks, 22value, 45
investor group, 166IPO. See initial public offering
(IPO)IRAs. See individual retirement
accounts (IRAs)IRC. See Internal Revenue Code
(IRC)IRS. See Internal Revenue Service
(IRS)
JJGTRRA. See Jobs and Growth
Tax Relief Reconciliation Act(JGTRRA)
Jobs and Growth Tax ReliefReconciliation Act (JGTRRA),257
Jumbo Heating and ManufacturingCompany, 16–18
Kkey employee leadership, 84key employees, 2, 75–76, 83, 89,
289key person adjustment, 50
http:/
/www.pb
ooks
hop.c
om
JWBT754-bind JWBT754-Miller Printer: Courier Westford June 28, 2012 8:44 Trim: 6in × 9in
Index 317
Llack of marketability, 49Last In First Out (LIFO), 52law firms, 215“law of selective memory,”
108leadership assessments, 74leadership exercises, 74lease rate, 90leases, 88, 90legal
counsel, 112–13documents, 115issues, 86lending rate, 30requirements, 81
lending limit, 36Letter of Intent (LOI), 87leveraged buyout, 16licensing, 215life expectancy, 288lifestyle selection, 284, 286LIFO. See Last In First Out
(LIFO)Limited Liability Company (LLC),
92, 116, 125, 143, 188, 288liquidate the company, 81liquidation sale, 45liquidity, 49, 105litigation
outstanding, 81between shareholders, 40support, 216
living conditions, 27LLC. See Limited Liability
Company (LLC)loan
agreements, 88–89loss default exposure, 36officer, 89
local taxes, 92
“lock-up” clause, 87LOI. See Letter of Intent (LOI)long-term sustainable growth, 53
MThe Maher Group, 71–72main street business, 66–67management
agreement, 39buyout, 4, 103–6, 109, 114–15,
122, 125consultants, 4fees, 130, 157leadership, 111–12proposal, 8team, 103–8, 111, 119–21
management and ESOPs and trustbuyout
advantages, 160–63anti-trust provisions (S
corporations), 187–88benefit plans, multiple qualified,
184buyer viewpoint, 168–69cautions, 163–65C corporation, 161, 165, 167,
181, 183–89ESOP, repurchase obligation,
164–65, 187ESOP, selling stock to, 161ESOP, traditional uses of,
160–61ESOP and trust and other
shareholders, 188, 190ESOP and trust and qualifying
stock, 181ESOP and trust attributes,
168–69ESOP and trustee, 181–82ESOP and trust literate counsel,
170
http:/
/www.pb
ooks
hop.c
om
JWBT754-bind JWBT754-Miller Printer: Courier Westford June 28, 2012 8:44 Trim: 6in × 9in
318 INDEX
management and ESOPs and trustbuyout (Continued )
ESOP and trust tax issues andincentives, 184–85
ESOP as a shareholder, 162–63ESOP funding methods and
contribution limits, 183–84ESOPs, 160–61, 165, 181,
190ESOPs, comparison between C
and S corporation, 189ESOP Trustee, 162–63, 168–70,
172, 181–82, 188, 190financing considerations, 167IRC Section 1042, 161, 167,
185–87, 189IRC Section 1042 tax free
rollover, 185–86professional advisers, 169–71Qualified Replacement Property
(QRP), 161, 186, 189risk environment, 171–73S corporation, 161, 163, 165,
171, 173, 181, 183–85,187–90
seller viewpoint, 166–67stock purchase with pre-tax or
after-tax dollars, 162technical matters, 180–90valuation insights, 165–66
management consulting firmsbuyer viewpoint, 231professional firm buyouts,
230–32risk environment, 232seller viewpoint, 230–31technical matters, 232valuation, 231–32
manufacturing sector, 66marginal dollar of funding, 30marginal income tax rates,
105
marital property state, 81market
approach to valuation, 54–55discount rate, 122prices of comparable companies,
44rate, 90
marketing manager, 75Market Value of Invested Capital
(MVIC), 48to book value, 56to EBIT, 56to sales, 56
Martell Construction, Inc.,139–40
The McLean Group (TMG), 73MDI. See Molded Dimensions, Inc.
(MDI)mediation, 89Medicaid, 100medical coverage, 133medical practices, 215Mergers & Acquisition: An
Insider’s Guide to thePurchase and Sale of MiddleMarket Business Interests(Roberts), 73
mezzaninebank, 34debt, 34, 157financing, 167funds, 33–34lender, 33–34package, 34
middle marketcharacteristics of, 2–3
middle market companiescredit, collateralized, 33defined, 3
Middle Market InvestmentBanking Association, 3, 73
middle market transactions, 128
http:/
/www.pb
ooks
hop.c
om
JWBT754-bind JWBT754-Miller Printer: Courier Westford June 28, 2012 8:44 Trim: 6in × 9in
Index 319
minorityblocks of stock, 50, 118, 120equity stake, 132interests, 118
Molded Dimensions, Inc. (MDI),177–78
Money Center Banks. See Regionaland National Money CenterBanks (Money Center Banks)
mortality event, 287mortgage, 90MSA. See MSA Professional
Services, Inc. (MSA)MSA Professional Services, Inc.
(MSA), 222–23multi-stakeholder cooperatives,
279MVIC. See Market Value of
Invested Capital (MVIC)
NNasdaq stock market, 64National Center for Employee
Ownership (NCEO), 171,203, 219
NCEO. See National Center forEmployee Ownership (NCEO)
negotiating in good faith, 104negotiating strength, 293, 295net income (NI), 51, 56net of amortization, 94net tax, 93net worth, non-operating, 270NI. See net income (NI)niche capabilities, 217niche companies, 67non-binding notes, 86non-competition agreement, 12,
42, 111non-employee owned companies,
173non-ESOP S corporations, 195
non-licensed employees, 216non-operating
assets, 82income and expenses, 286net worth, 270
non-qualifiedretirement benefits, 119stock options, 135stock purchase program, 11
non-recourse transaction, 132non-recurring
costs, 52income and expenses, 286
non-solicitation agreements, 97,111, 115
non-sponsored managementbuyouts
advantages, 104–5buyer commitment, 106buyer viewpoint, 111–12cautions, 105–7exit plan, 110management leadership, 111–12practical considerations, 108–9professional advisors, 112–14risk environment, 114–15seller assistance, 105–6seller viewpoint, 109–11technical matters, 115–21time as an ally, 110–11transaction size, 106–7valuation, 107–8valuation assistance, 107–8
non-voting stock, 11normalized financial results,
51–52notice information, 88
OOconomowoc Residential
Programs, Inc., 178–80(OEMs)
http:/
/www.pb
ooks
hop.c
om
JWBT754-bind JWBT754-Miller Printer: Courier Westford June 28, 2012 8:44 Trim: 6in × 9in
320 INDEX
100% ESOP and trust buyoutacquisition debt analysis, 196–97acquisition debt considerations,
202advantages, 192–95buyer viewpoint, 198–201cautions, 195–97control, paying for, 197–98corporate governance, 196,
213–14ESOP, anti-abuse provisions, 212ESOP, funding methods and
contribution limits, 210–11ESOP, repurchase obligation,
212ESOP and trust, selling stock to,
193–94ESOP and trust tax issues and
incentives, 211–12ESOP and trust trustee, 200–201,
210financial assistance, 198–99phantom stock, 200professional advisors, 201–2qualified benefit plans, multiple,
211risk environment, 202–4S corporation, 191–200, 202,
204, 208–14S corporation attributes, 194–95seller viewpoint, 198–99senior management issues,
199–200stock appreciation rights, 200technical matters, 210–14traditional uses of ESOP and
trust, 193valuation, 197–98
operating company, 284, 290–91organizational
assistance, 70change professionals, 217planning, 74
original equipment manufacturers(OEMs), 14
overall tax rates, 97owner running expenses through
business, 82ownership
of assets, 86attributes of, 47culture, 173interest, 112positions, 217rules, 224transfer, 40
Pparallel companies, 4parallel company buyouts
advantages, 236–37buyer viewpoint, 239–40cautions, 237–38professional advisors, 240risk environment, 241S corporation, 238, 242seller viewpoint, 239technical matters, 244valuation, 238–39
passive income, 90, 290Patient Protection and Affordable
Care Act, 2Patient Protection and Affordable
Care Act (PPACA), 258patriarchs, 247patronage
dividends, 269participation, 270rebates, 269
payroll taxes, 290P/E. See Price to Earnings Ratio
(P/E)PEGs. See private equity groups
(PEGs)penalties for non-compliance, 214performance payments, 41
http:/
/www.pb
ooks
hop.c
om
JWBT754-bind JWBT754-Miller Printer: Courier Westford June 28, 2012 8:44 Trim: 6in × 9in
Index 321
personalassets, 32, 99, 128, 168assets of managers, 103costs, 82financial security, 132guarantees, 36, 39–40, 89, 168health crisis, 80
phantomequity plan, 11stock, 89, 135, 188, 200
philosophy of participation, 270plan to exit the business, 110PPACA. See Patient Protection and
Affordable Care Act (PPACA)predictive testing, 74preemptive covenants, 36Preferred Stock, 15pre-tax
benefits, 288cash flow, 195dollars, 193, 203income, 51, 56
price, 39–41price of leadership, 112Price to Earnings Ratio (P/E), 55priming the results, 221private annuities, 261–62Private Companies Practice Section
(PCPS), 229private equity, 34–35private equity firms, 2, 4, 64,
295–96, 302private equity groups (PEGs)
about, 4, 34–35, 100non-sponsored management
buyout, 103sponsored buyouts, 146–57sponsored management buyout,
127–39, 142–44product warranty exposure, 42professional
franchise, 225license, 100
service company, 122–23, 204–6service firms, 4, 217–18services company, 173–75support, 143–44
professional advisors, 4employee cooperatives buyouts,
272–73family and management buyouts,
253management and ESOPs and
trust buyout, 169–71non-sponsored management
buyouts, 112–14100% ESOP and trust buyout,
201–2parallel company buyouts, 240smallest company buyouts, 288sponsored buyouts, 153sponsored management buyout,
137–38professional firm buyouts
engineering, public accountingand management consultingfirms, 215–17
engineering and architecturefirms, 218–24
management consulting firms,230–32
professional service firms, generalobservations for, 217–18
public accounting firms, 224–30professional services, 67profit sharing, 171, 184proforma cash flow closing
schedule, 98prorated income taxes, 92psychological assessment, 75psychological considerations,
256–57public accounting firms, 4, 138,
216buyer viewpoint, 226–27demographic changes, 225
http:/
/www.pb
ooks
hop.c
om
JWBT754-bind JWBT754-Miller Printer: Courier Westford June 28, 2012 8:44 Trim: 6in × 9in
322 INDEX
public accounting firms(Continued )
professional firm buyouts,224–30
risk environment, 227–28seller viewpoint, 224–25technical matters, 229–30transition to broader based
advisory firms, 225–26valuation, 227
public companies, 3public company trading
information, 55public operating companies, 92purchase agreement, 283, 286, 288purchase price, 91, 98–100, 102
QQRP. See Qualified Replacement
Property (QRP)Qualified Replacement Property
(QRP), 161, 186, 189qualifying payroll, 194Quality Assembly & Logistics,
LLC., 14–16quality control, 66quality service indices, 173
Rreal estate, 90
company, 90, 116–17development, 31
Regional and National MoneyCenter Banks (Money CenterBanks), 32–33
remedies to a late payment, 89rental agreements, 90rental income, 109rent escalator clauses, 90representations
of the buyer, 88of the seller, 88
repurchase obligation, 164–65,212, 214
residual assets, 99residual method of allocation, 99restricted stock, 188retail
enterprises, 287food sales, 25grocers, 65stores, 66
retained earnings, 97retaliatory behavior, 121retention bonus, 75retirement benefits
accelerated, 110, 119–20non-qualified, 119
retirement date, 71retiring principals, 219, 231return on investment (ROI),
129–30, 139, 143revenue thresholds,
pre-determined, 134risk analysis, 4risk environment
employee cooperatives buyouts,273–74
engineering and architecturefirms, 221–22
family and management buyouts,254–56
management and ESOPs andtrust buyout, 171–73
management consulting firms,232
non-sponsored managementbuyouts, 114–15
100% ESOP and trust buyout,202–4
parallel company buyouts, 241public accounting firms, 227–28smallest company buyouts,
288–89
http:/
/www.pb
ooks
hop.c
om
JWBT754-bind JWBT754-Miller Printer: Courier Westford June 28, 2012 8:44 Trim: 6in × 9in
Index 323
sponsored buyouts, 153–54sponsored management buyout,
138–40risk of falling behind, 294ROI. See return on investment
(ROI)
Ssafe harbor 401(k) plan, 122, 171,
183–84salary continuation, 86, 100, 108sale
of a business, 2of a capital asset, 93
Saltz, Shamis, and Goldfarb. SeeSGS Financial Services
sanity check, 221, 285SBA. See Small Business
Administration (SBA)SCIN. See Self Cancelling
Installment Note (SCIN)S corporations
about, 37, 92–97, 143, 163asset sale, 96–97employee cooperatives buyouts,
277–79ESOPs and, 191–92, 194, 214family and management buyouts,
259, 265management and ESOPs and
trust buyout, 161, 163, 165,171, 173, 181, 183–85,187–90
100% ESOP and trust buyout,191–200, 202, 204, 208–14
parallel company buyouts, 238,242
smallest company buyouts, 288stock sale, 97
SDCF. See seller’s discretionarycash flow (SDCF)
secured loans, 32
Securing the Future, SuccessionPlanning Basics (Reeb), 230
Securing the Future TakingSuccession Planning to theNext Level (PCPS), 230
Select Machine, Inc., 274–75Self Cancelling Installment Note
(SCIN), 262seller
debt, 37finance notes, 97financing, 37, 39, 41, 105, 113,
116–17notes, 36–37obligations, 296
seller assistance, 105–6seller’s discretionary cash flow
(SDCF), 286seller viewpoint
employee cooperatives buyouts,271–72
engineering and architecturefirms, 218
family and management buyouts,250–51
management and ESOPs andtrust buyout, 166–67
management consulting firms,230–31
non-sponsored managementbuyouts, 109–11
100% ESOP and trust buyout,198–99
parallel company buyouts, 239public accounting firms, 224–25smallest company buyouts,
286–87sponsored buyouts, 150–51sponsored management buyout,
132–33senior bank rate, 36senior level debt, 131
http:/
/www.pb
ooks
hop.c
om
JWBT754-bind JWBT754-Miller Printer: Courier Westford June 28, 2012 8:44 Trim: 6in × 9in
324 INDEX
Sentry Equipment, Inc., 206–7service firms, 65–66service industries, 67severability clause, 88SGS Financial Services, 11–14Shared Capitalism at Work
Employee Ownership, Profitand Gain Sharing, andBroad-Based Stock Options(Krause et al.), 173
shareholderagreement, 13, 121board minutes and, 81disputes, 42schedule, 88single, 47–48
skin in the game, 97, 295–96Small Business Administration
(SBA), 29, 35–36smallest company buyouts
advantages, 283–84cautions, 284–85facilities, 290–91financing the transaction,
289–90outlook, realistic, 287professional advisors, 288risk environment, 288–89rules of thumb, industry, 285–86S corporation, 288seller viewpoint, 286–87technical matters, 289–91valuations, 285–86
sponsored buyoutsadvantages, 146–47buyer viewpoint, 151–53capital structure, 156–57carried interest fee, 157cautions, 147–48computer support services
company, 155–56
ESOPs, 155management fee, 157PEGs, 146–57professional advisors, 153risk environment, 153–54seller viewpoint, 150–51technical matters, 156–57valuation, 148–50
sponsored management buyout,128
advantages, 128asset sale, 120–21buyer viewpoint, 133–37carried interest and management
fees, 130envy ratio, 134–35financial assistance, 129–30management interests, 135–36mutual commitments, 136–37non-recourse issues, 132private equity funding, 143private equity group interests,
133–34professional advisers, 137–38professional service company,
122–23professional support, 143–44risk environment, 138–40seller viewpoint, 132–33stock sale, 118–20successor management, 121tax and legal structure of
company, 142–43technical matters, 142–43total transaction consideration,
133valuation, 131
spousal consent, 81, 106spousal support, 105spouse, 77, 80Springfield ReManufacturing, 7–8
http:/
/www.pb
ooks
hop.c
om
JWBT754-bind JWBT754-Miller Printer: Courier Westford June 28, 2012 8:44 Trim: 6in × 9in
Index 325
SRC. See SRC HoldingsCorporation (SRC)
SRC Holdings Corporation (SRC),8–11
stakeholder cooperatives, 273–74standard
of living, 109, 287of value for ESOPs, 44of value for transactions, 42–46
Standard and Poor’s, 24state taxes, 91–93, 96, 101stock
appreciation rights, 89, 111, 135,188, 265
and asset sale, 94–95options, 111ownership ledger, 115pricing, 170prior sales of, 44purchase agreement, 87–88redemption, 120–21redemption obligation, 10of retiring principals, 229sales, 92–94, 96–101, 123sales taxed as asset sales, 101of selling shareholders, 160
strategic buyer, 47, 300structuring the transaction
asset sale, 120–21stock sale, 118–20
successionoptions, 3planning, 74, 103–5, 110, 216,
224–25, 229–31plans, 84, 290strategies, tax efficient, 260
successorfamily members, 247–48,
251–52, 257management, 102, 105, 108,
113–17, 119, 121
management exit strategies, 121team, 244
survival of warranties andrepresentations, 88
Ttax
attributes, 90break on dividends, 25deductible dollars, 100, 229deductible principal payment, 37deferral advantage, 98efficiencies, 223environment, 91, 290exposure, 86increase legislation, 2increases, 25–26issues for buyer, 98–101issues for seller, 91–98law update (2010), 245–46legislation, 101planning, 70, 86, 244, 288preferred basis, 118preparation, 225, 227rate, effective, 118, 121related adjustments, 52
taxable gain burden, 97taxable income, 92Tax Reform Act (2010), 257–60Tax Relief, Unemployment
Insurance Reauthorizationand Job Creation Act, 25,101, 245–46
team building, 74technical matters
employee cooperatives buyouts,277–81
engineering and architecturefirms, 223–24
family and management buyouts,256–65
http:/
/www.pb
ooks
hop.c
om
JWBT754-bind JWBT754-Miller Printer: Courier Westford June 28, 2012 8:44 Trim: 6in × 9in
326 INDEX
technical matters (Continued )management and ESOPs and
trust buyout, 180–90management consulting firms,
232non-sponsored management
buyouts, 115–21100% ESOP and trust buyout,
210–14parallel company buyouts, 244public accounting firms, 229–30smallest company buyouts,
289–91sponsored buyouts, 156–57sponsored management buyout,
142–43technology companies, 64technology industry, 64term sheet, 86–87terms of the transaction, 39, 58third-party
buyers, 2, 161, 300–302lender, 115
title to assets, 115TMG. See The McLean Group
(TMG)transaction
databases, 109financing, 114–15price, 41size, 106–7structuring, 84–85
transactional price, 41transition planning, 71, 216, 219,
223, 230, 287Treasury Reg. § 20.2031-1(b), 43trustee obligations, 163
Uunderlying “price,” 42unemployment rate, 23, 27
uninsured inventory, 52unknown liabilities, 42, 81unsecured debt, 11
Vvaluations
additional adjustments to, 50asset method, 59–60assignment, 40assistance, 107–8business, 43capitalization of earnings
method, 53–54of company, 117–18considerations, 4data, 49discounted cash flow (DCF),
51–54employee cooperatives buyouts,
271family and management buyouts,
249–50guideline transaction method,
56–58income approach method,
50–51insights, 107management and ESOPs and
trust buyout, 165–66management consulting firms,
231–32market approach to, 54–55methods, 40, 58non-sponsored management
buyouts, 107–8normalized financial results,
51–52100% ESOP and trust buyout,
197–98parallel company buyouts,
238–39
http:/
/www.pb
ooks
hop.c
om
JWBT754-bind JWBT754-Miller Printer: Courier Westford June 28, 2012 8:44 Trim: 6in × 9in
Index 327
process, 39public accounting firms, 227public company guidelines
method, 55–56purpose of, 40smallest company buyouts,
285–86sponsored management buyout,
131of stock, 118
value of the business, 46, 81,246
valuing a private company, 81voting stock, 223
Wwaiver of provisions, 88warranties, 88warrants, 188wealth advisory services, 216wealth management, 70, 225Web site, 305–6Woodman’s Food Market, Inc.,
175–77write-off obsolete assets, 115
Z“Z” value, 221Zweig White & Associates, 221
http:/
/www.pb
ooks
hop.c
om
JWBT754-bind JWBT754-Miller Printer: Courier Westford June 28, 2012 8:44 Trim: 6in × 9in
328
http:/
/www.pb
ooks
hop.c
om
JWBT754-bind JWBT754-Miller Printer: Courier Westford June 28, 2012 8:44 Trim: 6in × 9in
329
http:/
/www.pb
ooks
hop.c
om
JWBT754-bind JWBT754-Miller Printer: Courier Westford June 28, 2012 8:44 Trim: 6in × 9in
330
http:/
/www.pb
ooks
hop.c
om
JWBT754-bind JWBT754-Miller Printer: Courier Westford June 28, 2012 8:44 Trim: 6in × 9in
331
http:/
/www.pb
ooks
hop.c
om