key considerations when buying a business
TRANSCRIPT
Key Considerations When Buying a Business
May 13, 2015
Ken Haffey, CPA, CVA, CGMAMike Trabert, CPA, CVA, CMAP, CEPA, CM&AA
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BUYING A BUSINESS• The tricky part of buying a business is
finding a business to buy
• Major decision and investment
Money
Time
Effort
Energy
• Nine out of ten people who begin a search for a business never complete a transaction
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BUYING A BUSINESS
• The average buyer gives up after an 18-month search
• 70% of searches are conducted via the Internet
• You will find hundreds of thousand of businesses are available when you search through Business-for-Sale websites
• Many individuals don’t identify what types of businesses are right for them before searching
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BUYING A BUSINESS
• Buyers should look at their strengths, weaknesses, likes and dislikes honestly before beginning the process
• Most people don’t know what is right for them
• Finances are next Produce a personal financial statement Assess borrowing capacity/sources Determine amount of money you have at risk
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BUYING A BUSINESS
• Don’t bother looking at businesses that are unaffordable
• 80% of small businesses involve seller financing; could be 30% - 50% of purchase price
• Evaluate Small Business Association loan program
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IDENTIFYING A GOOD ADVISOR
• Walk you through the valuation process
• Provide you with comparable business valuations
• Keep the deal moving along when you encounter obstacles
• Be the bearer of bad news to the seller when necessary
• Ensure all pertinent documents are assembled for the closing
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SIX STEPS TO SUCCESS
1. Commit to a deadline for buying a business
2. Set aside time every day to work on project
3. Organize your finances
4. Determine what type of business will thrive from your strengths and not suffer from your weaknesses
5. Seek advice from a qualified accountant and attorney
6. Educate yourself about the process
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GROWTH BY ACQUISITIONSTATUS QUO VS.
Status QuoGrowth Through
AcquisitionBenefits • Perceived low risk strategy
• No significant additional resources to execute• Minimal impact on current management,
employees and community• Maintain current ownership levels and
operational control• Could result in enhanced shareholder value
over time if forecasts are met or exceeded
• Build overall critical mass / increase market position
• Capitalize on potential operating synergies• Enter market/product niches and new
geographies • Improve returns to equity holders• More sharply define strategic
direction/position Company for a future sale/liquidity event
Issues • Does not significantly mitigate fundamental strategic, financial and market risks or issues
• No growth / acceleration of value• Could erode shareholder value over time• Competitors may gain market share through
acquisition
• Exposed to execution and post-deal integration risk
• Additional leverage could restrict organic growth
• Impact on key constituents - management, employees and community
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SUCCESSFUL ACQUISITIONCHARACTERISTICS OF
• Assess a large number of opportunities – What targets exist and at what prices?
• Approach targets directly with a consistent message, getting a seller to the table may take time Do not wait for an investment banker to send a book as part
of an auction
• It is more advantageous to sell the non-financial benefits first and address the price once there is momentum But, balance that with avoiding sellers with unrealistic price
expectations
• Manage conversations with multiple potential targets Shift the balance of power between the acquirer and the
target The best acquisition campaigns ensure that the deal pipeline
is always full
Exhaustive research
Go direct(Buy wholesale
not retail)
Don’t focus on price too early
Cultivate alternatives
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& CONTACTING TARGETSTARGET COMPANY LIST
• Develop acquisition strategy and criteria and establish research parameters
Identify market segments with greatest opportunity and create detailed acquisition criteria to focus and prioritize target research
Determine which company specific research is necessary to evaluate each target
• Develop target universe using research to identify targets that meet the targeted criteria
Qualify selected targets and conduct more in-depth research on all qualified targets within the universe
Further prioritize and select a focused list of companies for approach
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& CONTACTING TARGETSTARGET COMPANY LIST
• Communicate directly with target decision-makers
Highlight your company’s strengths, strategy, reasons for interest and plans for the target
Include target company research in the message to communicate understanding of their business
• Continue to pursue and communicate with senior people at the target in a confidential manner
Regularly share the successes your company (new customer wins, joint ventures, recent expansions, etc.)
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ACQUISITION PROCESS
Pre-Acquisition
Due Diligence
Deal Negotiation Acquisition Post-
Acquisition
Anatomy of an Acquisition
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PRE-ACQUSITIONACQUISITION PROCESS
• Assess acquisition strategy and alternative expansion options
Evaluate acquisition capacity
Corporate capabilities
• Industry / market monitoring
• Industrial / market segmentation analysis
• Competition analysis
• Assisting with debt and/or equity channels
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DUE DILIGENCEACQUISITION PROCESS
• Quality of earnings
• Review of accounting policies
• Unrecorded liabilities
• Working capital trends
• Financial reporting review
• Tax diligence
• IT controls review
• ERISA compliance review
• HR regulatory review
• Develop preliminary valuation model
Pro-forma earnings and cash flow model
Valuation and pricing
Preliminary purchase price allocation
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DEAL NEGOTIATIONACQUISITION PROCESS
• Assist with negotiation
• Review and consult on documentation
• Purchase price adjustments
• Financial and tax structuring
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ACQUISITIONACQUISITION PROCESS
• Purchase price allocation / purchase accounting
• Intangible asset valuation
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POST-ACQUISITIONACQUISITION PROCESS
• Conduct final purchase price review
• Provide full post-merger integration support
• Integration plan management
• Organization and operational structure design
• Compensation structuring
• Benefit plan audit
• Technology planning
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KEY TAKE-AWAY
Be Prepared
SERVICES TEAM
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Ken HaffeyCPA, CVA, CGMAPartner
Mike TrabertCPA, CVA, CMAP, CEPA, CM&AAPartner
Mike Milazzo, CPAPartner
Jim Forbes, CPAPartner
TRANSACTION ADVISORY
SERVICES TEAM
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Rick Cruickshank, CPAPrincipal
Ted Ginsburg, CPA, JDPrincipal
Pat Mullin, CPAPrincipal
Christopher Coyle, CPASenior Staff
Mike Ella, CPA Manager
Colin Smith, CPASenior Staff
TRANSACTION ADVISORY
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Skoda Minotti CPAs, Business & Financial Advisorsskodaminotti.com
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