Upload
welch-llp
View
221
Download
1
Embed Size (px)
DESCRIPTION
Interested in buying the company that you’ve been helping to build but are unsure of the implications behind a management buyout? Or are you a company owner looking to sell and wondering what the concerns of a prospective management team could be? Join our experts & learn everything you need to know to pursue a successful MBO. To view this Welch LLP webinar (and others), click here: http://www.welchllp.com/resource-centre/videos/webinars/
Citation preview
Welcome to Today’s Webinar:
Questions
Ground Rules
• Attendees are in listen-only mode• This webinar is being recorded for future on-demand playback• Your participation represents acknowledgement that we are recording• Tweet questions & comments to: #WMBOs
Windows Mac Tablet
PresentersBruce Fischer, MBA, CMCChairman - WelchGroup [email protected]/in/bfischerTwitter: @welchgroup
Mike Blattman, MBAManager, Subordinate Financing - [email protected]/pub/mike-blattman/15/153/141Twitter: @BDC_News
Jim McConnery, CPA, CA, TEPPartner - Welch [email protected]/pub/jim-mcconnery/24/761/4886Twitter: @welchllp
• Due diligence on business being acquired
• Process for a successful MBO
• Tax planning
• Types of financing
What we will cover today
• Assume you know nothing about the business• Do a full DD even if you “think” you know
everything about it• Treat the business like a NEW investment,
would you buy this business as a 3rd party?– Be even more critical than an outsider would be
• Ensure the business strategy / business plan can be executed without the previous owners
• Recognize the previous owner(s) knowledge and advice/guidance value in early stages of transition – use it
Due Diligence
• Undertake a full SWOT on the business taking into account the NEW management team
• Management thinks that as they were involved in the business, they know everything that will affect them - NOT
• Management feels as if they are already “running” the business without being at the helm – think again
• Is the current business direction the same as what the new team would be taking? If not – what are the implications?
Implications / Pitfalls
• Understand deal parameters & implications they may have on the operations (e.g. cash flow)
• Who & where is the “control” going to reside with• Decision making? By whom, votes?• Is there a BoD – what is role of previous owner• How is this MBO being financed?
Internally (earn out), VTB, externally and what are the implications
• New S/H agreement to reflect new ownership
Process for a Successful MBO
• Seller should address tax planning proactively– Ideal to evaluate sale implications 2 years in advance of sale
• Seller will generally have a bias to do a share deal– Access to $800,000 lifetime capital gains exemption (CGE)– May have multiple access to CGE based on family trust
planning– Buyer may be willing to get paid over time to defer gain
recognition
• Consider merits of an asset deal• Plan for real estate if applicable• Address post-sale employment of vendor
Tax Planning - Vendor
• Nature of deal will influence the tax planning for the buyers
• Consider mechanism so that OpCo funds / profits can assist with funding purchase price
• Address deductibility of interest expense, i.e. where is interest expense incurred
• Tax effective structure for buyers• Address shareholder agreement terms for
buyers
Tax Planning – Buyer Group
• Tax due diligence should be completed by buyers• Address tax planning for business income on a post-acquisition basis• Address shareholder agreement terms for buyers• Is insurance required
– Key man– Fund buyout terms
• Tax minimization for business owners and families– Merits of holding companies and family trusts
• Ensure all buyers have up to date wills • Equity or stock options for key employees
Tax Planning
BDC Subordinate Financing
Speaker: Mike Blattman, MBA
• Traditional Bank loans• Alternative Financing• Vendor Financing• Management/New
shareholder equity
Financing Options
Debt
Financing
Subordinate Financing
Equity
Monthly payments Flexible Flexible or none None
Securities Priority rank Subordinate rank No security
Return Fixed
(Interest)
Fixed and variable
(Interest and
participation)
Variable
(participation)
Risk Low Medium-high High
Involvement in
management
None Minimal Management rights
and board of
directors
Financing Comparison
DebtTraditional Guarantee
Cash flow Loans
Mezzanine
SyntheticEquity
Capital-stocks
Return
Ris
k
Products offered byBDC Subordinate Financing
BDC Subordinate Financing
-
100,000
200,000
300,000
400,000
500,000
600,000
Year 1 Year 2 Year 3 Year 4 Year 5
Cash sweeps and royalties
Principal Interest + royalty
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
Year 1 Year 2 Year 3 Year 4 Year 5
Fixed principal and interest
Principal Interest
Structuring Flexibility
• Postponement• Earn-out• Balloon Payment• Intercreditor
Agreements• Subordination• Vendor take-back
(VTB)
• Valuations• Guarantee• Goodwill• Debt servicing• Cash Flow
Banking Terminology
1. It’s never too early to begin discussing opportunities with your business and financial professionals
2. There is no cookie cutter solution
3. Likely multiple parties will be involved in any transaction.
Three Things to Remember
Q & A
Bruce Fischer, MBA, CMCChairman - WelchGroup [email protected]/in/bfischerTwitter: @welchgroup
Mike Blattman, MBAManager, Subordinate Financing - [email protected]/pub/mike-blattman/15/153/141Twitter: @BDC_News
Jim McConnery, CPA, CA, TEPPartner - Welch [email protected]/pub/jim-mcconnery/24/761/4886Twitter: @welchllp