APRIL 19, 2012

STARTING AN M&A PROGRAM – FROM SCRATCH

CHARLES E. WECHSLER

TODAY’S DISCUSSION

•  INTRODUCTION •  GENERAL PRINCIPLES

–  VALUATIONS –  SUCCESS FACTORS

•  GOALS •  SWOT ANALYSIS •  CRITERIA DEVELOPMENT •  PROCESS STEPS •  IMPLEMENTATION PLAN

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INTRODUCTION – CHARLES E. WECHSLER

EXPERIENCE •  25 Years Environmental Consulting

–  Field Geologist (Dames & Moore)

–  P&L Manager (Dames & Moore)

–  Director, Mergers & Acquisitions (IT Group)

–  Owner (Geologica)

–  Independent Consultant (Mergers & Acquisitions, Project Management)

EDUCATION •  BA Physical Sciences / Geology (Colgate University)

•  MBA (University of Southern California – IBEAR)

•  JD (Concord School of Law)

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GENERAL PRINCIPLES

•  MERGERS ARE DIFFERENT FROM ACQUISITIONS

•  MORE THAN 50% OF ACQUISITIONS FAIL TO MEET PLANNED GOALS

•  ACQUISITIONS TAKE TIME, EFFORT AND CUT ACROSS ALL BUSINESS ACTIVITIES

•  VALUATIONS WILL VARY WIDELY

•  SUCCESS DEPENDS ON MULTIPLE KEY FACTORS

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VALUATIONS

•  SELLER AND BUYER USUALLY DIFFER WIDELY TO START

•  SEVERAL METHODS OF VALUATION

1.  Premium Over Stock Price

2.  Multiple Of Revenue

3.  Multiple of “Profit”

4.  Based On Similar Transactions

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SUCCESS FACTORS

•  WELL-DEFINED ACQUISITION STRATEGY •  REALISTIC GOALS & EXPECTATIONS •  CONVINCING “STORY” TO TARGET AND MANAGEMENT •  GOOD CULTURAL AND PERSONNEL FIT •  CAREFULLY PLANNED INTEGRATION, START EARLY! •  PERSONNEL BUY-IN/INCENTIVES/RETENTION •  CLIENT RETENTION •  SIMILAR CORPORATE POLICIES AND BENEFITS •  PROPER DUE DILIGENCE (DEAL KILLERS?)

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PROCESS STEPS

•  DETERMINE BUSINESS/ACQUISITION GOALS AND CONFIRM MANAGEMENT SUPPORT

•  PERFORM SWOT (STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS) ANALYSIS TO SHAPE ACQUISITION PLAN AND APPROACH

•  DEVELOP KEY CRITERIA FOR HIGH PRIORITY TARGETS

•  INSTITUTE PROCESS TO IDENTIFY POTENTIAL TARGETS AND SELECT HIGH-PRIORITY TARGETS

•  DEVELOP “INTERNAL” AND “EXTERNAL” SALES’ APPROACHES FOR HIGH-POTENTIAL TARGETS

•  APPROACH HIGH-POTENTIAL TARGETS / DUE DILIGENCE / VALUATION / NEGOTIATION / CLOSE

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GOALS / MANAGEMENT SUPPORT

•  FINANCIAL GROWTH •  GEOGRAPHIC •  SERVICES AND SCOPE •  TECHNOLOGY •  BRAND/REPUTATION •  TIME FRAME •  SIZE AND SCOPE OF ACQUISITIONS •  MAINTAIN/CHANGE COMPANY VISION •  MANAGEMENT SUPPORT – LITERALLY, “BUY-IN”

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“SWOT” ANALYSIS

•  STRENGTHS, WEAKNESSES, OPPORTUNITIES, AND THREATS

•  USE SWOT ANALYSIS TO DETERMINE WHICH AREA(S) THE ACQUISITIONS ARE TO ADDRESS

•  CAN BE SPECIFIC TO OVERALL COMPANY, DIVISION, SUBSIDIARY, ETC.

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CRITERIA DEVELOPMENT

• Strategic Fit • Valuation • Services • Culture / Brand • Services / Industry

Sectors • Client Base

• Profit & Loss • Geography • Facilities &Equipment • Intellectual Property • Legal • Human Resources • Integration

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IMPLEMENTATION PLAN I

•  IDENTIFY CANDIDATES (“HOPPER”) •  PRELIMINARY EVALUATION (“ASD”) •  FOCUS ON SEVERAL KEY CANDIDATES •  TAILOR APPROACHES TO CANDIDATES •  INITIAL APPROACH TO ONE OR MORE CANDIDATES -

NON-DISCLOSURE AGREEMENT (“EXTERNAL SALE”) •  UNDERSTAND CANDIDATES’ BUSINESS AND SELLING

RATIONALE •  UNDERSTAND VALUATION EXPECTATIONS •  PRELIMINARY DUE DILIGENCE

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IMPLEMENTATION PLAN II

•  MANAGEMENT PRELIMINARY APPROVAL? •  LETTER OF INTEREST •  THOROUGH DUE DILIGENCE •  PRELIMINARY INTEGRATION PLAN •  GET MANAGEMENT APPROVAL TO NEGOTIATE?

(“INTERNAL SALE”) •  NEGOTIATION / VALUATION •  DETAILED INTEGRATION PLAN •  CLOSE?

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IMPLEMENTATION PLAN III

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THANK YOU

SUPPORTED BY: