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aClient Name
Sub Head
Banker InfoBanker Title
MERGERS & ACQUISITIONS
BUSINESS VALUATION
CORPORATE FINANCE
MARKET INTELLIGENCE
Investment Bankers To The Middle Market
c Travel and Hospitality
Positioning Your Franchise Company for Capital or Sale
Mark Dayman, Managing DirectorThe McLean Group, LLC
January 26, 2011
Confidential and Proprietary
Need Early Focus of
Attention (“Ready, Aim,
Shoot”):
• What’s the objective? Are you seeking an exit?? Or are you looking for an expansion opportunity?? Or seeking core capital?
• What’s it worth?
• How can value be enhanced in the short run??
Positioning for Capital or Sale
2
Confidential and Proprietary
If you want to sell – each type of exit carries different value outcomes
1. Family transfers
– “Fair Market Value”
is the driver.
– Host of inter-family
issues to overcome.
The Objective – Sell or Expand??
3
Confidential and Proprietary
If you want to sell – each type of exit carries different value outcomes
The Objective – Sell or Expand??
4
2. Sell to third parties – Employees
3. Sell to third parties-Management
Confidential and Proprietary
If you want to sell – each type of exit carries different value outcomes
The Objective – Sell or Expand??
5
4. Sell to third parties – Working investors
5. Sell to third parties-Financial investors (Individuals, Small Groups, PEGs)
Confidential and Proprietary
If you want to sell – each type of exit carries different value outcomes
The Objective – Sell or Expand??
6
6. Sell to third parties – Strategic Buyers
Confidential and Proprietary
The Objective – Sell or Expand??
7
Middle Market Buyer Trends
Confidential and Proprietary
Recaps – Sell Some, Expand Some
The Objective – Alternatives
8
• Take some of the current investment off the table, provide new capital, take business to new level.
• Capital sources may require equity of 25-75%.
• Use new capital for expansion.
• Resell company in 3-5 years, everybody exits.
• Attractive to investors seeking high quality and stable management, proven product & market trends, can overcome barriers to growth.
Confidential and Proprietary
Core Capital
The Objective – Alternatives
9
• It is the most difficult capital to raise.
• AKA early stage, venture capital.
• Might want 25% +/- of equity with upside rewards.
• Common is tech, biomed/healthcare, Pharma.
• Other fields require more than simply potential monetary rewards – previous track record, aspirational investors with BIG EGOs.
Confidential and Proprietary
Value Drivers
The Objective – What’s It Worth?
10
• Earnings potential – frequently EBITDA
• Risk delineated in terms of multiples
• Terms of the deal
Confidential and Proprietary
Value Drivers
The Objective – What’s It Worth?
11
Earnings potential – frequently EBITDA
• Historic performance
Clean v. a mess
Normalized
• Projected performance
Documented and continuing trends?
New concepts and strategies
Confidential and Proprietary
Value Drivers
The Objective – What’s It Worth?
12
Risk
• Buyer’s/investor’s perception
• Market and buyer demands for returns
• Likelihood that expected performance can be achieved (versus alternative opportunities)
• Transparency – how easy is it for a buyer or capital source to see the value?
• Size matters.
• Industry matters.
Confidential and Proprietary
Value Drivers
The Objective – What’s It Worth?
13
Terms of the Deal
• Buyer’s and seller’s perceptions of “value” are normally balanced by the terms of the deal.
• Seller’s are normally forced to take paper back.
• Variances to balance:
1. Earnings - potential v. actual
2. Perceived risks
3. Skin in the deal
4. Other issues – taxes, credit, classifications
Confidential and Proprietary
How Can I Enhance Value??
The Objective – Make It Better
14
• Enhance EBITDA
1. Make it bigger and better and sustainable.
2. Clean up P&L and B/S.
3. Clean up the operations – customers, markets, products, distribution systems, etc.
4. Develop a strategic business plan and start implementing the action plan.
Confidential and Proprietary
How Can I Enhance Value??
The Objective – Make It Better
15
• Reduce perceived risks
1. Develop a strategic business plan and start implementing the action plan. Simplicity, focus, measurable results, scalability.
2. Create & enhance transparency. Make it easy for capital sources to see and understand your
business and where the value is.
3. Make yourself obsolete, especially in a sale.
4. Have a close team of advisors – lawyer, CPA, investment banker.
Confidential and Proprietary
Wrap-Up
16
• Decide what it is you want to accomplish? Stay and build? Sell now?
• If you seek core capital, you’ll need an especially robust compelling message.
• Enhance value
Build EBTIDA
Develop a business plan, implement it
Reduce perceived risk