SUCCESSFUL SUCCESSION PLANNING AND DEVELOPMENT …

SUCCESSFUL SUCCESSION PLANNING AND DEVELOPMENT

FLAG 2016 ANNUAL MEETING

Paul Reilly, Jim Russell New Direction Partners

Massachusetts, New York, Pennsylvania,

North Carolina, Florida, Michigan, Colorado, Texas

© New Direction Partners, LLC 2013 2

1.  When2.  What3.  How4.  Today’s Environment5.  Summary6.  Questions and Answers

AGENDA


1.  When – The Timetable2.  What3.  How4.  Today’s Environment5.  Summary6.  Questions and Answers

AGENDA


TIMETABLE

The !Beach!

Today!


Timetable

The !Beach!

Today! Closing!

6-24!Months!

TRANSITION!


TIMETABLE

The !Beach!

Today! Closing!

6-24!Months!

Begin !Process!

9-12!Months!

TRANSITION!OWNERSHIP !TRANSFER!


TIMETABLE

The !Beach!

Today! Closing!

6-24!Months!

Begin !Process!

9-12!Months!

0-36!Months!

Prepare Firm!

TRANSITION!OWNERSHIP !TRANSFER!PREPARATION!


TIMETABLE

The !Beach!

Today! Closing!

6-24!Months!

Begin !Process!

9-12!Months!

Minimum Period: 15 months!Maximum Period: 6 Years!

PREPARATION!

0-36!Months!

Prepare Firm!PHASE!

OWNERSHIP TRANSFER!

TRANSITION!


NOT A PLAN


1.  When2.  What – Not One Size Fits All3.  How4.  Today’s Environment5.  Summary6.  Questions and Answers

AGENDA


1.  Diversification

2.  Ready for Beach

3.  Next Generation has gone elsewhere

4.  Business is difficult and I am tired

5.  Next career is calling

6.  Etc. Etc.

WHAT – NO ONE SIZE FITS ALL

WHAT CAN I DO WITH MY BUSINESS

•  Sell •  Give it away to

Charity •  Gift it to family •  Sell it to a key

employee(s) •  Any combination of

the above

•  Merge •  Dissolve •  Sell it to Family •  Sell It to all your

employees (ESOP)


1.  When2.  What 3.  How – Put Together a PLAN4.  Today’s Environment5.  Summary6.  Questions and Answers

AGENDA


TWO PARTS

1.  Replacement Plan – the process of identifying the candidates and replacing the owner as a leader of the firm

2.  Exit Plan – the process of identifying the options and replacing the owner as a shareholder of the firm.

THE PLAN – YOU NEED A PLAN


1)  Identify key leadership criteria

2)  Find future leaders and motivate them

3)  Create a sense of responsibility within the organization

4)  Align succession planning with the corporate culture

5)  Measure results and reinforce desired behaviors

REPLACING PLANNING


YOU MAY ASK

1)  Why do I need to identify a replacement if I plan on selling business?

2)  What if I don’t have a replacement in the house?

REPLACING PLANNING


TWO CENTRAL QUESTIONS!

1)  Do you know what you want to do after you are no longer involved in day-to-day operations?

2)  Do you have the resources to do what you aspire to do after the sale?

EXIT PLANNING


Get the timing right

Get the planning done

Give the next group the best chances of success as possible

Take responsibility, IT IS YOUR JOB.

HOW DO YOU HANDLE IT

© New Direction Partners, LLC 2016!19

Exit Planning Process

1. Objective 2. Timing 3. Financial 4. People 5. Assessment

ü "The Plan" ü Plans “B” and “C”


Objective

•  This is the easiest to talk about, the hardest to agree upon.

• You must go through this process. •  I have seen many cases where owners say

one thing, but when they get down to the brass tacks, realize they want to achieve other objectives.


Objective

•  It’s your life, you can do whatever you want with it.

• You don’t have to do what others expect of you.

• Some might say, “Take care of yourself, don’t worry about your children.”

• Others would say, “I have all I need. . . I want to take care of my children.”

• What are your personal goals?


Objective

•  Let’s list the obvious items that an owner might want in a transition.


Timing • Get the ages down. • Spell out by when the major parts will be decided. • Examples:

ü Owner wants to control what happens until age 55.

ü At 60, transition/succession plan will be needed to put into place.

ü At 65, owner wants to spend the winter in Florida. ü Owner agrees to 50% compensation at age 65.


Timing Requires Changes Based on your age: •  40 year olds put it in their wills. May have

buyout clauses. •  50 year olds may state what they want

done. •  60 year olds may get very specific, but still

have complete control. •  70 year olds should have a complete

succession plan in place. •  Each Individual is different.


Timing Requires Changes Based on your age: •  40 year olds put it in their wills. May have

buyout clauses. •  50 year olds may state what they want

done. •  60 year olds may get very specific, but still

have complete control. •  70 year olds should have a complete

succession plan in place. •  Each Individual is different.


Timing

• Get the timing for when the major decisions will occur onto a calendar.

• Review the calendar once a year. • Revise as necessary. • Make sure you have enough reminders in

place that you don’t let it lapse.


1.  When2.  Why3.  How – Put Together a Plan4.  Today’s Environment – What is your Company

Worth?5.  Summary6.  Questions and Answers

AGENDA


Multiple of EBITDA, or;

Liquidation and Earn-Out Value, or;

Market Asset Approach (Tuck-in)

HOW DO YOU VALUE YOUR BUSINESS?


WHAT DRIVES VALUE


Combination of Quantitative and Qualitative Factors.

Quantitative Factors Drive Point Estimate Qualitative Factors Modify Point Estimate

plus or minus.


QUANTITATIVE FACTORS


Earnings Usually EBITDA

Top-line / Bottom-line Growth – Historical and Projected

Interest Bearing Debt – Funded Debt


QUANTITATIVE FACTORS


Computation of Shareholder Value – Example EBITDA $1,000,000 Multiple 5x Enterprise Value $5,000,000 Less: Cash Value Options $500,000 Less: Funded Debt $1,500,000 Plus: Cash $500,000 Shareholder Value $3,500,000


ITS ALL ABOUT GROWTH


•  Digital Books•  Direct mail / marketing•  Packaging•  Large format•  Retail POP•  Web to print •  Customer interfaces – proprietary technology

HOT MARKET



EBITDA VALUATION RANGES

0 1 2 3 4 5 6 7

>$3millionEBITDAPlusX

>$10millionEBITDAPlusX

Commercial(NotShrinking)PlusX

Commercial

Digital(incltransacHonal)

CustomizedDirectMarkeHng

WebtoPrint

RetailPOP

Labels

LargeFormat

Packaging

AVG.MULTIPLE HIGHMULTIPLE

Hot Markets are marketed via

auction!

Buyers are mostly strategic!

_____________!Additive!


QUALITATIVE FACTORS


QUALITATIVE FACTORS

POSITIVE •  - Management

Capacity •  - Up To Date

Technology +/- •  - Above Average

Operating Margins +/- •  - Good People

Culture •  - Buyer Synergies •  - Competitive Process

NEGATIVE •  - Customer or Sales

Exec Concentration •  - Union •  - Exiting Management •  - No Roll Over

Investment •  - Up and Down

Performance •  - Expansion

Restrictions +/-



Three Elements1.  Net Working Capital at book value – realization usually

warranted; plus2.  Production Equipment at OLV – either purchased by

buyer or realized post closing by sell; plus3.  Commission on Retained sales for 2 to 5 years (Avg. 3

years) at 3% to 7%. Actual terms are what seller can negotiate and commission rate is normally a function of VA and variable operating expenses.

If total of elements 2 plus 3 don’t satisfy funded debt then Commission may be prepaid at closing.

ASSET MARKET VALUATIONS


MAXIMIZING VALUE


Timing Demonstrate your ability to grow Reduce your debt Mid way through technology investment cycle

Run a process – create demand


•  Even if not a Seller – Confirm your decisions and actions are creating

value – Understand which decisions and actions initially

reduce value – Someday you may be a seller

Benefits of Knowing Value

39 !


•  Purchasing a firm's sales and selected assets. •  In lieu of a royalty arrangement, the seller receives

stock in the new entity. •  Figure out together which equipment ought to stay,

which plant to move into, etc. •  Still may include the purchase of Accounts

Receivable, Inventory and certain equipment at market value.

CASHLESS MERGER

©New Direction Partners, LLC 2012!40 !


•  Compelling economics. •  The buyer has a true partner going forward with the

same motivations. •  Keep the best of the best and eliminate

duplications. •  Seller can receive greater upside if the new entity is

successful. •  NO CASH REQUIRED!

BENEFITS OF CASHLESS MERGER

©New Direction Partners, LLC 2012!41 !


1.  When2.  Why3.  How 4.  Today’s Environment 5.  Summary6.  Questions and Answers

AGENDA


Firm Preparation Phase •  Start NOW!

•  “Clean up” real estate

•  “Clean up” multi-employer union plans

•  Appoint a successor / replacement

•  Maximize value – get your EBITDA up and your Debt down!

•  “Manage” large investments in equipment and technology

•  Fix it now – don’t leave to next owner

•  “Clean up” voting control – watchful of different objectives

•  Value your business every year

LESSONS LEARNED


Ownership Transfer Phase o  Hire an advisor

o  Reward key managers

o  Only get key managers involved

Transition Phase o  Have fun!

LESSONS LEARNED


Questions?

Paul Reilly and Jim Russell - New Direction Partners www.NewDirectionPartners.com

Email: [email protected]

[email protected]

PAUL V. REILLY Mr. Reilly formed New Direction Partners in April 2009, an investment banking and financial advisory services, with Peter Schaefer, Jim Russell and Tom Williams to serve the printing and related industries. Services include merger advisory services through the representation of selling shareholders as well as buy side representation, valuation services, financing and refinancing efforts, turnaround and restructuring services, and temporary/interim management consulting. Mr. Reilly frequently speaks at industry conferences on such topics as: Growing Market Share, Solution Selling, Mega Industry Trends, Competing with Consolidators and Merger & Acquisition Trends.! Previously, Mr. Reilly was Chief Executive Officer, President and Chairman of the Board of Cenveo, Inc. (NYSE:CVO), one of North America’s leading printing firms. During his ten years at Cenveo, the firm grew from $17 million to almost $2 billion in sales with more than 10,000 employees, 86 plants and numerous sales offices throughout North America. While he was at Cenveo, the company grew rapidly through acquisitions, completing some 60 acquisitions and numerous capital raisings, and created over 17% CAGR in shareholder returns. As CEO, Mr. Reilly led the transition of Cenveo from a collection of independent firms to an integrated graphic communication firm providing its clients with multi-media solutions. Under his leadership, Cenveo was voted second place in the printing and publishing category as Fortune Magazine's Most Admired Companies of 2004 and ranked number ten of the Russell 3000 companies on Corporate Governance Quotients by Institutional Shareholder Services. !He currently serves on the Investment Committee of the Printing Industries of America and serves on the Meeting and Content Committee of the EMA. He is also a past member of The Business Roundtable, an association of CEOs from leading corporations who advocate public policies that foster economic growth, a dynamic global economy, and a well-trained and productive U.S. workforce essential for our future competitiveness. !Mr. Reilly currently serves on the boards of SoftPrint, a digital printer of books and photographs, Forces First, a provider of insurance products to European military personnel and CSG Solutions, a provider of outsourcing services.!Mr. Reilly has an undergraduate degree in Finance and an MBA in Computer Methodology from Baruch College. Previously a CPA, he served as a Bernard M. Baruch Graduate Assistant from 1974 to 1975. Born and raised in Queens, New York, Paul now resides in Colorado and Florida with his wife of 42 years, Patty. They have three grown children and six grandchildren. His interests include skiing, mountain climbing,! mountain biking, sailing and golfing.!

JIM RUSSELL

•  Prior to joining NDP, Jim Russell owned Arbor Press in Royal Oak (Detroit), Michigan. During his tenure at Arbor Press, the company was recognized as an eight-time winner of the National Association for Printing Leadership’s (NAPL) prestigious Management Plus Awards program that recognizes the best managed graphic arts companies in the country. Arbor Press was also recognized twice during Russell’s leadership as one of the 50 fastest growing printers in the U.S.!

•  During his last three years at Arbor Press, he simultaneously served as President and CEO of RBF, Inc., of Lansing, Michigan, an industry leader in the forms and document management industry. In 2005 and 2006, working with NDP, he orchestrated the sale of both of these companies to separate industry buyers.!

•  A lifelong Michigan resident, Russell is a dedicated family man who is active with his wife and sons in a number of church and community organizations. He earned a degree in Business Administration from Hope College in 1983. Russell also serves on the Board of Directors for the Michigan Chamber of Commerce, the NAPL, and the Printing Industries of Michigan. He is a member of the Amy Foundation Advisory Board, the Board of Directors of Covenant Community Care (a faith-based, non-profit organization dedicated to providing primary health care to the uninsured and underinsured of Southwest Detroit), and the Board of Directors of Chosen Vision.!

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SUCCESSFUL SUCCESSION PLANNING AND DEVELOPMENT …