MERGERS & ACQUISITIONS
c Travel and Hospitality
BUSINESS VALUATION
CORPORATE FINANCE
MARKET INTELLIGENCE
Investment Bankers To The Middle Market
a
Positioning
Your Franchise
Company forClient
CapitalName
or Sale
Mark Dayman, Managing Director
The McLean Group, LLC
January 26, 2011
Sub Head
Banker Info
Banker Title
Positioning for Capital or Sale
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??
Confidential and Proprietary
2
The Objective – Sell or Expand??
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.
Confidential and Proprietary
3
The Objective – Sell or Expand??
If you want to sell – each type of exit
carries different value outcomes
2. Sell to third parties –
Employees
3. Sell to third partiesManagement
Confidential and Proprietary
4
The Objective – Sell or Expand??
If you want to sell – each type of exit
carries different value outcomes
4. Sell to third parties –
Working investors
5. Sell to third partiesFinancial investors
(Individuals, Small
Groups, PEGs)
Confidential and Proprietary
5
The Objective – Sell or Expand??
If you want to sell – each type of exit
carries different value outcomes
6. Sell to third parties –
Strategic Buyers
Confidential and Proprietary
6
The Objective – Sell or Expand??
Middle Market Buyer Trends
60%
51%
50%
40%
30%
18%
20%
14%
17%
10%
0%
Sell to Strategic
Buyer
Pass on to Family
Mgmt Buy-Out
Other
Confidential and Proprietary
7
The Objective – Alternatives
Recaps – Sell Some, Expand Some
• 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
8
The Objective – Alternatives
Core Capital
• 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
9
The Objective – What’s It Worth?
Value Drivers
• Earnings potential – frequently EBITDA
• Risk delineated in terms of multiples
• Terms
of the deal
Confidential and Proprietary 10
The Objective – What’s It Worth?
Value Drivers
Earnings potential – frequently EBITDA
• Historic performance
Clean v. a mess
Normalized
• Projected performance
Documented and continuing trends?
New concepts and strategies
Confidential and Proprietary
11
The Objective – What’s It Worth?
Value Drivers
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 12
The Objective – What’s It Worth?
Value Drivers
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 13
The Objective – Make It Better
How Can I Enhance Value??
• 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 14
The Objective – Make It Better
How Can I Enhance Value??
• 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.
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Wrap-Up
• 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
Confidential and Proprietary 16