The Sale of Great Lakes
Strategies, LLC
A Case Study
Gary Gabel
April 24, 2009
Overview of presentation
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Positioning Your Firm with an
Exit Strategy in Mind
What are Buyers Willing to Pay For?
Two Types of Buyers
What Will Buyers Pay?
Why Hire an Investment Bank?
The Selling Process
Overview of Presentation
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Overview of Great Lakes Strategies, LLC
Investment Company Proposals
The Presentation Made to Potential Partners
The Final Offers
 Financial Buyer
 Strategic Buyer
The Transaction
The Aftermath
Conclusion
Positioning Your Firm With an Exit
Strategy in Mind
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Revenues
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Maximize annuity revenue
Extend client contracts as long as possible
Expenses
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Eliminate extraneous expenses:
 Excessive compensation
 Company cars
 Club memberships
 Season tickets
 Planes, boats
Positioning Your Firm With an Exit
Strategy in Mind
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People
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Develop deep bench strength
Results/Relationships
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Make sure quality of your service or
product is exceptional
Develop close relationships with
customers—make sure they’re not just
yours
What Are Buyers Willing to Pay More
For?
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Eliminate competition
Entry into a complementary market
A book of attractive business
Annuity/recurring revenue
Companies with high earnings/sales
Strong talent
Two Types of Buyers
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Strategic—They see you as a way to
eliminate competition, enter a new
market, buy a book of business,
buy a talent base, gain new
technology
Financial—They see a vehicle that
can generate revenue and increase
wealth—because they will buy it at
the lowest price possible
What Will Buyers Pay?
Most firms are sold for a multiple of
EBITDA
(Earnings before interest and taxes,
depreciation and amortization)
Why Hire an Investment Bank or
Business Broker?
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They know the business of M&A
They know how to package what
you have
You are too emotionally involved
They are experienced negotiators
Deal with your Emotional Expectations
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In a strategic sale:
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Don’t expect to stick around
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Tenure of most entrepreneurs who sell their
companies is less than 1 year
Don’t expect your people will be treated
well
In a financial sale:
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Expect to be hounded regularly to
increase earnings
The Selling Process
Analysis of
Shareholder
Objectives
Due Diligence
Pricing
Analysis
Bids (Letters of
Intent)
Negotiations
Selling
Memorandum
Presentations
to Prospective
Buyers
Definitive
Agreement/
Closing
Buyer Log
Buyer
Contact
Great Lakes Strategies
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Provided outsourcing of benefits to
clients ranging in size from 100
employees to 20,000 employees
At time of sale, sales exceeded $11
Million
115 Employees
The Sale of Great Lakes
Strategies
Process Began: January 2002
Sale Consummated: December 2002
EBITDA for 2002 (in thousands)
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Revenue
Expenses
$11,977
$10,444
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Operating Income
Dep and Amort
$1,533 (13%)
720
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EBITDA
$2,253 (19%)
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Investment Bank Proposals
Investment Bank A
Investment Bank B
Investment Bank C
Retainer
$50,000
$25,000
$8,000
Contingent Success
Fee Minimum
$250,000
$200,000
$150,000
Formula for
Contingent Fee
$250,000 to
$12 MM
2% between
$12 & $15
3% above $15
TBD
5% of first
$1MM
4% of second
Million
3% of third
Million
2% of
Remainder
Engagement
Tail
2 Years
1 Year
1 Year
The Presentation to Prospects
Offers
Financial Buyer
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Cash = $10 Million
Seller Note = $2
Million
Total = $12 Million
We retain 30%
ownership for a
“second payday”
Strategic Buyer
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$16.2 Million Cash
Earnout of $1.40
for each $1.00 of
qualified revenue
above $12.5 MM in
2003
Analysis of Financial Buyer Proposal
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$10 MM Cash would come from:
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$1 MM from Buyer
$5 MM Senior Debt (bank loan) to be
paid back by GLS
$4 MM Preferred Stock (7%)
$2MM Seller Note—a note to be
paid to us over 7 years at 7%
interest
Cost of Financial Buyer Proposal
Arrangement
 $5 Million Senior Debt,
financed over 10
years at 7%
 $2 Million
Management Note for
7 years at 7%
 $4 Million Preferred
Stock with 7% Coupon
Cost to GLS
 $697,000/year
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$362,000/year
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$280,000/year
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Total = $1,339,000
per year vs. Operating
Income of $1,533,000
The Final Transaction
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Received $15.7 Million Cash
$500,000 deposited in escrow,
redeemed 6 months later
$1.4 Million Cash paid in 2003
based on earnout
Total = $17.6 Million
Payment as Multiple of EBITDA for
2002 (in thousands)
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Revenue
Expenses
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Operating Income
Dep and Amort
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EBITDA
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Final Payment
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$11,977
$10,444
$1,533 (13%)
720
$2,253 (19%)
Before Earnout
7.19 X EBITDA
Including Earnout ($1.4 MM) 7.82 X EBITDA
The Aftermath
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My tenure in new company lasted 3 months
Employee headcount was reduced from 115
to 65 within one year of acquisition
Had to separate myself emotionally from
events at company
Clients became disenchanted with new level
of service
Client attrition increased
Site was closed July 2008
Less than 10 employees remain with new
company
Conclusion