© 2015 evergreen consulting, llc distribution m&a 2015 it doesn’t get any better than this...

© 2015 Evergreen Consulting, LLC

DISTRIBUTION M&A 2015IT DOESN’T GET ANY BETTER THAN THIS

Brent R. GroverEvergreen Consulting, LLC

© 2015 Evergreen Consulting, LLC

"COMPETITION BETWEEN BUYERS IS AT AN ALL-TIME HIGH. THUS, WHEN A QUALITY COMPANY HITS THE MARKET, BOTH PE

FUNDS AND STRATEGICS ARE WILLING TO STRETCH FOR IT, KNOWING THAT THEY ARE

SUPPORTED BY AN EXTREMELY ROBUST DEBT MARKET.”

WILLIAM BLAIR REPORT, 2014

© 2015 Evergreen Consulting, LLC 3

Brent R. GroverEvergreen Consulting, LLC

30100 Chagrin Blvd., Ste. 111Cleveland, OH 44124

brent@evergreenconsulting.comwww.evergreenconsulting.com

(216) 360-4600 ext. 101

40 years as CPA35 years as Adjunct Professor25 years as Distributor15 years as Consultant12 years as Author10 years as NAW Institute Research Fellow8 years as APIC Partner3 years as UID Faculty Member

= 148 years of experience

© 2015 Evergreen Consulting, LLC

© 2015 Evergreen Consulting, LLC

ABOUT TODAY’S FINANCIAL MARKETS

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ABOUT BUYING DISTRIBUTORS IN 2015

© 2015 Evergreen Consulting, LLC

Buying Distributors

• Seller’s market

• Owners want to sell at the “top” of the market

• Never enough great companies on the market

• IB’s running sales processes (i.e, auctions) for distributors

© 2015 Evergreen Consulting, LLC

Target selection

• Acquisitive distributors need a good buying process (playbook)

• Most IB’s prefer sell-side work

• Starts with your strategy

• Acquisitions filter: prioritize the targets

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Target cultivation

• Rules of diplomacy apply

• Highest and best use of executive time

• Communication builds trust

• Patience: 2-3 years?

• Goal: intercept target, avoid auction

© 2015 Evergreen Consulting, LLC

Assessing value

• Many valuation methods, each of which is a guess

• Good comparables hard to find

• No two deals alike

• “EBITDA”

• Add-backs & adjustments

• Projections & assumptions

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Negotiation

• Term sheet

• Letter of Intent

• Definitive purchase agreement (assets or stock)

• Price & terms

• Escrows and post-closing adjustments

• Warranties & representations

• Real estate

• Employment, consultation

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Due diligence

• 30-60 days

• Quality of earnings

• Data room

• Environmental

• Customers

• Suppliers

• Employees

• Subsequent events

• Renegotiation

• Break-up fees

© 2015 Evergreen Consulting, LLC

Integration

• Start before closing

• Avoid “conqueror syndrome”

• Place the right person at the acquired company

• Don’t make promises that you can’t keep

© 2015 Evergreen Consulting, LLC

ABOUT SELLING A DISTRIBUTOR IN 2015

© 2015 Evergreen Consulting, LLC

Selling A Distributor

• “The right time to sell is when someone desperately wants to buy your business”

• Once in a lifetime event for most

© 2015 Evergreen Consulting, LLC

Ownership succession

• Family, manager(s), ESOP

• Japan - grooming scion

• Dynasties

• Estate planning

© 2015 Evergreen Consulting, LLC

End-game strategy

• Is the question what to do, or when to do it?

• Strategic or financial

• Reinvest and get a “second bite of the apple”?

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Getting the house in order

• Other stockholders

• Books and records

• Housekeeping

• Taxes

• Environmental

• Real estate

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For sale by owner?

• Only going to do this once

• Your lawyer and CPA?

• Competition

• Process

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Secrecy

• Vulnerability

• Who must know?

• Suppliers

• Damage control

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After-tax, after expenses

• Debts

• Post-closing adjustments

• Federal income taxes

• Capital gains or ordinary income rate?

• State income taxes

• Expenses - banker, attorney, accountant

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How much is enough?

• Lifestyle and retirement goals

• What are you going to do now?

• Buying another business

• Cash flow from investments

• Next generation

© 2015 Evergreen Consulting, LLC

ADVICE FROM DISTRIBUTION M&A

EXPERTS

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NAW GUIDE SURVEY HIGHLIGHTS

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NAW survey results

• 42 sales in 2010-2014

• 20% stock purchases

• $954 million revenues

• > $200 million purchase price

© 2015 Evergreen Consulting, LLC

NAW survey results• One seller in six

approached the seller, several through bankers

• Nearly 40% through industry relationships

• One in eight was an auction

• None of the buyers used a finder

© 2015 Evergreen Consulting, LLC

NAW survey results• Deal expenses 1.4% of

price

• 40% of sellers stayed on > one year

• Disputes in one of seven

• Escrow claims in one of four

• Success rate 7.5 on scale of 10.0

© 2015 Evergreen Consulting, LLC

NAW survey results

• 3.9% ROS

• 30% of sales

• 1.8X premium

• 6.1X EBITDA

© 2015 Evergreen Consulting, LLC

TEN THINGS YOU CAN START DOING NOW

1. Advisory board2. Strategic planning3. Acquisition filter4. Acquisition process5. Point person for acquisitions6. Deal attorney7. CPA with deal experience 8. Investment banker with distributor deal

experience9. Exit strategy 10.Read a good book about distribution!

29© 2015 Evergreen Consulting, LLC

ISSA October 2015

© 2015 Evergreen Consulting, LLC 30