BEST PRACTICES IN INCENTIVE DUE DILIGENCE IEDC Annual Conference Fort Worth, TX October 21, 2014

About Us • Business Development Advisors is an economic

development consulting firm •  Works with leaders at the local, state and national levels to

increase business investment and job growth in their communities •  Founded 1999

• Smart Incentives helps communities make sound decisions throughout the economic development incentives process •  Due diligence and business case analysis for incentive projects •  Processes for monitoring compliance and evaluating effectiveness •  Launched 2013

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Smart Incentives 4x4 Framework

Recipient Deal

Compliance Effectiveness

Data and analysis to

enable better decision-making

Greater transparency

and accountability

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Incentives and Due Diligence •  Incentives should be used to accomplish community goals

– not just win a deal. •  Incentives are part of a community’s financing toolkit and should be

used and evaluated in that light •  Incentives policy is one element of a business attraction strategy,

which is one element of a good economic development strategy

• Why due diligence is important •  To reduce risk •  To understand if an incentive deal can generate net benefits for

your community •  To refine strategies and recommendations •  To explain and build support for decisions

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Due Diligence on Prospective Companies

• Recipient • Background research on the applicant

• Deal • Business case analysis of the project • Cost-benefit analysis for the community

•  Project benefits •  Economic & fiscal impact analysis

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Recipient: Background Research • Why?

•  The more you know about a company, the better deal you can create for both the business and your community

•  To minimize the damage associated with problem prospects

• What you need to know •  Company facts: location, year established, revenue & employees •  Description of their products or services •  Location of existing operations •  Executive or owner background •  Recent news

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Recipient (2) • What else you should know:

•  Major customers •  Growth projections and strategies •  Recent restructuring and management changes •  History of past incentives negotiations •  Ownership details •  Company credit rating •  Financial structure

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Recipient (3) • Research resources

•  Business directories (not just one) •  Hoover’s – 40,000 companies •  Reference USA – 14 million US businesses •  LexisNexis – 43 million companies

•  News aggregator and search sites •  Local business journals

•  SEC’s EDGAR for public companies and prospectuses •  Experian, D&B for credit ratings •  State corporation commissions •  Social media accounts, blogs

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Deal: Business case analysis • Why?

•  What could possibly go wrong? •  Understanding “the pitch” versus “the reality”

• What you need to know – Seven M’s Model •  Market

•  Market size and growth - verify •  Management

•  Who leads the company •  Who is in charge of the project

•  Magic •  Why do they think they will be successful? •  What factors are critical to their success?

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Deal (2) • What you need to know (cont.)

•  Model •  Get specifics on their revenue model •  Be clear on their sales model

•  Money •  Who else is financing the project? •  Financial projections

•  Momentum •  What are the risks to the project’s execution

•  Match •  Why do they think your community is a good match? •  What benefits do they bring to your community?

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Contact Information Ellen Harpel President 571/212.3397 eharpel@businessdevelopmentadvisors.com www.businessdevelopmentadvisors.com ellen@smartincentives.org http://www.smartincentives.org/ Twitter: @SmartIncentives

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