Download - Evolve (for UofC) Final 8-17-09 v1
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Moving On:
Preparing to Sell and Transition Outof Your Business
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• 77 million baby boomers age 41 to 60.
• 40% of businesses are owned by boomers.
• That’s 4.5 million privately owned businesses.
• 50% to 80% of owners plan to exit within the next10 years.
Business Owner Demographics:
Business owners indicate the mostimportant transition objectives include:
• Achieving personal financial security
• Maintaining harmony with the family
• Controlling how and when they leave
• Minimizing taxes
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However;
• Only 1 in 10 owners receive a priceanywhere close to what they wanted.
• More than half of all deals fall apart in duediligence.
• 75% of business owners regret selling theirbusiness 12 months after the closing.
If 75% had regrets...
What went right for the other 25%?
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How not to sell your business:
Step One:
Casual discussions.
How not to sell your business:
Step One:
Casual discussions.
Ask for “how to” advice.
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How not to sell your business:
Step One:
Casual discussions.
Ask for “how to” advice.
Hire a Professional.
Step Two:
Get annoyed with peop le in Step One.
How not to sell your business:
Step One:
Casual discussions.
Ask for “how to” advice.
Hire a Professional.
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Step Two:
Get annoyed with people in Step One.
Get surprised by any price offered.
How not to sell your business:
Step One:
Casual discussions.
Ask for “how to” advice.
Hire a Professional.
Step Two:
Get annoyed with people in Step One.
Get surprised by any price offered.
Get mad and w alk away.
How not to sell your business:
Step One:
Casual discussions.
Ask for “how to” advice.
Hire a Professional.
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What’s the problem?
Improper or no planning!
• 58% no plan
• 33% yes, informal not written
• 9% yes, formal written
So what’s the point of planning:
The primary goal is to transition you out of your business.
Selling your business is an optional step in that process.
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The 5 Steps to Business Owner Transition:
Step One… Visualize your Life
Step Two… Choose your Buyer
Step Three… Build your Value
Step Four… Harvest your Wealth
Step Five… Live your Life
Step One: Visualize your Life after business.
Your Mind
Your
Identity
Your
Security
You need a new mental construct.
For years you and your business have been
inseparable. You will get tripped-up trying to
leave your business unless you have a good
mental picture of yourself after you leaveyour business.
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Hobbies and activities won’t be enoughto satisfy all your mental energy.
What will you engage in that will sufficiently
stimulate and challenge your mind, leverage
your experiences, and keep you around people
who give you as much energy as you give to
the relationship?
Step One: Visualize your Life after business.
Your Mind
Your
Identity
Your
Security
We all need a tree house and acalling card.
• Where will you go?
• How will people find you?
• Whom will you say you are to new
acquaintances?
• What needs to occur with respect to your
family role or legacy?
Step One: Visualize your Life after business.
Your Mind
Your
Identity
Your
Security
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How much money do you need?
• How much money does your spouse think
you need?
• What expenses will no longer be paid for by
the business?
• How and where will you channel your insatiable
need to take risk?
• What kind of professional help will you need to
make your investments last?
Step One: Visualize your Life after business.
Your Mind
Your
Identity
Your
Security
Step Two:Choose your Buyer that will achieve the result you most desire.
What I w ant most is:
• Reward my employees.
• Get the most money I can.
• Keep the business, lose the job.
• See my children continue what I started.
• See my management team gradually take over.
• Keep control as long as possible, diversify alongthe way.
• Sell to a third-party but maintain our corporatepresence in the community.
Third Party
Family
Employee
Co-Owner
Yourself
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Options: Price:
Known third-party- Competitor $- Vendor / Supplier $- Customer $
Unknown third-party- Industry Player $$- Financial $$$
- Strategic $$$$
Step Two:Choose your Buyer that will achieve the result you most desire.
Third Party
Family
Employee
Co-Owner
Yourself
Source: Mergerstat / Thomson Financial
0
2000
4000
6000
8000
10000
12000
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
1993199419951996199719981999200020012002 2003 2004 2005 2006 2007 2008
LTM
N u m b e r o f D e a l s
T r a n s a c t i o n V a l u e ( $ b n )
Value Deals
U.S. M&A Activity
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Funded By:
Discounted Stock
Future Cash Flows
Future Cash Flows
Discounted units of
Ownership
Options
Gifting
Installment Sale
Private annuities
Family Limited
Partnership
Step Two:Choose your Buyer that will achieve the result you most desire.
Third Party
Family
Employee
Co-Owner
Yourself
Negotiated Sale • Leveraged buy-out
• Installment note
• Earn out
• Cash
ESOP•
Bank financing• Un-taxed profits
Equity IncentivePlan
• Non-voting, non-marketable stock
• Phantom stock
• Stock appreciation rights
Funded By:Options
Step Two:Choose your Buyer that will achieve the result you most desire.
Third Party
Family
Employee
Co-Owner
Yourself
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Negotiated Sale • Leveraged buy-out
Right of first refusal • Installment note
• Earn out
• Cash
Event driven sale • Life insurance proceeds
• Installment note
Funded By:Options
Step Two:Choose your Buyer that will achieve the result you most desire.
Third Party
Family
Employee
Co-Owner
Yourself
Become an
“investor” ‐owner
• Salary and benefits
• Profit distributions
Refinance or
Recapitalize
• Asset borrowing or
stock dilution
Liquidation • Asset auction/sale
Funded By:Options
Step Two:Choose your Buyer that will achieve the result you most desire.
Third Party
Family
Employee
Co-Owner
Yourself
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Step Three:Building Your Value for the biggest most important sale of your life.
First understand w hat you have, thenenhance it.
Valuation Types:
• Rough estimate
• Valuation opinion
• Fair Market Value (study/report)
• Market value
Valuation
ValueDrivers
Pre-DueDiligence
Tax
Planning
AdvancedPlanning
ExitRoute
ExitOption
ValuationType
ResultingValue
Family Gifting/GRATFair Market Value
IRS 59-60$6,500,000
Owners Buy-SellAgreement Valuation Opinion $9,000,000
Third-PartyBuyer
ControlledAuction
Market Value $10,250,000
Different Values for the Same Company
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Lower Middle Market EBITDA Multiples
6.2 5.95.5 5.3 5.3 5.5
6.1 6.2 6.26.7 6.8
5
0
1
2
3
4
5
6
7
8
9
1 9 9 8
1 9 9 9
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
E s t .
Value Drivers
• Stable & Motivated Management Team
• Steady, Sustainable Cash Flows
• Sound, Healthy Balance Sheet
• Diversified, Transferable Customers/Vendors
• Industry Standard Gross Margins or Better
• Documented, Protected Intellectual Property
• Brand Identity and Reputation
Step Three:Building Your Value for the biggest most important sale of your life.
Valuation
ValueDrivers
Pre-DueDiligence
TaxPlanning
AdvancedPlanning
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Value Factors
• Attitude of Owner
• Family/Partner Consensus
• Barriers to Entry
• Historical Performance
• Realistic Projections
• Marketing Literature
• Fixed Assets
• Co-mingled personal assets
• Employees
• Family Employees
• Inventory Condition
• Lawsuits
• Unpaid Taxes
• Environmental Issues
• Regulatory Issues
Step Three:Building Your Value for the biggest most important sale of your life.
Valuation
ValueDrivers
Pre-DueDiligence
Tax
Planning
AdvancedPlanning
Document, Document, Document!
• Corporate
• Accounting
• Indebtedness
• Tax Records• Litigation
• Insurance
• Governmental Compliance
• Employee Matters
• Contracts & Arrangements
• Equipment
• Property• Intellectual Property
• Environmental
Step Three:Building Your Value for the biggest most important sale of your life.
Valuation
ValueDrivers
Pre-DueDiligence
TaxPlanning
AdvancedPlanning
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Company Structure & Deal Structure
• Company structure (S, C, LLC)
• Tax timing
• Asset vs. Stock sale
• Goodwill allocation
• Capital gain vs. ordinary income
Step Three:Building Your Value for the biggest most important sale of your life.
Valuation
ValueDrivers
Pre-DueDiligence
Tax
Planning
AdvancedPlanning
Lowest Capital Gains Rates in History
0.005.00
10.0015.00
20.0025.0030.0035.0040.0045.00
C a p i t a l G a i n s R a t e
Capital Gains Tax Rates(Historic & Projected)
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Advanced Planning
• Grantor Retained Annuity Trust (GRAT)
• Charitable Trusts (CRT, CLT)
Step Three:Building Your Value for the biggest most important sale of your life.
Valuation
ValueDrivers
Pre-DueDiligence
Tax
Planning
AdvancedPlanning
You’re still in charge here!
Rely on your lead advisor but don’t leavehim alone. You want a collaborative, bestminds custom designed solution for you.
All stakeholders need to be taken into
Consideration.
Your personal objectives should drive theprocess. Don’t let someone else’s bestintentions cloud your vision.
Step Four:Harvest Your Wealth, Be the Boss, Maintain Your Leadership.
FindBuyers
EvaluateOffers
DueDiligence
SaleAgreements
Close &Celebrate
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Plan your Marketing Strategy:
• Prepare a Teaser
• Deal room development
• Identify and screen potential buyers
• Approach potential buyers & identify levelof interest
• Non-disclosure Agreement
• Confidential Information Memorandum(the Book)
Step Four:Harvest Your Wealth, Be the Boss, Maintain Your Leadership.
FindBuyers
EvaluateOffers
DueDiligence
SaleAgreements
Close &Celebrate
Review Proposals
• Review letters of interest and rank offers
• Management meetings with vetted qualified
buyers.
• Evaluate formal Letters of Intent (LOI)
• Optional bidding auction to improve priceor terms among lead offers.
Step Four:Harvest Your Wealth, Be the Boss, Maintain Your Leadership.
FindBuyers
EvaluateOffers
DueDiligence
SaleAgreements
Close &Celebrate
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Due Diligence
• Manage and coordinate:
meetings information exchange buyers visits
• Prepare special reports
• Refine deal structure terms and conditions
• Maintain Transaction Momentum
Step Four:Harvest Your Wealth, Be the Boss, Maintain Your Leadership.
FindBuyers
EvaluateOffers
DueDiligence
SaleAgreements
Close &Celebrate
Making the Deal Legal:
• Negotiate transaction details
• Separate the business deal from legal deal
• The importance of a Transaction Attorney
Reps & Warranties
• Other Important Agreements
Non-Compete Employment after closing Real estate owned/leased
• Keep Momentum
• Get the “right deal” to the closing table
Step Four:Harvest Your Wealth, Be the Boss, Maintain Your Leadership.
FindBuyers
EvaluateOffers
DueDiligence
SaleAgreements
Close &Celebrate
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The Finish Line
• Be prepared to be underwhelmed at the close
• This is a bad time to bring up a new issue
• Make sure you have removed all personal
guarantees
• Did you provide the correct wire instruction info?
• How will announcements be handled?• Party with the people that got you here
Step Four:Harvest Your Wealth, Be the Boss, Maintain Your Leadership.
FindBuyers
EvaluateOffers
DueDiligence
SaleAgreements
Close &Celebrate
Be patient,
… Transition takes 1 to 3 years.
Step Five:Live Your Life!
CEO of You
Always AnEntrepreneur
Share Your
Story
LeadSomething
Hang Out w/Great People
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Step Five:Live Your Life!
CEO of You
Always AnEntrepreneur
Share YourStory
LeadSomething
Hang Out w/Great People
…and COO, CFO & Janitor
• First things First: Set aside tax dollars Pay off debt Fund your envelops Update your estate documents
• Make written Plans: Willing to do/not willing to do What I believe Great adventures list
• Manage your Money: Income simulation programs Personal investing policy Financial advisor team
It’s in your DNA:
• Entrepreneurs love to build and create stuff
• Entrepreneurs like to take risk
• “you” Inc.
• e-money
Step Five:Live Your Life!
CEO of You
Always AnEntrepreneur
Share Your
Story
LeadSomething
Hang Out w/Great People
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Real life Experience & Wisdom:
• Your story is a huge help to anothertransitioning owner
• Many young entrepreneurs would love tohang out with you
• Non-profits would benefit from your story
• Don’t underestimate the value and
importance of your story
Step Five:Live Your Life!
CEO of You
Always AnEntrepreneur
Share YourStory
LeadSomething
Hang Out w/Great People
Step Five:Live Your Life!
CEO of You
Always AnEntrepreneur
Share Your
Story
LeadSomething
Hang Out w/Great People
Turn your success into significance:
• Lead in your family
• Lead in your community
• Lead in a non-profit
• Lead your business colleagues
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Step Five:Live Your Life!
CEO of You
Always AnEntrepreneur
Share YourStory
LeadSomething
Hang Out w/Great People
People matter:
• The Power of Community: Our relationships define us We are the average of the people we hang with
• Networking and learning should never cease
• Business owner mentoring is like grand-
parenting; you get to watch them mess upand then go home
The 5 Steps to Business Owner Transition:
Step One… Visualize your Life
Step Two… Choose your Buyer
Step Three… Build your Value
Step Four… Harvest your Wealth
Step Five… Live your Life
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Questions & Answers
Moving On:Preparing to Sell and Transition Out
of Your Business
evolve is:
a community of business owners in transitionOn-line learning, sharing, connecting community
Monthly half-day peer group meetings
One-to-one mentoring
Quarterly networking gatherings
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