merger & acquisition services, inc. - oak street funding · the cim is similar to a 10k report...

Merger & Acquisition Services, Inc.

Insurance Distribution CompanyM&A Deal Process & Structure

May 26, 2016

© Copyright 2016 Merger & Acquisition Services, Inc. All Rights Reserved

Christopher M. HughesManaging DirectorM&A Services, Inc.

[email protected]


Course Objectives Overview of the M&A Process Preparation Marketing Controlled Auction Deal Structure & Timeline

M&A Process


M&A Sell-Side Process Overview

Phase 1Preparation

Phase 2Marketing

Phase 3Sale

Objectives

Team

Valuation & Analysis

Decision Point

Define Target Market

Marketing Strategy

Profile/CIM/NDA

Controlled Auction

Deal Structure

Buyer Selection

Due Diligence

Contracts

Closing the Transaction


Objectives Objectives:

Monetize Investment

Enhanced Revenue & Expense Structure

Growth of Agency Access to Markets Access to Capital Access to Distribution

Outside Business Interests

Strategic Opportunities (i.e. Start-Up Private Equity)


Team

Team Members:

M&A Advisor

Key Executives (CFO, COO, Ect…)

Transaction Attorney(s)

Accountant (CPA)

Agency Valuation Example


Agency Revenue Multiple of EBITDALess than $2MM 7 - 8X$2MM - $10MM 8 - 10XGreater than $10MM 10-13X

i. Multiple of Revenue is purely derived from EBITDA Margins;ii. Higher EBITDA margins = higher multiple of revenue;iii. Value is always determined with EBITDA Multiple.

Multiple of EBITDA EBITDA Valuation Revenue Multiple of Revenue8.00 $2,184 $17,472 $5,775 3.038.25 $2,184 $18,018 $5,775 3.128.50 $2,184 $18,564 $5,775 3.21

Marketing Controlled

AuctionConfidential

Information MemoMarketingStrategy

Define TargetMarket

National Brokers/Banks

Regional / Local

Private Equity

Carriers

Define Target Market

Narrow Focus Strategic- 3-5 Buyers

Broader Audience Strategic- 15-30

Buyers

Auction

Document Collection

Gather Information

Blind Profile“Teaser”

Confidential Information

Memorandum“CIM”

Multiple Buyers= Maximum Value

1. Select Target Audience

2. Solicit Interest & send NDA & CIM

3. Negotiate Multiple Letters of Intent (LOI)

4. Execute LOI with Best Buyer© Copyright 2016 Merger & Acquisition Services, Inc. All Rights Reserved


Defining the Strategic Buyers

National Brokers / Banks (BB&T, HUB, Brown & Brown, MMC)

Regional & Local

Private Equity (Abry, Odyssey, Kohlberg)

Private Equity Platforms (Acrisure, Assured Partners)

Carriers (AIG, K2/Aegis, Markel, HHC)


Marketing Documents

Blind Profile or “Teaser”: The Teaser is a one to three page document that will describe the business

in a confidential manner.

The Teaser will describe the last 3 to 5 years of revenues and earnings, the expense structure, the client base and carrier mix and, the corporate structure without revealing the name or location of the business.

Confidential Information Memorandum or “CIM”: The CIM is a complete description of the business, its financials, its structure

and history, and description of all aspects of the business.

The CIM is similar to a 10K report that is filed by publically traded companies with the Securities and Exchange Commission.


Project Sawbones

Profile Example

Company Overview:Project Sawbones (the “Company”), is one of the largest medical professional liability retail insurance brokerage firms in New England with $35MM in Written Premium. The Company offers multiple products and services from carriers with high A.M. Best or Demotech ratings. Most of the business is written in the Northeast, although the Company is licensed throughout most of the U.S.

Products:Sawbones offers a wide variety of products and services to the healthcare industry. The Company focuses its operations in 3 distinct areas: (1) placing traditional MPL coverage, (2) placing unique MPL coverage for higher-risk clients, and (3) offering sophisticated risk management services for the implementation of various forms of MPL coverages.

Corporate Highlights:➣Well established Medical Malpractice Insurance Agency➣Dynamic and Motivated Salesforce ➣ Written Premiums of $35MM➣ EBITDA Margins of 31%➣ Licensed in 35 states, with ability to expand into all states➣ Turn-key operation

Management & Ownership:Sawbones has four shareholders who are all directly active in the Company’s operations. The founder of the company managed the company for 15 years before transitioning responsibility to another owner. Collectively, the owners have decades of expertise in the industry and would like to retain post-transaction roles.

Financial Highlights:

Transaction Rationale:The majority owner is looking for a strategic buyer to purchase the Companyand provide its producers and employees an excellent platform from whichto provide a high level of service and MPL solutions to its existing client baseand prospective clients. The majority owner will provide consulting andrelationship management to large clients as needed by new ownership, andwill pursue other business interests. All other owners/producers expect tocontinue and expand their respective books under new ownership.

Terms➣ Asset Sale➣ Price Expectation: 8.0 - 8.5X TTM 2015 EBITDA➣ TTM 2015 EBITDA = $1.17MM➣75%-100% Cash at Closing

Process:(1) Executed Non-Disclosure Agreement (2) Review Confidential Information Memorandum (3) Principal Meetings and Conference Calls(4) Letter of Intent, to include:

(a) Valuation of Company (b) Terms and Conditions (c) Post-transaction Roles(d) Structure of Transaction

(5) Due Diligence /Definitive Contracts(6) Closing


Example CIM Table of Contents

Transaction and Process……………………………………………………………………………………………4

Corporate Highlights………………………………………………………………………………………………….5

Financial Highlights……………………………………………………………………………………………………6

Business Overview…………………………………………………………………………………………………….7 - 8

Products and Services……………………………………………………………………………………………….8

Carrier Relationships…………………………………………………………………………………………………9

Marketing and Sales………………………………………………………………………………………………….9 -10

Human Resources………..……………………………………………………………………………………………10 - 11

Key Account and Acquisition…….………………………………………………………………………………12

Ownership Information…………………………………………………………………………………………….13

HCRS Pro-Forma Income Statement…………………………………………………………………………14

Detailed Adjustments to Pro-Forma Financials…………………………………………………………15

Unadjusted Income Statement (Trailing Twelve Months through 4.30.2015)…………..16 – 17

Unadjusted Income Statement (2014)……………………………………………………………………..18 - 19

Table of Contents:


Controlled Auction

The Controlled Auction is a process where a business is marketed to a specific target audience to create an environment where there are multiple buyers bidding for the business, with each buyer knowing that there are other buyers, but without the terms or price of the other offers being disclosed.

The Controlled Auction is designed to elicit the best price and terms from a variety of buyers. When properly prepared and executed, the Controlled Auction is extremely effective in maximizing the price and terms for the business.


Controlled Auction

Target CompanyBuyer 2

Buyer 3

Buyer 4

Buyer 1

Best Offers

Potential Buyers submit their best offer because they do not know what other bidders are offering.


Principal Meetings

This meeting is used by both parties to gain an understanding of each other’s goals, motivations, and character.

The objective of the meeting is to give both the buyer and the seller confidence in each other that they are considering doing business with, clarify any issues and or answer additional questions.


Letters of Intent

Letters of Intent typically include the following provisions:

1. Assets or Stock to be Purchased2. Liabilities Assumed3. Price and Terms of the Offer4. “No Shop” Provision5. Expiration Date of LOI6. Due Diligence Clause7. Closing Date


Deal Structure


Projected Timeline to Complete TransactionPhase 1: Preparation 2 Weeks

Define Objectives, Assemble Team, Business Review & Valuation

Phase 2: Marketing Strategy & Execution 1 Month

Define Target Market & Marketing Strategy

Prepare Confidential Information Memorandum “CIM”

Prepare 90 Day Marketing Plan

Phase 2: Marketing Execution 1-2 Months

Conduct Controlled Auction

Phase 3: Sale 1 Month

Due Diligence

Contracts

Total Time 4-5 Months

The Sale Closing & TransitionContractsDue DiligenceStructuring the

Deal

Cash and Equivalents

Promissory Notes

Earn Outs

Employment Agreements

Financial

Operational

Corporate/Legal

Environmental

Purchase & Sale

Employment

Non-Compete

Notes or Earn Out

Closing

Logistics

Employee Integration

Owner Transition

Accountability


Thank You for Your Attention!

Questions?


Merger & Acquisition ServicesMerger & Acquisition Services, Inc., is an investment bank dedicated to providing the highest

quality strategic advice to companies within the insurance Sector.

As a trusted and dedicated adviser to our clients, we provide insight into industry trends and the capital markets, with the ultimate goal of providing comprehensive services to foster strategic growth and liquidity.

Highly qualified and experienced team of professionals Significant transaction experiences Broad and deep relationships and market knowledge Global reach; serving both domestic and international companies

We will distinguish ourselves through the following: Senior professionals prepared to make our client’s assignments our priority Unbiased advice based on thorough diligence, not transaction orientated Leveraging our advisors collective structuring, financing and corporate development expertise One of the few insurance investment banking boutiques with an affiliate registered broker-dealer

For over 10 years, Merger & Acquisition Services has assisted our clients in achieving their strategic goals.
