mergers, acquisitions and expansions: a solid plan for
TRANSCRIPT
Mergers, Acquisitions and Expansions: A Solid Plan for Today’s Business and a Vision for the Future
11:15 a.m. – 12:30 p.m. Joseph Piernock, President, Corporate Development Services
Michael Tafoya, Chief Executive Officer, Title365 Company
Introduction
CDS - More than 500 valuations of title agencies, underwriters, and title plants under all sorts of circumstances.
Today’s Goal - Share reasons for ways for you to have a better outcome.
Valuation Phases
• Frame the business structure
• Develop a revenue forecast
• Analyze company performance
• Build a profitability forecast
• Review paperwork
Valuations are based upon the Future.
• Detailed financial history is only used to build a forecast of Future profitability.
• Analysis must compare company performance against the best external measures available.
• 5-7 years of Quarterly results provides a good baseline.
The “M” Word
If an analyst bases any part of the transaction on a “Multiple,”
Fire them.
Only use Multiples to pre-screen dozens of opportunities at a time.
Variable Cost Model Goal
Predict future Profit from future Revenue.
• Detailed, line-by-line analysis of cost trends.
• Isolate variable from fixed expense.
• Isolate owner compensation.
• Remove non-operating or non-recurring expense and revenue.
Financial Behavior
“The Grail” • Revenue and variable cost linked to every
major piece of business.
• Business identified by customer, region, project, and market segment.
• Period costs clearly segregated by business decision points.
So far, less than 10% of our clients meet these criteria.
Minimum Income Sheet Analysis
• Identify revenue and cost for large initiatives, and for larger individual customers.
• Detailed variable & fixed expense breakdown. • Unravel swings in cash-based accounting and
distributions. • Match income/expense entries between related
corporate entities. • Separate owner benefits/taxes from employee.
Minimum Balance Sheet Guidelines
• Deduct shareholder and related-party liabilities from assets to show only the net amount.
• Capture leasehold improvements separately.
• Identify how Fixed Asset depreciation, additions, and retirements affect real Value.
• Clearly understand the target’s real-world versus reported Net Equity.
Paper
Every significant agreement must be reviewed.
• Agreements within normal industry practice have little effect on value.
• However, certain poison provisions are deal-breakers.
• Pre-existing employment agreements for key personnel will increase company Goodwill.
Outside Expert
• Recognized - Professional business Appraisers must meet strict standards and code of ethics.
• Detached – External experts can be assertive without straining relations between the Parties.
• Impartial – No stake in the outcome.
• Experienced – Avoid pitfalls.
Due Diligence
“Build Your Book” • Be prepared for the examination
• When will you need this material?
• Who will require this data?
Expanding into New Markets
• Identifying Reasons for Expansion • Evaluating New Markets • Market Entry Strategies • Market Entry Logistics • Moving Forward and Beyond
Reasons for Expansion
• Ability to hire key personnel • Expansion with current personnel • JV with client • Fill a need for a key client/clients • Increase market share
Evaluating New Markets
• Are there barriers to entry? • Understand the competitive environment • Research:
– Market size, activity and vitality – Economic trends and conditions – Demographic and business trends
Market Size and Activity
• Market reports (CoreLogic, DataQuick, MTA) • Free market reports:
– LPS Mortgage Monitor – CoreLogic Market Pulse – DataQuick: “Analyzing Local Markets”
Economic Trends
• State and local universities (UCLA) • Financial viability of local and state government
– Tax Foundation – CNBC – Local news media
Market Entry Logistics How much time does it take, and how long does it take to pay off? • Pro forma • Planning and preparation • Identifying start-up costs • Hiring/recruiting • Plant/equipment • Technology configurations for new markets • Training & configuration • ROI and growth expectations
sample timeline Plan & Budget
Recruit/Hire Plant &
Equipment
Month 3 Month 6 Month 9 Month 12
Config
Train
Launch Spending Revenue Assess
More logistics…
• Timing • Facilities management • Licensing • Hiring & management (centralized functions?) • Systems expansion • Technology systems • Exporting/merging company culture • Assessing brand…SWOT analysis
BUILIDING Property Manager Contact Sign Lease County Manager Occupancy Date County Manager Floor Plan Hours of Operation Early entry/Keys IT Closet Paint Carpeting Title365 Signage Local Vendor TI itemized list
PHYSICAL Furniture Reception Desk Desks & Chairs Conference Room Table & Chairs File Cabinets Storage Receptions Area Chairs/Couch Cubicles Local vendor preferably used Computers Desktop – Laptop IT Department Lync Telephone Scanner Printer Copier (need dedicated circuit) Cell Phone (syncing email) Check Scanner Television Apple TV Kitchen Fridge Cosco Coffee Maker (Keurig) Microwave Water service (Local Vendor) kitchen table and chairs Artwork Prints Frames Office Supplies Complete desk setup (stapler, scissors, pens, etc.) Return Envelopes and stationary general supplies
SERVICE SET UP Fed Ex/UPS GSO (CA, NV and AZ only) Postage Machine (Pitney Bowes) File Storage Iron Mountain Stationary supplies Internet
COUNTY MANAGER Bills and Contracts P & L Notary Service Recording Company Production of Prelims Escrow Documents (new states) ET support • check signers • contacts • banking • reconciliation Emergency Contact List
CORPORATE HR Benefits 401k Expense Reporting Payroll Insurance E&O General Liability Officer and Director Training SoftPro Title & Escrow Title365.com Marketing and Intranet Finance New Branch Codes Two Year pro forma Balance sheet items Legal All Contracts Reviewed NDA Review and Creation Assist with Comp Plans and Offers Marketing Business Cards Stationary Register new Office location search engine
Moving Forward & Beyond Set Goals • Sales pipeline • Revenue and margin • Cost per order • FTE-level productivity • Measure new markets against existing • Use solid metrics to identify need for additional
personnel
Moving Forward & Beyond
Market Entry • Announcing your arrival • Leveraging available channels for
communication • Consistency of brand message and voice • Be on the lookout for opportunities to reach out
Moving Forward & Beyond
Managing for performance • Key indicators/metrics • Ops review meetings/state of the union • Maintain realism about time to
profitability/measure progress not perfection • Motivating for performance