mergers & acquisitions what’s it all about?

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Mergers & AcquisitionsMergers & AcquisitionsWhat’s it all about?What’s it all about?

Michael J. Kulmoski Jr., CPAMichael J. Kulmoski Jr., CPA

CFO & CTOCFO & CTO

Lewis-Goetz & CompanyLewis-Goetz & Company

Ways to GrowWays to Grow

Option #1:Option #1: Grow through ABL (Asset Based Lending)Grow through ABL (Asset Based Lending) Borrow against AR and Inventory;Borrow against AR and Inventory; Limited.Limited.

Option #2:Option #2: Partner with Private Equity;Partner with Private Equity; Establish credit facilities with premiere lending Establish credit facilities with premiere lending

institutions;institutions;• Cash Flow LendCash Flow Lend

Mezzanine debt;Mezzanine debt; Expands options, but have covenant compliance.Expands options, but have covenant compliance.

Choosing a PE PartnerChoosing a PE Partner

Not all cash is the same shade of green;Not all cash is the same shade of green; Must pick the right partner:Must pick the right partner:

Flexible;Flexible; Similarly minded (chemistry);Similarly minded (chemistry); Extensive contacts;Extensive contacts; Solid relationships with lenders;Solid relationships with lenders; Patient;Patient; Advisor vs. operator.Advisor vs. operator.

Deal Flow Process – some Deal Flow Process – some milestone stepsmilestone steps

LOI – be certain to leave flexibilityLOI – be certain to leave flexibility Valuation.Valuation.

Due Diligence – will expand laterDue Diligence – will expand later Synergies;Synergies;

Can drive valuation;Can drive valuation; Can also assist with Proforma financial;Can also assist with Proforma financial;

• Which will drive funding (bank) ability;Which will drive funding (bank) ability; Be careful not to pay the seller for your hard work post closing.Be careful not to pay the seller for your hard work post closing.

Funding;Funding; Lender Deck.Lender Deck.

Integration plan – will expand later.Integration plan – will expand later.

Due Diligence ProcessDue Diligence Process

The DD team;The DD team; Standardize information request listings:Standardize information request listings:

Financial;Financial; Legal.Legal.

Quick assessment of financials:Quick assessment of financials: This should be swift and as early in the This should be swift and as early in the

process as possible;process as possible; Drives purchase price.Drives purchase price.

Further financial & legal DD will follow.Further financial & legal DD will follow.

Large Deals vs. Small Deals

Depends on your industry (fragmentation); There is a minimum amount of work:

Financial; Legal.

The size of target company drives the resources: Limitations; Advisors; Information Availability.

Integration Plan OptionsIntegration Plan Options

Option #1 - Simply acquire and allow to “conduct Option #1 - Simply acquire and allow to “conduct business as usual”business as usual” Resulting Valuation – not as high in consolidated Resulting Valuation – not as high in consolidated

company;company; Ability to draw against credit facility limitedAbility to draw against credit facility limited

Option #2 - Acquire and IntegrateOption #2 - Acquire and Integrate Resulting Valuation – increased in the consolidated Resulting Valuation – increased in the consolidated

company;company; Greater ability to draw on credit facility (stronger Greater ability to draw on credit facility (stronger

EBITDA against which to draw) – cash flow lend.EBITDA against which to draw) – cash flow lend.

Integration PlanIntegration Plan Develop a detailed plan on the front end (get Develop a detailed plan on the front end (get

EITF 95-3 treatment);EITF 95-3 treatment); Works best with a dedicated integration team Works best with a dedicated integration team

(resources);(resources); Forthright Communication:Forthright Communication:

Employees:Employees: Customers;Customers; Vendors;Vendors; Partners;Partners; Everyone.Everyone.

Create a FAQ sheet(s).Create a FAQ sheet(s).

Integration Plan, ContinuedIntegration Plan, Continued

Need to remain visible to acquired entity;Need to remain visible to acquired entity; Detailed schedules & timeline:Detailed schedules & timeline:

IT (ERP System, Accounting, email, etc.);IT (ERP System, Accounting, email, etc.); Administrative functions (AP, AR, etc.);Administrative functions (AP, AR, etc.); Processes;Processes; Policies.Policies.

Final ThoughtsFinal Thoughts

Question:Question: 2 + 2 = ??2 + 2 = ??

HintHint:: It can be greater than 4!It can be greater than 4!

AnswerAnswer:: It is all up to you and your approachIt is all up to you and your approach

mergers & acquisitions what’s it all about?

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