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For growth or sale is private equity right for you

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For growth or sale is private equity right for you

  1. 1. For Growth or Sale – Is Private Equity Right for You? Session 1 – Private Equity 101 February 13, 2014
  2. 2. Boris Gremont Managing Partner
  3. 3. 101: Demystifying Private Equity
  4. 4. Willie Sutton
  5. 5. $ 600 Billion
  6. 6. What is Private Equity?
  7. 7. First Myth Debt
  8. 8. Second Myth Layoffs
  9. 9. Third Myth Flip it
  10. 10. HIGH RISK STEADY GROWTH
  11. 11. GROWTH STRATEGIC FINANCIAL
  12. 12. Carpeting Trends
  13. 13. 201: The Deal
  14. 14. 301: Obstacles
  15. 15. David H. Oden Partner
  16. 16. What Does the Deal Look Like? • Step 1: Confidentiality Agreement – Agree to keep proprietary information confidential – Can’t use the information except to analyze the purchase – Non-solicitation of employees
  17. 17. What Does the Deal Look Like? • Step 2: Letter of Intent (LOI) – Describes all material terms • Deal structure • Purchase price • Other matters – Too long v. too short • Does it cover all “deal killers”? – Legally binding v. non-binding – Your point of greatest leverage
  18. 18. What Does the Deal Look Like? • Step 3: Due Diligence – Seller should fully cooperate – Bad news will come out – get ahead of it – Customer contact?
  19. 19. What Does the Deal Look Like? • Step 4: The Purchase Agreement – Stock purchase – Asset purchase – Merger – Why and who cares? – Common elements and indemnity
  20. 20. What Does the Deal Look Like? • Ancillary Items – Employment Agreements – Consulting Agreements – Non-compete Agreements – Financial Advisory Agreements
  21. 21. What Does the Deal Look Like? • Realistic Timetable – Controlled by Buyer – Frequent Seller frustration – 2-3 months – May take longer if……
  22. 22. Daniel Boarder Transaction Advisory Services Senior Manager
  23. 23. Maximizing Value Prior to Engaging in a Transaction • Understanding the two components of valuation – EBITDA – Multiple
  24. 24. Maximizing Value Prior to Engaging in a Transaction • EBITDA – Repeatable cash flows – Quality of Earnings – Cash vs. Accrual basis of accounting – Quality of Assets (Net Working Capital)
  25. 25. Maximizing Value Prior to Engaging in a Transaction • Multiple – Market – What are similar companies selling for? – Systems/data & Professionalization – Operations • • • • Customer concentration Vendor concentration Market – Is the sales market increasing/decreasing Backlog and ability to meet customer demands
  26. 26. Deb Purvin Senior Vice President – Corporate Banking
  27. 27. How Does the Deal Get Done?
  28. 28. How Does the Deal Get Done? Highly Structured, Leveraged Finance “…when a company is purchased with a combination of equity and significant amounts of borrowed money, structured in such a way that the target’s cash flows or assets are used as the collateral (or “leverage”) to secure and repay the money borrowed to purchase the target company. “As financial sponsors increase their returns by employing a very high leverage (i.e. a high ratio of debt to equity), they have an incentive to employ as much debt as possible to finance an acquisition.” Source: Wikipedia
  29. 29. How Does the Deal Get Done? Source: Wikipedia High yield / Mezzani ne debt
  30. 30. How Does the Deal Get Done? What SURPRISES Business Owners? “You’re not in Kansas anymore” • Pace • Structure and Controls • Internal / Organizational
  31. 31. How Does the Deal Get Done? • Pace
  32. 32. How Does the Deal Get Done? • Structure and Controls – Lots of Variables… – Multiples, Industry, EBITDA, etc. – Every Transaction is Unique – “He who has the money, makes the rules”
  33. 33. How Does the Deal Get Done? • Internal / Organizational Issues – Operational Changes – Management and Accountability
  34. 34. WHY Does the Deal Get Done?
  35. 35. WHY Does the Deal Get Done?
  36. 36. Jon P. Karp Tax and Consulting Partner
  37. 37. Maximizing Value Prior to Engaging in a Transaction • Tax Implications of Transaction – Tax due diligence – State and Federal – LLC/Partnership – Corporations – NOL Limitations
  38. 38. Maximizing Value Prior to Engaging in a Transaction • Advance Tax Planning – Ownership structure – Estate planning and gifting – wealth preservation
  39. 39. Q&A, Next Steps • Next Steps = Attend Sessions 2 & 3 – Session 2: April 3, 2014 – Session 3: May 8, 2014

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