Professional Documents
Culture Documents
Investment Banking Deal Process
Investment Banking Deal Process
INVESTMENT BANKING
I NTRODUCTION
The steps to selling a middle market company1are generally not all that well
known,butthereisaprovenmethodologythat,whenfollowed,increasesthe
likelihoodofafirmobtainingapremiumvalueandgettingadealdone.Thereis
a large universe of potential buyers and investors. Owners of companies
typicallyseetheiruniverseofbuyersconsistingoffellowpartners,employees,
competitors, key customers, major suppliers, and perhaps local investors.
Whiletheseareallvalidoptions,professionaladvisorsarealsoabletotapinto
a vastly larger universe consisting of domestic and international public and
privatecompaniesaswellasprivateequityfirms.Thechallengeisnotfinding
potentialbuyers,butfindingtherightbuyerorinvestor.Attheoutset,itisnot
always obvious who the best buyer might be, and there is a high probability
thattheownerhasnevermetthebuyerbefore.Ittakesasystematicapproach
toidentifyandconnectwiththebestcandidates.
Letsfaceit.Mostofusareamateurswhenitcomestosellingourbusinesses,
since we tend to do it only once or twice. Institutional buyers2, on the other
hand,buyandinvestforaliving.Consequently,theyhavealotofexperience
getting deals done that are more in their favor. Financial buyers exist to buy
businesses for institutional and high net worth investors, and these shrewd
buyershaveinvestedover$2trillionbuyingcompanies.Strategicbuyershavea
preference for acquiring small to mediumsize firms and while these deals
happeneveryday,itisachallengefortheuninitiatedtogetintothismarket.If
you already know potential buyers because they are a customer, partner,
familymember,orcompetitor,youshouldaskyourselfiftheyarewillingand
abletopayfairmarketvalue.
How is fair market value determined? Lets first look at the definition of this
term.Fairmarketvalueisthemostlikelypriceatwhichabusinesswillchange
handswithinareasonableperiodoftimebetweenawillingbuyerandawilling
seller in an arms length transaction where both parties are motivated but
neither is under any particular compulsion to act. While this definition helps
somewhat,itdoesnotshedmuchlightonhowpriceisdetermined.Nordoes
this definition give much guidance on how owners can exert leverage when
dealing with professional institutional buyers and investors. The solution to
determining fair market value in a manner that also provides the seller with
leverage lies in making a market. How do you make a market? You make a
market by creating a competitive deal environment consisting of multiple
buyersandinvestors.
Middlemarketcompaniesaretypicallydefinedashavingannualrevenuesbetween$10million
and$500million.
2
Institutionalbuyersandinvestorsconsistofprivateequityfirms(i.e.,financialbuyers)and
largercorporations(i.e.,strategicbuyers").
FoundersInvestmentBanking
2012
Page1
F IVE M AJOR
P HASES
Therearefivemajorphasestocreatingacompetitivedealenvironment:
I.
II.
III.
IV.
V.
PREPARATION&PACKAGING
BUYERRESEARCH&DEVELOPMENT
MARKETING&INVESTORCOMMUNICATIONS
ECONOMICNEGOTIATIONS&LETTEROFINTENT
DUEDILIGENCE&CLOSING
The PREPARATION & PACKAGING phase starts with an indepth analysis of the
companys business model, historical financial performance, and future
outlook. This information is then packaged into a set of documents that
conciselyandauthenticallytellsthecompanysstoryandformsthethesiswhy
the company would be a good acquisition or
investment.
The DUE DILIGENCE & CLOSING phase allows the buyer to verify all the
representationsmadebytheseller,finalizesthedealstructure,andexecutesa
definitivepurchaseagreement.
Now lets dive into each of these phases in detail from the vantage point of
owners and CEOs who seek both a premium price and a high probability of
completingadealandarewillingtodowhatittakestoputtheircompaniesin
thebestpositiontoaccomplishthesetwinobjectives.
FoundersInvestmentBanking
2012
Page2
P HASE I:
P REPARATION
& P ACKAGING
BUSINESS REVIEW
Phase I starts with an indepth analysis of your company. The first step is to
conduct a thorough review of the business and to begin constructing a
company profile. An assessment of market and industry drivers reveals the
source of revenues and profits and the potential for future growth. A
comparisontoindustryandcompetitorbenchmarksassessesthesustainability
of the companys competitive advantage. The areas that distinguish the
companyfromitspeersareidentified,aswellasthoseareasthatmayinhibit
future performance, by candidly appraising the companys strengths,
weaknesses,opportunities,andthreats.
HISTORICAL
FINANCIAL
ANALYSIS
FoundersInvestmentBanking
2012
Page3
RECASTING
FINANCIALS
Sales:
CostofGoodsSold:
Costofsuppliesforinventoryitems
LIFOvs.FIFOaccountingadjustments
Depreciationandamortizationreclassification
Removenonperformingassets
Reclassifydepreciation&amortization
Operatingexpenses:
Adjustsalariestoindustrystandard
Familymembersonthepayroll
Nonrecurring(onetime/extraordinary)expenses
Discretionaryexpenses
Nonworkingfamilymembers'salaries
Perquisites(cars,clubs,insurance)
Flexibletravelandentertainmentpolicy
Adjustinterestexpense:
Interestexpense:relatedtodifferentcostofcapital
Removeinterestrelatedtononoperationalassets
Reclassifyinterestexpense/removefromoperatingexpense
Eliminateintercompany&relatedthirdpartytransactions
Cashtoaccrualbasedaccounting
GAAPrevenuerecognition
FoundersInvestmentBanking
2012
Page4
CommonadjustmentstoBalanceSheetsinclude:
Assets:
Liabilities:
Removedebttoshareholdersadditionalequity
Fairmarketvalueofdebt
Longtermdebtsettlementperiodamortization
Optimizedebtincapitalstructure
Optimizeinternalgrowthcapabilities
Toomuch/notenoughdebt
Removenoncoreassets
Excesscashandinvestments
Aircraft
Boats
Luxuryautomobiles
Automobilesprovidedtoselectpersonnelasperks
Realestate
Lifeinsurancecashvalue
Nontransferableintangibleassets(brandnames,
patents)
Inventory
Lowerofcostormarket
Inventorynotonbooks
Adjustfixedassetstofairmarketvalue
Equivalentreplacement/currentbookvalue
Inmanycases,theoutcomeofrecastingincreasesacompanysvaluation
comparedtoexaminingfinancialstatementsbasedsolelyontaxreturns.
FoundersInvestmentBanking
2012
Page5
M U L T I Y E AR
PRO FORMA &
VALUATION RANGE
Thenextstepbuildsuponrecastedfinancialsbyconstructingaproformathat
projectsrevenuesandexpenses,aswellasassetsandliabilities,overthenext
three to five years. The pro forma places the company in its best light and
reflects managements expectations for the future. As was the case when
recastingfinancialstatements,itisessentialtokeepassumptionsconservative
andcredibleandtoprovideindependentthirdpartyevidencewhenpossibleto
documenttherationalebehindanassumption.Sincetheindustryisthesource
of all profits, it is also important to forecast the growth rate for the industry
and to substantiate the companys relative performance in the industry (i.e.,
outperforms the industry, inline with industry performance, underperforms
theindustry)byanalyzingindustryperformanceratios.
The pro forma produces an integrated financial model for the company by
quantifying assumptions for future earnings. The Profit & Loss Statement
captures thepricing model and sales assumptions driving revenuesas well as
the corresponding cost structure necessary to develop, deliver, and support
productsandservices.TheBalanceSheetdocumentstheassetsusedtocreate
andsupportproducts,theworkingcapitalnecessarytoconductbusinessinan
orderlymanner,andthecapitalstructureofthefirm.TheCashFlowStatement
captures capital expenditures and demonstrates the companys ability to pay
itsbills.
The pro forma also provides the foundation for estimating your companys
valuation, known also as an enterprise value. Many factors and variables are
taken into consideration when determining a companys valuation. It is
importantnottorelyonsimpleformulasortouseindustryrulesofthumbto
valueyourcompany.Formiddlemarketcompanies,acombinationofvaluation
FoundersInvestmentBanking
2012
Page6
methods are used with each method producing a valuation range. The four
mostcommonmethodsare:
1. DiscountedCashFlow
2. FinancialReturnModel
3. ComparableCompany
4. PrecedentTransactions
By estimating the most likely valuation range using each method, while also
taking into consideration industry conditions, the macroeconomic
environment,andothertimingfactors,itispossibletoderiveavaluationrange
foryourcompanybyevaluatingwheretherangesintersect.
HIGH IMPACT
MARKETING
MATERIALS
ThefinalstepinPhaseIiscomposingandproducingmarketingmaterialsthat
authentically and succinctly tell the companys story with a high degree of
impact. Phase III will use these materials to solicit interest from buyers and
investors.
FoundersInvestmentBanking
2012
Page7
TheManagementPresentationisadynamic,hard
hittingpresentationrecappingthemostimportant
factorsforbuyerstoconsider.Thestructureofthe
presentationreflectsmanagementsapproachand
style and complements the Confidential
InformationMemorandum.
FoundersInvestmentBanking
2012
Page8
P HASE II:
B UYER
R ESEARCH &
D EVELOPMENT
PROSPECT LISTS
PhaseIIfocusesonidentifyingasubsetoffinancialbuyers(i.e.,privateequity
firms)andstrategicbuyers(i.e.,largercorporations)thathaveaninterestand
the financialmeans to complete a transaction. The process starts with a very
largeuniverseofpotentialbuyersandinvestors.
FoundersInvestmentBanking
2012
Page9
FINANCIAL BUYER
PROFILES
The method for screening private equity firms is different from the approach
used to screen strategic buyers. The initial screening concentrates on buyer
mandates, industry focus, company size in terms of revenue and EBITDA,
investmentsize,andgeographicpreference.
PrivateEquityGroups(PEGs)raisemoneyfrominstitutionalinvestors,suchas
pension funds, and qualified high net worth individuals and form a fund
structured as a limited partnership. These funds typically have a tenyear
horizon to give PEGs the opportunity to identify, acquire, grow, and sell
companies. Companies purchased by PEGs are referred to as portfolio
companies. In certain situations, PEGs will create platform companies and
acquire smallersized companies as addons to expand the capabilities of the
platform company as a whole. PEGs typically target the lifecycle stage of
companies in which they prefer to invest. For instance, some PEGs focus on
providing growth capital to early stage firms, others specialize in providing
expansion financing to established firms, while others target acquiring more
maturefirms.PEGsalsoliketotargetspecificindustriesgiventheirexperience
andexpertise.Finally,PEGsestablishguidelinesgoverninghowmuchtheyare
prepared to invest and the minimum size of company they are interested in
based on revenue and EBITDA. These criteria are used to perform the initial
screening. The next step is to peer more deeply into each PEG passing the
initialscreeningandisolatethosefirmsthatarethebestfitbasedoncurrent
investments (i.e., portfolio and platform companies already in the fund),
geographic preferences, investment size, industry focus, and track record for
FoundersInvestmentBanking
2012
Page10
STRATEGIC BUYER
PROFILES
Searchingforstrategicbuyersrequiresdiligenceandcreativity.Employinga4
step iterative process is the best approach to systematically identify and
evaluatetargetcompanies.
Step2:Reviewmacrolevelacquisitionsacrossthebusiness
ecosystem.
Step3:Examinebusinessmodelsforcorporationsappearing
tobeagoodfittoidentifypotentialsynergies.
Step4:Compiletieredlistsandranktopcandidates.
Thesearchprocessisaniterative,ongoingprocessthatcontinuesthroughout
theMarketingPhase.Itisimportanttounderstandeachcandidatecorporation
frombothyourcompanysperspectiveaswellasfromthemarketsperspective
before finalizing the gotomarket list. Strong candidates are not always
readily apparent because they may not be in your industry segment, but are
looking for a company to acquire as the means to enter your segment.
Likewise,acorporationmaybeinterestedinemployingyouruniqueassetsor
technology in a different industry than the one you are currently in. For this
reason,itisimportanttoincorporatefeedbackcontinuouslyfromallcontacted
parties.Atthispointintheprocess,itisessentialtoguardagainstprematurely
disclosingthatyourcompanyisconsideringamarkettransaction.
Toachieveoptimalresults,thesearchprocessiscustomizedforeachcorporate
target. This customization requires developing an investment thesis for each
buyercategoryandincorporatingmicroeconomictrendsthatarefavorableto
your companys products, services, and capabilities. Researching and
understanding each corporations growth strategy and business model is
central to identifying potential synergies, which form the basis for
communications in the form of personal calls, tailored letters, customized
presentations,webinars,andfacetofacemeetings.
FoundersInvestmentBanking
2012
Page11
TARGETED LIST OF
QUALIFIED BUYERS
FoundersInvestmentBanking
2012
Page12
P HASE III:
M ARKETING &
I NVESTORS
C OMMUNICA
TIONS
INITIAL CONTACT
CAMPAIGN
PhaseIIIdirectlyengagespotentialbuyers.Itstartswithanintensivecampaign
targetingspecificindividualsineachprivateequityfirmandcorporationonthe
gotomarketlist.Identifyingtherightpersontocontactataprivateequityfirm
is straightforward. For corporations, however, the preferred point of contact
may not be readily apparent and if they are, it still can be a challenge to get
them to engage. It is crucial to know what to say during the initial call to
stimulatetheirinterestandtoqualifyfurtherthatthefirmorcorporationisa
strong candidate. Tracking all communications (phone calls, emails,
correspondence)inaCustomerRelationshipManagementsystemisimportant.
Using a CRM ensures every potential buyer or investor is contacted and all
follow up requests are responded to and documented in a timely manner.
Following a methodical process helps build deal momentum, establishes a
sense of competitive urgency, and conveys to buyers and investors that the
searchisbeingconductedinaprofessionalmanner.
Duringtheinitialcontact,yourcompanysnameisnotdisclosed.Theonepage
Anonymous Profile is used to depict your companys characteristics. Indepth
discussions are only conducted after a Confidentiality Agreement has been
executed.
CONFIDENTIALITY
AGREEMENT
FoundersInvestmentBanking
2012
Page13
I N D E P T H
DISCUSSIONS
INDICATION OF
INTEREST
MANAGEMENT
MEETINGS
The stage is now set for you to meet with potential buyers and investors. By
employingasystematicprocesstoreachthispoint,youenterthesemeetings
understandingthemotivationsdrivingeachinterestedpartyandapreliminary
assessmentofhowyourcompanystacksupwithwhattheyarelookingfor.The
management presentation developed in Phase I is used to underscore your
companysgrowthpotentialandoperatingstrengthswhilealsomitigatingany
perceived weaknesses. These management meetings help to create an
environment for parties to get comfortable with each other and to establish
groundsforevaluatingafutureworkingrelationship.
FoundersInvestmentBanking
2012
Page14
P HASE IV:
E CONOMIC
N EGOTIATIONS
& L ETTER O F
I NTENT
BUSINESS TERMS
Proceedsaretaxedatlongtermcapitalgainsrates
Thebuyer,ontheotherhand,facessomedisadvantages:
Assetscannotbewrittenuptofairmarketvalue
Buyerassumescontingentandunknownliabilities
Goodwillisnotdeductablefortaxes
Anotherwayofstructuringatransactionisasanassetsale.Thereareseveral
advantagesforbuyerswithassetsales:
Goodwillisdeductibleforincometaxpurposes
Contingentandunknownliabilitiesarenotassumed
FoundersInvestmentBanking
2012
Page15
Theseller,however,facessomedisadvantages:
ForCcorpsthereisthepotentialofdoubletaxation
Sellerretainsliabilitiesandcontractsnotspecificallyassumed
Matterscangetcomplicatednegotiatingwhichmethodologies,standards,and
practices to use for determining the final purchase price. This is the realm of
experts and specialists, and it requires a multidisciplinary team of M&A
advisors, attorneys, and accountants who specialize in middlemarket
transactions to guide you through the deal process. For example, negotiating
whichliabilitiesareincludedorexcludedfromadeal,themethodusedtovalue
assets and remaining depreciation, providing sufficient funding for bonus,
profit sharing, andpensionplans, andappropriately valuing futurecash flows
based on current customers are all examples of business terms that have a
directeconomicimpactonprice.Theintegratedfinancialmodelconstructedin
PhaseIprovidesthefacilitytoquantitativelyanalyzetheeconomiceffectthese
variousbusinesstermswillhaveonyourcompanysvaluation.
D E A L S T R UC T U R E
Howadealisstructurediscritical.Itisnotjusthowmuchyougetpaidforyour
company that counts; its how much you ultimately put in the bank that
mattersthemost.Whichofthefollowingtwoscenariosisabetterdeal?
Option#1:sellfor$40million
o $25millionincash
o $7millioninrestrictedstockwithalockupperiod
o $5millionsellernote
o $2millionearnout
Option#2:sellfor$33million
o $33millionallcashupfront
o 3yearemployment/consultingagreement
Atfirstglance,option#1lookstobethewaytogo.Afterall,$40millionbeats
$33 million and you also get the bragging rights that go with the higher
number. But if the acquiring company falls out of favor and the stock price
plummets, and payments on the seller note are suspended to preserve cash
becauselinesofcreditaredryingup,andinternalaccountingtransferscreated
an operating loss eliminating the earnout since it was tied to profits versus
revenue,thenoption#2wouldstarttolookverygood.Ofcourse,itcouldgo
the other way: the stock could appreciate in value while also providing tax
benefits because gains are taxed at the capital gains rate, the
FoundersInvestmentBanking
2012
Page16
interestrateonthesellernotecouldexceedwhatyouwouldreceiveinvesting
infixedincomesecuritiesprovidinganicestreamofmonthlyincome,andthe
company gladly pays the earnout because the acquisition exceeded revenue
targets.
Three broad categories can be used to influence the structure of a deal.
Recasting focuses on adjustments to EBITDA, valuing goodwill, employing
accounting standards, adopting realistic forecasts, addressing tax issues, and
otheritemsdirectlyaffectingfinancialstatements.
Sharing future risks allocates risk between both parties and addresses the
extentofprotectioneachpartyseeks.Trust,chemistry,flexibility,believability,
sharedvalues,andthedegreeandnatureofthepartiesinvolvementafterthe
saleallinfluencecredibilityandtheperceptionofthelikelihoodcertainevents
couldtranspireinthefuture.
Compensation concentrates on how you get paid. Several methods of
compensatingasellerareusedtosealadeal.
Cash:
As the saying goes, Cash is king. The benefits are readily
evident:zerorisk,instantliquidity,andtotalflexibilitywhenit
comes to structuring an investment portfolio. Without
planning,however,theordinaryversuscapitalgainstaxbite
maybedouble.Cashalsoeliminatesdeferredcompensation
strategies.
Gettingpaidtoworkafterthedeal:
There are two basic methods of getting paid to continue
workingafterthedealclosesemploymentagreementsand
earnouts.
Employmentagreementstypicallylastthreetofiveyears,but
theycanbeforshorterdurations.Compensationisusuallyin
the form of a base salary, incentive bonus, and company
benefits.Typicalprovisionsincludenoncompeteclausesthat
survive post termination, specific language addressing
conditions for termination, and perks beyond standard
company benefits. Compensation is taxed as ordinary
income.
Earnoutsareoftenusedtoclosethevaluationgapbetween
buyer and seller and typically span one to three years.
Compensationisbasedonperformanceandcanbeladdered.
Earnout targets can be indexed or structured as all or
nothing.Targetsshouldbetiedtorevenueinsteadofprofits.
Taxtreatmentcanbeeithercapitalgainsorordinaryincome
dependingonhowthedealisstructured.
FoundersInvestmentBanking
2012
Page17
Gettingpaidnottocompete:
A noncompete agreement protects both the buyer and the
seller.Ifthenoncompeteisnotproperlydocumented,itruns
the risk of judicial interpretation in the event of a conflict.
Fourelementsmakeanoncompeteagreementvalid:
1. Itmustbeinthesametypeofbusiness.
2. There must be some form of paid
compensation or consideration, which is
treatedasordinaryincome.
3. Reasonablelimitsongeography.
4. Reasonableperiodoftime.
Gettingpaidwithstock:
There are different types of stock with various features and
restrictions: common or preferred; voting or nonvoting,
convertible or nonconvertible. If the stock is issued by a
publiccorporationandisregistered,taxesmaybedeferrable
until the stock is sold. If the stock is unregistered, Rule 144
appliesrequiringthestocktobeheldforoneyearorlonger
(in this event, it is important to request piggyback rights).
To guard against a substantial drop in market value,
protectivemeasuresusingstockcollars,puts,andcallscanbe
employed. Private company stock is more difficult to value,
notasliquid,andhypothecation,transfer,sale,orassignment
maybeprohibited.
Otherformsofpayment:
Seller notes help buyers fill financing gaps, which can drive
higher valuations. Typical terms are 1260 month notes at a
definedinterestrateusingapredeterminedamortizationand
paymentschedule.Thesenotesareusuallysubordinatedand
are not collateralized by specific assets. Principal payments
are taxed at capital gains rates while interest payments are
taxedasordinaryincome.
Warrantsgranttherighttobuystockfromanissueratapre
agreed upon price and are an effective tool to align
incentives.
FoundersInvestmentBanking
2012
Page18
LEGAL TERMS
Afterframingthebusinesstermsanddealstructure,itistimetodelveintothe
various legal issues associated with the transaction. The legal focus in this
phaseisondraftingandexecutingaLetterofIntent(LOI).TheLOIwillserveas
thefoundationfortheDefinitivePurchaseAgreement,whichisdraftedduring
Phase V and covers standard covenants, representations, warranties, closing
conditions,andprovisionsforindemnificationandsurvival.Atthisjuncture,the
partiesconcentrateondefiningthelegalaspectsofthedealandresolvingany
unusualorextraordinaryitemswhichmaysurfaceduringduediligence.
Good faith terms form a bond of trust between the buyer and seller that all
partieswillrepresentfairlyandaccuratelywhatisbeingboughtandsoldand,
baring unusual and unforeseen circumstances, the parties commit to
completingthetransactioninareasonableperiodoftimeconsistentwiththe
termsoftheLOI.
LETTER OF INTENT
TheLOIdocumentsthebusinesstermsthathavebeenagreedto,describesthe
transaction, states the purchase price and compensation structure, and cites
other key terms and conditions, such as confidentiality provisions, continuing
to operate the company in much the same manner as it has been, and the
sellermakingavailableallinformationnecessaryforthebuyertocompletedue
diligence.An important provision ofthe LOI is grantinga period of exclusivity
duringwhichtimetheselleragreestodiscontinuenegotiationsandnotenter
into any agreement with another party. It is imperative at this point in the
process to have available quantitative and qualitative analyses to equip
shareholderstomakeafullyinformeddecisiononwhichbuyerorinvestorto
choose for negotiating the Letter of Intent. It is important to maintain
competitive pressure by keeping other interested parties as stalking horses
toassistinnegotiatingfavorabletermsandconditions
FoundersInvestmentBanking
2012
Page19
P HASE V:
D UE D ILIGENCE
& C LOSING
DUE DILIGENCE
Throughout the deal process, the seller makes representations and sets
expectations about the nature of the company. Due diligence provides the
buyer the opportunity to verify all that has been communicated, clarify any
pointsofconfusion,andvalidatethattheoperationsofthecompanyareinline
withwhatthebuyerisexpecting.Duediligenceevaluatesboththebenefitsand
therisksoftheacquisitionorinvestmentbyexaminingthepast,present,and
predictablefuture.SellersshouldstartpreparingforduediligenceinPhaseI.
Duediligencetypicallycoversfourbroadareas:
1.
2.
3.
4.
FinancialStatementsreview:examinestheassetsandliabilitiesonthe
balancesheetbyverifyingtheirexistenceandcurrentvalue;assesses
the income statement to appraise the general health and soundness
ofthecompanysoperations.
Management and Operations review: evaluates the companys
practices, procedures, and controls; assesses key staff members
critical to ongoing success; analyzes revenue streams, customer
concentration, and health of customer relationships; analyzes
products,services,andkeytechnologiesandmethods;reviewsquality
andstabilityofkeysuppliers.
Legal,HumanResources,andRegulatory&EnvironmentalCompliance
review: examines pending or potential litigation or other legal
problems; identifies current or potential human resources issues;
verifiescompanyisincompliancewithregulatoryandenvironmental
lawsandregulations.
Transaction review: verifies all documentation associated with the
transactionisinorder.
The scope of due diligence varies depending on the size and scale of the
company. Experienced buyers will agree to complete due diligence within a
specifiedtimeperiodandwillprovidethesellerwithachecklistofitemsthey
want to review. Many of these items are standard requests and can be
FoundersInvestmentBanking
2012
Page20
preparedinadvancetoexpeditecompletingtheduediligencestep.Examples
oftheseitemsinclude:
Documents
o
o
o
o
o
o
Companymanagement
o
o
o
Relativeprofitabilityofproductsandservices
Ownershipofcompany
Governanceinformation
o Litigation
Contracts
o
o
o
o
o
o
o
o
o
o
o
o
o
Corporatedocuments
Certificateofincorporation
Bylaws
Minutes
Financialstatements
Taxreturns
Assets
Receivables
Pension
ESOP
Environmentalreports
Marketstudies
Productdescriptionsandplans
Keyintangibles
Keytangibles
Mortgages
Titledocuments
Insurancepolicies
Supplyandsalesagreements
Employmentandconsultingagreements
Leases
Licenseandfranchiseagreements
Loanagreements
Shareholderagreements
Sponsorshipagreements
Laboragreements
Goldenparachutes
Deferredcompensation
Poisonpills
Securityagreements
Salesandproductwarranties
Outsidesources
o
o
o
o
o
o
Marketandcapitalinformation
Liensearch
Creditchecks
Backgroundchecks
Patentandtrademarksearches
Assetappraisals
FoundersInvestmentBanking
2012
Page21
FINALIZE DEAL
STRUCTURE
Any remaining adjustments to structuring the deal are finalized at this point.
Common adjustments include balances for working capital, receivables,
payables, and other current assets and liabilities. Resolving any material
findings or surprises emerging out of due diligence may also affect the
structureofthedeal.
DEFINITIVE
PURCHASE
AGREEMENT
EXECUTE
AGREEMENT
DISBURSE FUNDS
The Definitive Purchase Agreement is the binding legal contract specifying all
terms and conditions of the transaction. All the elements in the LOI are
incorporated as well as the legal clauses and provisions attorneys from both
sidesbelievearenecessaryforthedeal.
The deal is not complete until both parties execute the Definitive Purchase
Agreement. All hands remain on deck until financing is secure and the
DefinitivePurchaseAgreementissigned.
The best part of the process is disbursing the proceeds from the transaction
accordingtothetermsoftheDefinitivePurchaseAgreement.Proceedsfrom
thesaleofmiddlemarketcompaniestypicallyareintheseventoninefigures.
Prudentownersprepareforthisdaywellinadvancebyworkingwithamulti
disciplinary team of wealth management advisors consisting of certified
financial planners, trust and estate attorneys, tax attorneys and accountants,
chartered financial analysts and portfolio managers, and insurance and
philanthropicspecialists.Planningforandaddressingyourpersonalobjectives
areofequalimportancetoplanningandaddressingyourcorporateobjectives.
Somesituationsaremorecomplexthanothersareandnotwocasesarealike.
Succession planning in particular requires careful forethought, consideration,
and coordination. Managing this level of wealth requires both customizing a
plantoyourspecificsituationandformingateamoftrustedadvisorswhowill
continuously place your interests ahead of theirs when the time comes for
implementingtheplanandmanagingyourwellearnedwealthfortheyearsto
come.
Thedealisnotcomplete,however,untiltheinkisdryandthemoneyisinthe
bank.Followingthroughtothecloseisessential.
FoundersInvestmentBanking
2012
Page22
T HE S TEPS O F
A C OMPETITIVE
D EAL P ROCESS
It takes a lot of work, energy, and skill to plan and execute a successful
transaction.Itisfairtoaskifallthesestepsarenecessary.Butwhichofthese
can youafford to skip? Unlocking the economic value ofyour company while
ensuringasmoothandorderlytransitiontoaqualifiedbuyerorinvestorthat
youselectbasedonbothyourcorporateandpersonalpreferencesisanevent
fewpeopleearntheprivilegetoperform.Givenallthatisatstake,followinga
proven methodology managed by a team of experienced advisors who
specializeinmiddlemarketcompaniesmakesalotofsense.
Workingwiththerightteamofadvisorsisthebestapproachtoaccomplishing
the twin objectives of obtaining a premium price with a high probability of
gettingadealdone.
FoundersInvestmentBanking
2012
Page23
A BOUT
F OUNDERS
I NVESTMENT
B ANKING
AchievingGrowth
BuildingValue
RealizingLiquidity
TolearnmoreaboutFoundersordiscusswayswemightbeofservice,please
contact:
DuaneDonnerat2059492043([email protected])
GeorgeMyersat2058217437([email protected])
ZaneTarenceat2055034013([email protected])
orvisitourwebsiteatwww.FoundersIB.com.
FoundersInvestmentBanking,LLC
LakeshoreParkPlaza
2204LakeshoreDrive,Suite425
Birmingham,Alabama35209
205.949.2043(office)
205.871.0010(fax)
www.FoundersIB.com
FoundersInvestmentBanking
2012
Page24