Presentation on theme: "M&A Today: Technology, Information and Business Services “What Sellers Want” Randall Wright Patterson, President Turnaround & Crisis Management, Inc."— Presentation transcript:
M&A Today: Technology, Information and Business Services “What Sellers Want” Randall Wright Patterson, President Turnaround & Crisis Management, Inc.
M&A Issues of Sellers of Underperforming Companies Realistic expectations of the seller The “auction” process What if there is no EBITDA? The need for a stabilized management team What to do with the skeletons in the closet The due diligence process
Realistic Expectations of the Seller Goal posts are: –Multiple of EBITDA (high side) –Orderly liquidation value (low side) Financially distressed businesses tend to sell at the lower end (without a strong “auction” environment)
The Auction Process An “auction” environment is critical to the best possible purchase price (the “puppy dog” scenario) Who to include in the process? –Strategic vs. financial buyers (80/20 rule) –Strategic buyers rarely pay for the synergies that they bring to the table (without a strong “auction” environment) –Owners often resistant to including their toughest competitor (most likely the best candidate)
The Auction Process Use the right investment banker/broker –Knowledgeable in the industry –Handles your size deal –Has sold other underperforming businesses –One you can afford Never set a price upfront –Usually either scares buyers off or leaves money on the table (“will consider any good faith offer on the table”) –When it comes to price, the devil is in the detail
What if There is No EBITDA? “It is what it is” - paint a pretty face –Quality financial information –Realistic financial projections and budgets (no hockey sticks) –Crisp & rehearsed management presentations –Proforma adjustments (changes implemented) Understand synergies of the potential buyers (financial vs. strategic buyers) “The buyer almost never buys what the seller thinks he’s selling”
Example of an Underperforming Company For Sale $300 million international electrical wholesaler (28 locations) –Positives Loyal and quality customer base Represented quality manufacturers (suppliers) Largest supplier (market leader) had exclusive territories Knowledgeable technical support personnel
Example of an Underperforming Company For Sale –“Some” negatives: No cash; vendors stretched Hostile bank; no additional borrowability Operating losses of $3 million per year Poor management Poor systems and processes Second time to market Primary supplier (representing 40% of sales) would only transfer franchise to one potential buyer Owners refused to include its toughest competitor on the bidding list
“Put the Lipstick on the Pig” Proposed turnaround plan: Fcst Actual –Headcount reduction $1.9M $2.7M –Increase pricing 1.3M 0.0M –Sell/close losing branches TBD.3M –Operating efficiencies 2.0M.5M –Corporate exp. reductions.5M 1.1M –Reduced bank fees/interest 1.5M 0.0M Total $7.2M $4.6M Total $7.2M $4.6M
Need for a Stabilized Management Team Buyers usually are buying people, not just a business concept, assets & infrastruc- ture (show off the team!) Hard to maintain/attract talent to an underperforming company Consider stay bonuses Consider interim managers
Get the Skeletons Out of the Closet Early Get the skeletons out of the closet early –Financial statements (accuracy & timeliness) –Business conditions (telecom inventory) –Poor business systems & processes –Customer base issues –Litigation (pending or threatened) The buyer has all the leverage at the end of the process and will use it Buyers will discount the purchase price to cover the unknown risk – that’s okay
Be Prepared for Due Diligence Be prepared for due diligence –Your investment banker/broker knows what you need –Prepare in advance the documentation that will likely to be requested (due diligence room) –Make people available –Don’t hide the inevitable (financial results, litigation, unrecorded liabilities) –Time is of the essence!
Summary There are far fewer potential buyers for an underperforming company The right investment banker/broker is crucial “It is what it is” – paint the best picture; get the bad news out on the table early Stabilize the management team and include them in the presentations to buyers Be very prepared for due diligence to shorten the time of the sale process Time is of the essence!