4 Phase One – Setting the Strategy Phase Two – Executing the Strategy The Sale ProcessPhase One – Setting the StrategyPhase Two – Executing the StrategyDefine ShareholderObjectives:PriceStructureTimingContact PotentialPurchasers withConfidentiality AgreementsEngage in FinalNegotiations.Consider the unique positioning of your Company for each potential purchaser.Initial Value Analysis.Create competitiveenvironment andrespond to queriesFinal Detailed Due DiligenceProvide preliminary due diligence.Preparingfor theSaleMarketingtheCompanySelectingthePurchaserClosingtheTransactionMarket StrategyDevelop list of potential purchasers.Finalize the go-to market strategySolicit and assess expressions of interest.Negotiate letters of intent.Advise on structure:Tax & accountingramificationsPrepare a Confidential Information MemorandumSelect final purchasers.Coordinate Management Presentations.Ensure all closing matters are dealt with promptly.Prepare “teaser” document that summarizes acquisition opportunity.A sale process should have two distinct “phases” - setting & executing the strategy.The critical steps of this process will be discussed in our presentation today.
5 Preparing for Sale “Getting your house in order”
6 Preparing for Sale Getting your house in order A successful sale process requires a disciplined approach:Address management succession issuesTax planning and structuringDevelop value expectationsReal estate appraisalsUpdating business documentsBoard of Director minutesCompliance filingsWebsite materialKey contractsBusiness plans and procedure/quality manualsEngage advisorsVendor due diligence
7 Preparing for Sale Getting your house in order A successful sale process requires a disciplined approach:Develop marketing strategy and prepare marketing materials‘No-names’ information teaserConfidentiality agreementConfidential Information Memorandum (“CIM”)Management presentation
8 Finding the Right Buyer “How to focus the sale process”
9 Finding the Right Buyer Possible Acquirers Target potential acquirers based on your objectives:Strategic AcquirersFinancial Acquirers (Private Equity)Management BuyoutCreating and validating the potential acquirer list:Financing capabilitiesAcquisitivenessCultural fitStrategic and competitive risk
10 Finding the Right Buyer Strategic Acquirers Strategic RationaleComplementary product or serviceAccess to new customer basePurchasing synergiesSG&A synergiesAbility to rationalize locations and unlock real estate valueAccess to new geographic marketsVertical integrationLeveraging brand name and reputation
11 Finding the Right Buyer Financial Acquirers Private equity investment continues at record levelsPrivate equity has accounted for 24% of overall transaction volume for the first nine months of 2007Funds are getting larger and more numerousBlackstone Group recently closed a US$21.7 billion fundThe number of private equity funds in North America has more than doubled in the past five yearsDue to the large amounts of capital invested in private equity, these funds have become a significant factor in mid-market M&A
12 Finding the Right Buyer Financial Acquirers Typical Acquisition Criteria$5 million of EBITDA with sweet spot of $10 million or moreSmaller funds and individuals focus on companies with less than $5 million of EBITDA20-30% IRR thresholdClearly defined exit strategyStrong management teamGrowth potential to meet return expectations3 to 7 year hold periodTypically prefer control investments
13 Finding the Right Buyer Financial Acquirers Other ConsiderationsTypically not involved in day-to-day operationsAttractive opportunities for management through equity incentivesProvide flexibility for retained equity stakeProvides access for growth capital or industry consolidation strategyGenerally less concern sharing sensitive information with financial acquirers
14 Finding the Right Buyer Management Buyout Viable alternative where high comfort levels exists between management and ownershipEliminates risks associated with sharing confidential information with competitorsCan be staged over time or combined with a recapitalization to increase cash proceeds to the selling shareholderMay require VTB financing due to limited management financial resourcesOwners can be placed in a difficult situation negotiating against management if advisor is not usedCan have a negative impact on the business if deal is not completed
15 Getting the Deal Done “Don’t bring a knife to a gun fight…”
16 Getting the Deal Done The Importance of Planning Selling your business will likely be the most significant financial transaction of your careerMost often the acquirer will have significantly more deal-making experience than the sellerA poorly planned or unsuccessful sale attempt can have a lasting negative impact on your businessCreating competitive tension and preserving options for the shareholders throughout the sale process is fundamental to achieving a superior result
17 Getting the Deal Done Why use an advisor? Expert and independent adviceMarket credibility to processMaximize value through structured processAllows management to focus on the businessProvides a “buffer” between management/shareholders and investorsEstablished contacts with strategic and financial buyersGlobal reachIntegrated tax, accounting and corporate finance advice
18 Getting the Deal Done Approach to Common Deal Issues Sell Side IssueSell Side ApproachConfidentiality.Rifle vs shotgunStaged approachConfidentiality agreementsControlled information disseminationGetting the right people to thetable.Identify financial wherewithal, acquisitiveness and potential strategic fit prior to contact.Use of PwC network to identify international buyers.Use of PwC relationships to introduce opportunity to appropriate level of management.Maximizing value.Ensure seller’s value expectations are reasonable up front.Create Confidential Information Memorandum and sales strategy that plays to acquirer’s strategic rationale.Maintain competitive tension and options for shareholders.
19 Getting the Deal Done Approach to Common Deal Issues Sell Side IssueSell Side ApproachLosing focus on the business.PwC leads process and acts as information conduit.Meetings and due diligence review held offsite where possible.Leverage PwC knowledge if existing client.Last minute “surprises”.PwC pre-sale due diligence to identify and mitigate possible deal issues before the sale process commences.Anticipating the buyer’s next step is a key to successful negotiations.Assumption of a buyer’s perspective.
20 Getting the Deal Done Managing Deal and Business Risks CompetitiveTensionDemonstratingthe potential ofthe businesswill be key to valueCross-sellingOverhead EliminationConsolidation OpportunitiesExperiencedManagement+PwC CF’s role is to maximise value through focus on positive issuesService LinesCustomer RelationshipsStrong Market PositionCurrentBusinessProforma EBITDAStakeholder valueLabour Cost IncreasesCompetition ThreatForeign Exchange Sensitivity…and to minimise impact of potential risks_Management SuccessionCustomer ConcentrationOpportunities / Threats= Buyer specific
21 Case Studies “Creating Value by Targeting the Right Buyer”
22 Case Studies Non-expedited Transportation Company Company OverviewNon-expedited parcel delivery company focused on business to business deliveries with sales of approximately $145 millionPwC Corporate Finance acted as lead advisor in the sale of the Company to a large, publicly traded trucking companyAcquirer RationaleStable, consistent cash flowStrong management teamCross selling opportunitiesMomentum for Income Trust Conversion
23 Case Studies Beverage Company Company OverviewManufacturer of private label and branded fruit juices and drinks with sales of approximately $65 millionPwC Corporate Finance acted as lead advisor in the sale of the Company to a leading, publicly traded beverage companyAcquirer RationaleFacility rationalizationAccess to new brandsIncreased presence in the Ontario institutional marketIncreased PET packaging capabilities
24 Case Studies Precision Manufacturing Company Company OverviewManufacturer of precision molded plastic components with sales of approximately $30 millionPwC Corporate Finance acted as lead advisor in the sale of the Company to a private equity fundAcquirer RationaleStrong management teamHighly profitable with attractive growth opportunitiesConsistent cash flowConsolidation platform
25 Case Studies Automotive Parts Manufacturer Company OverviewManufacturer of highly engineered automotive components with sales of $80 millionPwC Corporate Finance acted as lead advisor in structuring and financing a Management Buyout of the CompanyTransaction RationaleMet shareholder’s desire to provide management with an opportunity to acquire the businessRefinancing met shareholder’s short-term cash requirementsProvided structured income stream for shareholder while maintaining appropriate safeguardsAvoided disclosure of sensitive information to competitors