Growing Strategically through Business Acquisition. Monday July am 12 pm

Transcription

1 Growing Strategically through Business Acquisition Monday July am 12 pm

2 On the line Jessica Fialkovich, Co-Founder & President Transworld Business Advisors Rocky Mountain Jessica Stutz, Special Markets Lending Director Colorado Lending Source

3 About Us Colorado Lending Source cares about small business, about creating long-term alliances with our lending partners and borrowers, about being a resource to empower entrepreneurs and about making Colorado the best state in the nation to start and grow a business. We partner with local lenders, government agencies and resource partners to make access to capital more attainable for small businesses. Transworld Business Advisors - Rocky Mountain is the top business brokerage firm in the state. We help entrepreneurs buy and sell businesses in Colorado, with a focus on helping family-owned and closely held businesses with their strategic plans for the future. We offer a wide range of services tailored to fit your business needs including Business Brokerage, Mergers and Acquisitions, and Franchise Consulting and Development.

4 Pros and Cons of Organic Growth Pros Control Accomplishment Cons Slow Capital Expenditure Growth Through Acquisition - Speed Efficiency Instant Scale

5 Market Power Build Market Presence Increased Market Share Reduced Competition Market Synergies Competency & Resources Competencies High level employees and experts. New processes and procedures. Resources Access to additional revenue sources. Access to data, knowledge and expertise. Larger space footprint.

6 Financial Advantages Financial Gains Company Synergies Reduced Barriers Reduced Entry Barriers Overcome challenging market entry barriers. Reduced risk of adverse competitive reactions. Market entry can otherwise be costly (upfront research, time to build client base.)

7 The Cons of Growth Through Acquisition Company Integration Issues Management Challenges Too Much Diversification Poor Company Match Too Many Challenges to Overcome What Are the Solutions to Acquisition Issues? Seek the advice of an experienced M&A advisor. Conduct thorough due diligence upfront.

8 Transworld - Rocky Mountain s Case Study Case Study: Print Broker Acquired by Marketing & Fulfillment Business Buyer owned a marketing & fulfillment business Wanted to break into the print industry Instead of growing in team size, they made a strategic acquisition Initial business did not have a sales team Benefits to the Buyer Brand recognition through business acquisition Cross promotion of products New industry access Scale

9 The Keys to a Successful Acquisition Start with a quality advisory team and be clear about your expectations. Choose innovative operating strategies. Strong leadership within the acquired company (crucial for transition). Implement management incentives and employee retention programs. Link compensation to changes in cash flow (management). Push the pace of change (develop an urgency for success). Foster dynamic and highly communicative relationships across management personnel.

10 Financing Solutions SBA 7(a) Loans Can be used to finance a business acquisition or partner buyout Can be an Asset Purchase or a Stock Purchase (including a stock redemption)

11 Eligible Scenarios Change of Ownership Between Existing Owners (partner buyout) An existing owner(s) is purchasing the ownership interest of another owner(s) resulting in 100% ownership of the business by the purchasing owner The small business is redeeming the ownership interest of an owner(s) resulting in 100% ownership of the small business by the remaining owners Full Change of Ownership Resulting in a New Owner A small business is purchasing 100% of the ownership interest in another business An individual(s) who is not an existing owner is purchasing 100% of the ownership interest in small business An Employee Stock Ownership Plan (ESOP) or equivalent trust is purchasing a controlling interest (51%) in the employer

12 Non Eligible Scenarios A non-owner who is purchasing less than 100% of the ownership interests in a business (except for ESOP purchases). An existing owner who is purchasing the ownership of another existing owner that will not result in 100% ownership of the business by the purchaser.

13 Financing & Equity Required Can finance up to 90% of the total project cost related to a business acquisition Borrower is required to inject 10% of total project cost Seller carry debt can provide up to half of the required 10% equity as long as it is on full standby (no payments of principal or interest) during the term of the SBA 7(a) loan.

14 Financing & Equity Required Seller carry debt with payments is allowed as long as the historic and projected cash flow of the business support the ability of repayment. Would not be considered equity. Up to a 10 year term, interest rate negotiated with lender Collateral required would be a 1st lien on all business assets, along with the possibility of taking a lien(s) on real estate owned personally

15 Key Points The seller(s) may NOT remain as an officer, director, stockholder or key employee of the business. Only a short 12-month maximum consultant period is allowed. A small business must be the borrower on the loan and in some cases, the individual owners may also be required as co-borrowers.

16 Key Points If the borrower is also acquiring the small business's real estate through separate financing, the SBA 7(a) loan must have a shared lien on that real estate unless financed through an SBA 504 loan. Interim and three years of tax return financials are required to be received from the seller and verified through SBA IRS transcripts. The SBA loan cannot fund the purchase of any business above its appraised value. However, the borrower can fund this through additional equity or seller carry debt.

17 Business Appraisal Requirements A business valuation is required, to be completed either by the lender or by a qualified third party depending on the lender policy, relationship of the buyer and seller and amount of goodwill being financed. A business valuation ordered by the seller and/or buyer CANNOT be used. If a special purpose business and related real estate is being purchased, such as an assisted living facility, a Going Concern ordered by the lender is required.

18 Needing to refinance debt as part of the business acquisition? If there will be a complete change of ownership, the refinance of these debts is considered part of the business purchase. If the change of ownership is between existing partners, the refinance of the debts must meet SBA's regular debt refinance requirements.

19 Thank you! Transworld Business Advisors Rocky Mountain Colorado Lending Source