Maximizing M&A Value. Tales from the Trenches. May 18, 2016

Transcription

1 Maximizing M&A Value Tales from the Trenches May 18, 2016

2 Today s Presenters: Richard Scudellari, Managing Partner, Silicon Valley, DLA Piper Jan Robertson, Managing Partner, SiVal Advisors, LLC Craig Hamm, Managing Director, Assurance and Consulting, BPM Scott Taylor, Partner, Assurance, BPM Robert Ressler, Partner, Tatum

3 Maximizing M&A value Market how important is the current market? update and deal trends: 2015/2016 YTD Planning why? when? how? Saleability key attributes Buyers categories and characteristics Valuation what is the business worth? Sale Process how a managed process with competitive bidding can maximize value Timing when is the right time to sell? Legal minimizing your risk during and after the sale

4 Global M&A overview Q Q1 2106: $597.4 billion of which $310 billion cross-border. Percent market share of global M&A by region. China outbound $82 billion, up 130 percent vs. Q US inbound $115 billion, up 43 percent vs. Q Chinese bidders ¼ of this. Source: Mergermarket Q1 2016

5 Global M&A overview Source: Mergermarket Q1 2016

6 US deal trends Source: Mergermarket Q1 2016

7 US deal trends Source: FactSet

8 US merger metrics Source: FactSet

9 Technology M&A Source: Morgan Stanley & SDC data. Transactions > $25M

10 Global mid-market Source: Thomson Reuters

11 US mid-market Source: Thomson Reuters

12 US Mid-Market Q by Industry Source: Thomson Reuters

13 US mid-market: EV/EBITDA Deals valued between $1 million and $500 million. Source: FactSet

14 Current market still positive for exits 2015 record M&A activity globally and the US: highest volume and dollar value; tech and non-tech sectors Q deal activity strong but not record setting pace Stock market Still favorable despite recent volatility Low interest rates continue Possible increase June or July? Spreads have widened for lesser credits Cash on corporate balance sheets US $3 trillion, Global $8 trillion Big corporates: top tech acquirors have changed Private equity: still active, but less aggressive

15 Maximizing M&A value Exits don t just happen they require: Planning Realistic expectations Disciplined execution Timing (company lifecycle)

16 Planning Why? Control over when and how exit occurs To be ready when: Optimal time in company lifecycle Optimal time in industry Market is favorable Just in case.plan for contingencies e.g. management change; unsolicited offer Maximizing value

17 Planning When? Never too early to start! At initial investment consider exit potential Envision future buyers Takes 6 18 months to sell Three key areas: Business/management Financial/taxes Legal

18 Planning Business/management: Build management team CEO, COO and below Focus on revenue growth/credible forecasts Strategy, market penetration, etc. Secure IP patents, trademarks Trim costs where possible to enhance profitability (EBITDA is key private co.) Diversify revenue base, especially if highly dependent on one or two key customers Identify and segregate any redundant assets

19 Planning Financial/tax: Financial statements audited/reviewed by CPA firm At least past three years Buyers will discount value and/or due diligence will be protracted if financials not in good order EBITDA calculation Adjusted for non-recurring or owner expenses Tax & Estate Planning stock vs. asset sale; trusts Valuation set expectations, based on: Company performance: growth & profitability (hist. & fcst.) Comparable market multiples (public & private co.) General market conditions

20 Planning Legal: Organize books, records and other legal documents in preparation for due diligence (virtual data center) Understand various stakeholder rights (debt and equity) Ownership/cap table review Clarify any contractual rights which may affect value (e.g., IP, leases, permits, contracts, etc.) Intellectual Property Ownership & Rights Review Employee Files (compliance, documentation) Regulatory Issues

21 Planning Big company due diligence can look like this so be ready for it!

22 Planning - possible reasons for selling Business is growing and profitable One or more interested buyers Hot industry sector Positive drivers IP - need capital and market reach Value of growth and promise curve

23 Planning - possible reasons for selling Retirement Portfolio end-of-life Burn-out Neutral/ negative drivers Technology obsolescence Need for liquidity/risk reduction

24 Saleability What makes a company Saleable? Programmable/teachable products or services Valuable IP or brands Specialty/uniqueness in a sought-after area Key customer relationships Recurring, diversified revenue stream Founder should be dispensable Accretive especially for public buyers Mini-conglomerate logical fit critical

25 Buyers I. Strategics: Big companies Cash to spend; M&A vs. R&D; size/scalability key Medium companies More plentiful; harder to uncover; can move faster; often bid aggressively to capture market share; sometimes cashconstrained & need to raise financing (bank, PE) International Growing category; highly strategic; typically well-capitalized; focused on operating businesses that augment customer reach, or technology gaps; speed is variable; buyers from Europe, Japan and China mainly

26 Buyers II. Financial: Private equity $2 trillion to invest; Team critical; Synergistic fits with existing portfolio companies; achieve scale for future larger exit Boomers Wealthy individuals have successfully run companies; usually sub $25 million acquisition size Family offices/groups Diversified portfolio; seeking higher returns; often industry preferences; operate similar to private equity VCs operating like Private Equity Burned by early-stage failures; have money to put to work; seeking high returns with lower risk; somewhat stealth mode

27 Phase / Action Items Sale process Valuation Time Current market Estimate of sale price in a competitive process

28 Phase / Action Items Sale process Preparation Valuation Time Company information executive summary presentation Buyers List

29 Phase / Action Items Sale process Contacting Prospects Preparation Valuation Time

30 Phase / Action Items Sale process Negotiations Contacting Prospects Preparation Valuation Time

31 Phase / Action Items Sale process Letter(s) of Intent Negotiations Contacting Prospects Preparation Valuation Time

32 Phase / Action Items Sale process Legal Financial Due Diligence Letter(s) of Intent Negotiations Contacting Prospects Preparation Valuation Time

33 Phase / Action Items Sale process Purchase & Sale Agreement Due Diligence Letter(s) of Intent Negotiations Contacting Prospects Preparation Valuation Time

34 Phase / Action Items Sale process CLOSING! Purchase & Sale Agreement Due Diligence Letter(s) of Intent Negotiations Contacting Prospects Preparation Valuation Time

35 Comments on sale process Think process first not transaction Transaction or papering deal comes towards end Packaging/presenting company story is key: How to best position, assess fit, entice buyers to next stage, etc. How /when to disclose sensitive issues, e.g. customers, IP Buyers What if some move more quickly than others? What if there s only one serious buyer? Board and team Alignment on strategy/process is key often a difficult challenge Due diligence How to manage so key staff are not buried? Post-Merger Integration Planning

36 Sale process: professional team 1. M&A Advisor market canvass: competition is key for negotiating leverage/maximizing value 2. Legal how to balance maximizing your return and minimizing your risk 3. Financial/tax sound financial and tax preparation is essential for a smooth due diligence process and minimizing tax bill postclosing

37 Timing value of growth/promise EV Growth 6-18 mos. Optimal Sale Begin Exit Late Start Planning Time

38 Timing 6 18 months to sell Factor this into strategic planning Implications of missing optimal exit time: Lower values than peak Or worse: no exit happens Why? Market sector dynamics: Crowded market/competition Hot sector/vc-overinvestment Team sensing peak passed/negative momentum Consolidation party/wave

39 Timing missing the party.sector story Internet/social media better access to information Global market many potential buyers Sellers engage M&A advisors stimulate buyer interest Buyers go shopping too More companies focus on their exit paths Creates deal fever then music stops. Bad news for company that didn t get acquired Formerly small competitors, now owned by big guys with $$$s and marketing clout Investors know consolidation has happened, so don t invest Usually doesn t end well for company left out

40 Summary M&A markets still favorable Large, diversified pool of buyers Cash available for deals Planning and preparation key Professionally managed process Maximize value and minimize risk Timing paramount

41 Questions? Thank you for attending!