The Marathon of Strategic Acquisitions: Making it to the Finish Line

Transcription

1 The Marathon of Strategic Acquisitions: Making it to the Finish Line Rebecca White l Director l Western Reserve Partners LLC l April 12, 2016

2 Rebecca Lynn White Rebecca Lynn White Director & Head of Capital Raising Western Reserve Partners LLC (216) For more than a dozen years, Rebecca has worked closely with a variety of middle market and public companies, assisting them in finding solutions to achieve their growth and liquidity goals. She started her career in the M&A Group at KeyBanc Capital Markets and joined Western Reserve Partners LLC in Currently, Rebecca is Director and Head of Capital Raising at Western Reserve Partners LLC. She has successfully closed more than 35 transactions, including sell side M&A, capital raising, bankruptcies and fairness opinions. Rebecca has a passion for assisting industrial/manufacturing companies and has also advised a variety of consumer products and business services companies throughout her career. As a result, she has developed extensive knowledge of a variety of niche industries and respective growth drivers, ranging from metal fabrication to nonwoven materials to ice cream manufacturing to ready mix concrete. Rebecca received a B.S. in Mathematics and Accountancy from Mount Union College and her M.S.M. in Operations Research with a concentration in Finance from the Weatherhead School of Management at Case Western Reserve University. She was named as a Smart Business Women Who Excel finalist in Rebecca is a founding board member of the Women in Manufacturing Ohio Chapter and currently serves as the Treasurer. She also serves on the Board of the Association of Corporate Growth (ACG) Cleveland. While her career and board activities keep her running throughout the day, Rebecca laces up her running shoes and hits the road each morning at 5AM. She has completed 24 marathons, including 11 Boston Marathons and counting. Rebecca welcomes connections at: 2

3 The Acquisition Process Refine Acquisition Strategy Identify & Contact Targets Assess Value Submit Offer & Negotiate Documentation Due Diligence & Final Post Close Lace up your shoes It s a marathon! 3

4 Which Race Are You Going To Run? Refine Acquisition Strategy Identify & Contact Targets Assess Value Submit Offer & Negotiate Documentation Due Diligence & Final Post Close Employees Geographies Size Products/ Technology Vertical Capacity Distribution End Markets Cultural Fit 4

5 Develop a Training Plan Refine Acquisition Strategy Identify & Contact Targets Assess Value Submit Offer & Negotiate Documentation Due Diligence & Final Post Close 5.0 LOW VALUE / HIGH SYNERGY 8 HIGH VALUE / HIGH SYNERGY 11 S Y N E R G Y 2.5 LOW VALUE / LOW SYNERGY 3 HIGH VALUE / LOW SYNERGY VALUE 5

6 Size Up the Competition Refine Acquisition Strategy Identify & Contact Targets Assess Value Submit Offer & Negotiate Documentation Due Diligence & Final Post Close Valuation Considerations: Historical and projected financial performance focus on EBITDA Growth trends, scalability and opportunities within the industry Acquisition trends among competitors Acquisition target s desires, personal goals and abilities to execute their growth plan Asset vs. Stock deal 6

7 Start the Race Refine Acquisition Strategy Identify & Contact Targets Assess Value Submit Offer & Negotiate Documentation Due Diligence & Final Post Close Speed Price Structure Certainty to Close 7

8 Determine the Pace Refine Acquisition Strategy Identify & Contact Targets Assess Value Submit Offer & Negotiate Documentation Due Diligence & Final Post Close Recognize potential risks and synergies Leverage third party advisors Avoid deal fatigue maintain an efficient process 8

9 The Final Mile Refine Acquisition Strategy Identify & Contact Targets Assess Value Submit Offer & Negotiate Documentation Due Diligence & Final Post Close Working capital targets Indemnification and escrow provisions Tax implications Employment contracts, non competes and co investment opportunities 9

10 After the Finish: The Finish Line Chute Refine Acquisition Strategy Identify & Contact Targets Assess Value Submit Offer & Negotiate Documentation Due Diligence & Final Post Close 57% of the merged concerns lagged behind industry averages ~ Mercer Management Consulting, Wall Street Journal, % of all strategic alliances fail or fall short ~ McKinsey & Company / Coopers & Lybrand, % of M&As fail to achieve their financial objectives ~ American Management Association, HR Magazine, % only 9% of European business leaders considered their deal to have achieved its original objective [91% failure] ~ The Hay Group,

11 Exhibit A: Corporate Strategy Trend #1 #2 #3 #4 #5 Industry Trends Corporate Vision Vision in response to trend #1 (helps to include some that are measureable and time based) #2 #3 #4 #5 11

12 Exhibit B: Acquisition Prospect Criteria Geographies U.S.: Kentucky, Missouri, Southeastern states Canada: Ontario, Manitoba, Saskatchewan Europe: Germany, Switzerland Asia: China, Thailand Products/Technologies Key product #1 #2 #3 #4 Services [or Applications] Service or application area #1 #2 #3 #4 Customers / End Markets Key end market #1 #2 #3 #4 12

13 Exhibit C: Ideal Acquisition Prospect Criteria Fits within product criteria (1, 2or 3) Serves the right end markets (x, y or z) Located in a target geography (country A, country B, etc) At least 50% of revenue from service $30 75 million of revenue 10% EBITDA margins Revenue CAGR of 8% Keep it simple One sheet per business unit Best to start with small number of criteria (5 is good, no more than 7) * We offer this simple tool to help build consistency and discipline when evaluating a diverse set of candidates. When evaluating actual candidates the dot would either be Green, Yellow or Red, providing a quick visual grading system for each target. 13

14 Exhibit D: Financing Sources Risk Unitranche Funds Mezzanine Funds Minority Equity Funds Enterprise value driven 12 18% cost of capital Enterprise value driven Mid 20% cost of capital Structured Finance Institutions Collateral and/or cash flow driven 8 12% cost of capital Banks Cash flow and/or collateral driven 2 6% cost of capital Cash flow driven and/or collateral driven 7 10% cost of capital Cost of Capital 14

15 Exhibit E: Due Diligence Request List 1. List of key historical highlights and evolution of the business 2. Discussion of products, services and sales network a. List of all products / services offered b. List of all geographies covered c. Description of marketing and sales strategies, including sales reps vs. internal sales force 3. General business strategy, including: a. Key sustainable competitive advantages and any aspects of the company that make it unique in its core markets when competing against others b. Significant growth initiatives in the next several years 4. Customers a. List and description of key customers, along with revenue by customer for the past three years b. Description of key terms of each contract by key customer 5. Personnel a. Org chart b. Breakdown of employees by division c. Description of benefits policies and compensation (hourly vs. salary) d. Biographies of key management 6. Financial Information a. Detailed quarterly or monthly income statements, balance sheets and cash flows for the last four years, as well as reviewed annual statements for the last four years b. Income statement and capital expenditure projections for the next two years c. Detailed schedule of adjustments to the income statements d. Description and value of assets owned and leased 7. Description and list of the company s compensation and insurance policies 8. List of any and all potential outstanding liabilities and pending or threatened litigation 15

16 Exhibit F: Sample Acquisition Process Timeline Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Initial Screening & Prep Preliminary Discussions with Targets Assess Fit and Value Submit IOI Acquisition Process Site Visits Initial Due Diligence Submit & Negotiate LOI Confirmatory Diligence Documentation & Final Close 16

17 Exhibit G: Additional Resources Books Acquisition Strategy and Implementation, Nancy Hubbard Maximizing Corporate Value through Mergers and Acquisitions, Patrick A. Gaughan Mergers: Leadership, Performance & Corporate Health, David Fubini, Colin Price and Maurizio Zollo Managing Emotions in Mergers and Acquisitions, Verena Kusstatscher and Cary L. Cooper Mergers & Acquisitions Playbook, Mark A. Filippell Articles Organizational Identity and Value Creation in Post Acquisition : The Spiraling Interaction of the Target's Contributive and the Acquirer's Absorptive Capacities Helene Loe Colman Best Practices in Leading Post Merger Business Michael S. Salvador, Donald G. Lang and Christine Rumsey Creating Deal Success Through People: Mastering M&A Culture and Issues Towers Watson The Success of Acquisitions: Evidence from Divestitures Steven N. Kaplan and Michael S. Weisbach 17