EDGE Value Acceleration for CFOs. June 14, 2017

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1 EDGE Value Acceleration for CFOs June 14, 2017

2 Agenda Market perspective Importance of building value Value acceleration process Value maturity index Intangible assets / 4C s How to build value 2

3 A TIDAL WAVE OF EXITS IS COMING Sales Range # of Co.'s (thousands) % Sales $ (trillions) % Micro Market <$5M 5, % $ % Lower Middle Market Upper Mid Market and Above Total Employer Firms >$5M-$100M % $ % >$100M % $ % 6, % $ % - 3 -

4 HISTORICAL TRANSITION SUCCESS RATES 70-80% of businesses put on the market don t sell Only 30% of all family-owned businesses survive into the second generation 12 months after selling, 75% of business owners surveyed profoundly regretted the decision - 4 -

5 HISTORICAL TRANSITION Within seven years ALL SUCCESS RATES baby-boomers will be over 60 years old Own 63% of the 6M private businesses in U.S % of their wealth is tied up in their businesses EPI research confirms: 48% in the next five years; 76% plan to transition over the next 10 years The Age Wave 4,500,000 Businesses $10 Trillion in Wealth

6 MARKET DYNAMICS What impact do you think this will have on the market when these business transitions begin to flow? Multiples are likely to fall Only the best businesses have the option to sell Even if you choose an inside option (e.g., family, employees, partners, management) valuations are likely to fall, meaning an increase in the risk of receiving your full payout - 6 -

7 WHAT CAN WE DO TO HELP AN OWNER? Build a system that positions the business for a successful transition in good times or bad Identify what they already have Initiate steps to mitigate risk Build value Position the business so that they can unlock the wealth - 7 -

8 Father time is undefeated. - LeBron James - 8 -

9 ALWAYS BE READY TO TRANSITION The 5 Ds 1. Death 2. Disability 3. Divorce 4. Disagreement 5. Distress Unsolicited offer to sell - 9 -

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11 VALUE ACCELERATION PROCESS

12 Value Maturity Index 5 Stages 12

13 The Formula for Business Value CASH SALES X MULTIPLE = Managing the 4Cs drives sales and income AND the multiple = EXPONENTIAL IMPACT ON BUSINESS VALUE 13

14 Tangible Versus Intangible Assets Traditional accounting systems are setup to provided regular feedback on tangible assets Can you measure the value of your intangible assets? yet, your intangible assets are the direct drivers of business attractiveness. 14

15 The 4C s Human Capital Customer Capital Structural Capital Social Capital 15

16 The 4C s Examples 16

17 Common Sense Scoring WEAK AVERAGE STRONG CAN INTELLECTUAL CAPITAL BE MEASURED? 17

18 The 4C s Scoring Human Customer Structural Social 18

19 What is Exit Readiness? It is not the decision to sell. It is a state of fact, not of mind. Two considerations: Is the owner ready? Is the business ready? In the eyes of the current owner ( ugly baby ) In the eyes of the new owner (premium or discount) 19

20 How to Protect Value? 20

21 How to Build Value? Think 4C s 21

22 Exit Readiness Assessment 22

23 Value Drivers and Detractors Employee and management issues Financials Management systems and forecasts Systems processes Profit improvement 23

24 Summary It takes time to get ready; starting is difficult Readiness correlates to value This is a once-in-a-lifetime event 24

25 MIKE TRABERT CPA, CVA, CMAP, CEPA, CM&AA Mike leads Skoda Minotti s Value Acceleration/Exit Planning Group, as well as the firm s Transaction Advisory Services Group He is a Certified Valuation Analyst, Chartered Merger and Acquisition Professional, a Certified Exit Planning Advisor and a Certified Merger and Acquisition Advisor Mike graduated from Kent State University in three years where he received his Bachelor of Business Administration degree in accounting Skoda Minotti Cleveland, Ohio mtrabert@skodaminotti.com Mike was recognized in the National Register s Who s Who in Executives and Professionals He has been nominated for Leader of the Year by the Exit Planning Institute Mike has attended a regular season Major League Baseball game in over 60 venues