Building A Private Equity/M&A Brand Carroll D. Hurst, CPA Partner Keiter CPAs churst@keitercpa.com Building a New Private Equity/M&A Practice Brand Steps: I. Evaluate market size/competition II. Determine service offerings III. Identify strategic referral sources IV. Develop your brand 1
I. Evaluate Market Size and Competition 1. Determine whether the M&A market is large enough to support an M&A service practice 2. Identify potential competitors, their service offerings and differentiators II. Determine Service Offerings M&A Advisory Services 1. Valuation 2. Purchase price allocation 3. Structuring and tax advisory 4. Deal structuring for sale of control or minority interest to private equity or sale to strategic buyer 5. Working capital target calculations 6. Transition service agreement negotiation 7. Investment banking services 2
II. Determine Service Offerings, M&A Advisory services: Deal structuring for sale of control vs. minority interest to private equity firm a. Common or preferred equity b. Put provisions and their durations c. Governance provisions d. Use of all equity or equity and debt leverage to finance the transaction e. Board composition f. Size and terms of stock based compensation for management g. Acquisition strategy and funding strategy (use of debt vs. equity) II. Determine Service Offerings, Equity or Debt Financing Advisory Services 1. Valuation a. Historical earnings or discounted future cash flows 2. Projections assistance and review 3. Structuring and tax advisory 4. Composition of debt and equity advisory services, including negotiation of: a. Senior debt b. Subordinated debt /sub debt lender equity c. Private equity or venture capital contributions 5. Investment banking services 3
II. Determine Service Offerings, Transaction Advisory Services 1. Buy side or sell side a) Independence issues 2. Quality of earnings analysis Post Transaction Valuation Services 1. Valuation of specific intangibles Business Succession Planning Services 1. Estate and gift planning III. Identify Strategic Referral Sources 1. M&A Attorneys 2. Commercial bankers 3. Investment Bankers 4. Sub-debt Lenders 5. Private equity/venture capital funds 4
IV. Developing Your Brand 1 - Know all the relevant deal terms of the transactions with your legacy client base over the past three to four years: A. Valuation metrics database by industry and by strategic or financial buyer B. Law firm, commercial bank, PE or VC Firm, subordinated debt lender 1 - Know all the relevant deal terms of the transactions with your legacy client base over the past three to four years, continued: C. Deal terms database by industry and deal size a. Stock or asset (or 338 h(10)) b. Escrows and holdbacks c. Indemnification caps and baskets d. All cash; Cash plus earn-outs; cash plus earn-out and bonus e. Working capital targets calculation methodology f. Ancillary documents including employment contracts, non-compete, license, and transition services agreements 5
2 - Develop a M&A Advisory Practice Group A. All group members should be familiar with legacy client base transactions 1. Valuation multiples 2. Debt multiples 3. Other transaction terms by quarter and year, by industry, as noted in previous slide 2 - Develop a M&A Advisory Practice Group, B. Other sources of deal terms: a) American Bar Association Private Target Mergers and Acquisitions Deal Points Study b) SRS M&A Deal Terms Study C. Subscribe to relevant databases of deal transactionsti a) Lower middle market GF Data Resources b) Middle to upper middle market Pitchbook Data c) Used by larger investment banking firms Capital IQ d) Other databases Axial Markets 6
2 - Develop a M&A Advisory Practice Group, D. Network regularly and actively with the individuals who are most active in M&A 1. M&A Attorneys 2. Commercial bankers 3. Investment bankers 4. Sub debt lenders 5. Private equity and venture capital fund managers 2 - Develop a M&A Advisory Practice Group, E. Take an active role in M&A focused organizations (including officer and committee roles and speaking opportunities) 1. Association for Corporate Growth local and regional chapters 2. Alliance of Mergers & Acquisition Advisors 3. Exit Planning Institute 7
2 - Develop a M&A Advisory Practice Group, F. Make every opportunity to refer out private equity, senior and sub debt funding opportunities. 1. Quality of earnings and transaction advisory services on both your legacy clients and other situations in which the PE or sub debt firm won the pitch 2. Tax advisory and structuring 3. Purchase price allocation and valuation of specific intangibles ibl 4. Audit and tax services continuation for legacy clients and for new companies funded by the PE or sub debt firm 5. Audit and tax services for the PE or sub debt fund at the fund level 2014 Representative Engagements Our 2014 M&A engagements to date: 1. Investment banking services related to a minority recapitalization by a P.E. firm a) Identified P.E. firm, negotiated the transaction terms, performed valuation services b) Legacy services increased from review to audit, including two years of audits 2. M&A advisory services related to a management buy-out a) Identified senior and sub debt lenders, negotiated debt terms, performed valuation services 8
2014 Representative Engagements 3. M&A advisory services and growth capital negotiations as our client explores their strategic alternatives of selling to an industry consolidator or pursuing a growth strategy. 4. Senior debt financing negotiations for a growth company combined with negotiations of convertible debt issuance. 2014 Representative Engagements 5. Referral of a non-client, out of market, acquisition target to a P.E. buyer a) P.E. firm won the bid and engaged us to provide tax structuring services and provide purchase price allocation recommendations b) We expect to be awarded the audit and tax work 6. M&A advisory services, senior, sub debt and equity capital negotiations related to a management buy-out and redemption of all of the stock of the company. 9
2014 Representative Engagements 7. Provision of valuation services, and consulting services related to the issuance of convertible debt and equity capital to fund the growth capital needs of our client. 8. Reorganization advisory services, primarily related to tax structuring for a large growth capital investment by a foreign investor in our client 9. Majority recapitalization advisory services in connection with a change of control transaction a) Tax structuring and purchase price allocation advisory di services 10. Acquisition Advisory and valuation services for the strategic purchase by our client of a company, enabling our client to vertically integrate in its industry 10