Preparing Your BUSINESS FOR GROWTH · Burnette Domain Expert •Former SES Deputy Associate...
Transcript of Preparing Your BUSINESS FOR GROWTH · Burnette Domain Expert •Former SES Deputy Associate...
National HubZone ConferenceWednesday, September 4th, 2019
Preparing Your
BUSINESS FOR GROWTH
BUY ANOTHER COMPANY
FOR GROWTH?
SELL AS AN EXIT?
CONTINUE TO GROW
ORGANICALLY?
SHOULD I:
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SHOULD I BUY ANOTHER COMPANY FOR GROWTH?
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Past performance is key to
winning work and incumbents
win the majority of the work
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According to Grant Thornton study,
73% of incumbents win re-compete
Awards go to the incumbent nearly:
80% of the time at SBA
90% of the time at USDA
94% of the time at HHS
Keys to Successful Growth
The data from this slide are referencing information provided in the Grant Thornton
Government Contractors Survey 2016 https://www.grantthornton.com/library/survey-
reports/public-sector/2017/2016-government-contractors-survey.aspx
On average 73% of work goes to the incumbent so leveraging existing
cash to build your contract backlog through acquisition allows you to:
Access to new
agencies
Decrease the amount
of money and time
you spend on
business development
and acquire a strong
team
Access ongoing and
existing revenues
and cash you can
use to grow
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Acquisition Leads to Expansion
All sources for the data on this slide are from the public databases SAM and FPDS.
The System for Award Management (SAM) is a Federal Government owned and operated free web site that consolidates the capabilities in Central Contractor Registration
(CCR)/FedReg, Online Representations and Certifications Applications (ORCA) and the Excluded Parties List System (EPLS) https://www.sam.gov/SAM/
Federal Procurement Data System (FPDS) is a single source for US government-wide procurement data https://www.fpds.gov/ 6
Companies that picked up 1 additional agency from 2016-2017
saw roughly $0.5MM+ increase in obligated dollars on average.
Diversification Matters
All sources for the data on this slide are from the public databases SAM and FPDS.
The System for Award Management (SAM) is a Federal Government owned and operated free web site that consolidates the capabilities in Central Contractor
Registration (CCR)/FedReg, Online Representations and Certifications Applications (ORCA) and the Excluded Parties List System (EPLS) https://www.sam.gov/SAM/
Federal Procurement Data System (FPDS) is a single source for US government-wide procurement data https://www.fpds.gov/ 7
How Do I Finance An Acquisition
Considerations for potential borrowers include:
• Credit score(s)
• Cash flow minimums
• Growth Strategy
• Ownership/Management experience
• Personal equity/assets - $150K+
• Personal debt service
Loan Structures and Options:
• SBA 7(a) loan allows for 10 year terms and 5-10% down compared to conventional loans at 6-7 year terms and 25% cash down
• Some transactions include a 7(a) loan and a conventional loan together
• Review all options, understand what the seller wants out of the transaction and then determine what structure will make the most sense
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Cash should be used for
GROWTH – think
strategically about when to
borrower money and when
to use your existing cash
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SHOULD I SELL AS AN EXIT?
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• Determine your timing for an exit and a price range you would be happy with
• Identify a wealth manager and talk through tax implications, retirement, etc
• Identify a sell side advisor and an attorney
When is the Best Time to Sell?• When the questions above are answered
• When you just won contracts or a new vehicle
• When anyone can buy your company or there is a good understanding that
there will be multiple buyers
Should I Sell My Company?
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• Valuation will be determined based on your EBITDA as well as other
factors.
• What is EBITDA?
• EBITDA – or earnings before interest, tax, depreciation and
amortization – is an indicator commonly used by prospective buyers
or investors to measure a company’s financial performance.
• In its simplest form, EBITDA is calculated by adding the non-cash
expenses of depreciation and amortization back to a company’s
operating income. Below is the basic formula:
• Identify add backs that the company has such as officer comp, etc
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EBITDA = Operating Profit (EBIT) + Depreciation (D) + Amortization (A)
How Can I Estimate Valuation?
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2x – 4x Multiple 4x – 6x Multiple 6x+ Multiple
• Small business set
aside work
• Lower end 8(a) work
• Not much cleared
work and focus on
civilian agencies
• One or two capabilities
• Subcontract work
• 2+ capabilities
• Cleared work and
mostly prime work
• BIC vehicles
• Strong pipeline and 5
years left on contracts
• Higher margins and
NAICs with high SB
limits
• Strong margins
• Full and open
contracts
• Large prime awards
and long-term
contracts
• Cleared work
SMALL BUSINESSES
What Multiple Might I Expect?
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SHOULD I GROW ORGANICALLY AND PREPARE FOR FULL AND OPEN COMPETITION?
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How do you finance past performance, capacity and the ability to leverage set asides?
•Awarded multiple contracts in a short period
•Inadequate capital to fund related contract expenses
•Will not realize payments from the government until 60-120 days after contract award
Contract Mobilization
• Trade credit required
• W/o trade credit suppliers require up to 90%
COG
• Will not realize payments from the
government until 90-120 days after contract
award
Purchase Order
Financing
• Winning awards is labor-intensive, costly and inefficient
• Unable to win new contracts
• Sunsetting of certifications (e.g. 8(a)) limits new growth prospects
Acquisition Financing
CAPACITY/
SET ASIDES
PAST
PERFORMANCE
AND CAPACITY
CAPACITY/
SET ASIDES
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Am I Leveraging Debt in the Best Way to Grow Organically?
Ensure you have the capacity to win new work
• Mobilization would provide for enough financing to go after multiple awards at
once and would replace your existing factoring facility
• If small business wins another award at $20-40M, the cash required to
mobilize could become more of a challenge
• You should be able to go after all the work you can win.
• The cash you do have should be used for investment growth.
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Pre-approval for acquisition financing
Required documents to get a proposal letter:
• Past three years business tax returns
• Past three years personal tax returns
• 2016 profit and loss statement and
balance sheet
• Business debt schedule
• Contract Backlog excel file
• Detailed A/R Aging report
• Resume
• Authorization to pull credit
• SBA form 1919
• SBA Personal Financial Statement
• Mobilization template
Considerations for potential borrowers
include:
• Credit score(s)
• Cash flow minimums
• Growth Strategy
• Ownership/Management experience
• Personal equity/assets
• Personal debt service
Advisory Services
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True growth demands rigorous analysis, engaged leadership, and investment in the right set of capabilities.
We perform an assessment of current growth efforts and identify gaps
We evaluate the current priorities of your firm and pinpoint growth
strategies
We assess the current marketplace and your competitors to best
position your firm for growth
We create successful growth plans by combining industry expertise and
data analytics to leverage growth strategies within proven frameworks
Teaming
• Similarly Situated Subcontractors
• Joint Ventures
• Mentor-Protégé
• Contractor Team Arrangements
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Exemption from LOS and NMR
• The performance requirements (limitations on subcontracting) and
the nonmanufacturer rule do not apply to small business set-aside
acquisitions with an estimated value less than the SAT ($250,000).
• 13 CFR 121.406(d)
• Inapplicability of limitations on subcontracting: The limitations on
subcontracting do not apply to: (1) small business set-aside
contracts with a value less than the SAT ($150,000), or (2)
subcontracts (except where a prime is relying on a similarly situated
entity to meet the applicable limitations on subcontracting).
• 13 CFR 125.6(f)
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HUBZone Nonmanufacturers
• A qualified HUBZone SBC may submit an offer on a HUBZone contract for supplies
as a nonmanufacturer if it meets the requirements of the nonmanufacturer rule set
forth at § 121.406 of this chapter.
• 13 CFR 126.601(f)
• FAR has not been amended
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Mentor Protégé Programs SBA vs DoD
Other Mentor Protégé Programs (CRS Report 1/07/19)
• DOD – subcontracting, mentor reimbursed for costs, credit for unreimbursed costs
toward plan goals, advance payments, progress payments, own up to 10%, loans,
management, engineering, technical assistance, protégé may only have 1 mentor,
mentors may have multiple proteges
• FAA - Evaluation factor, subcontract count toward plan goals, costs incurred counted
in determining indirect rates for reimbursement, set asides for participants
• DOE - award fees, subcontracts count toward plan goals
• NASA – development costs count toward subcontract plan, costs incurred
considered in determining indirect rates for reimbursement, award fees for SBIR
Phase II developmental assistance
• DHS – evaluation factor, costs incurred count toward plan goals
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Contractor Team Arrangement
• A GSA Schedule Contractor Team Arrangement (CTA) is an arrangement in which two
or more GSA Schedule contractors team together to provide a total solution to meet a
customer's needs. Under Schedule CTAs, contractors complement each other and it
allows teams to compete for orders for which they may not qualify independently. GSA
encourages the use of CTAs to meet buyer’s requirements.
• NOTE: FAR 9.6, Contractor Team Arrangements, does not apply to GSA Schedules
teaming. Under GSA Schedules, Teaming allows contractors to use their individual
GSA Schedules to develop a solution for the government.
• The Schedules CTA does not create a separate legal entity, but allows Schedule
contractors to meet buyer’s requirements by combining the supplies and/or services
from each team member’s separate Schedule contract in response to a buyer’s
Request for Quote.
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Contractor Team Arrangement
CTAs and Small Business Set-Asides:
• When forming a Team in response to a small business set-aside, all team members
must meet the socioeconomic status for the set-aside and the limitations on
subcontracting (FAR 52.219-14) apply. i.e. the small business team members must
perform at least 50% of the value of the work to be completed.
• Buyers are responsible for accurately achieving and reporting on their small business
goals, including accurate reporting to the Federal Procurement Data System (FPDS).
Under CTAs, each contractor has privity of contract with the buying activity. When a
GSA Schedules order is awarded with a CTA, small business achievement in
contractual terms is based upon the dollar amount of the work the small business
contractors perform under the order. FPDS currently will only accept information
relating to one contractor per order. The buyer must determine which CTA member is
realizing the preponderance of the revenue on an order and report that contractor's
information to FPDS.
• The shortcut to this page is gsa.gov/cta
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IntroducingLive Oak Bank
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What is Live Oak Bank?
FDIC insured
North Carolina State Chartered Bank
$8B since inception (2008)
#1 SBA lender in the U.S.
$2B in new originations in 2018
Live Oak Bank has
government contracting
domain experts
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Government Experience Necessary to Finance Your True Needs
Patrick KelleyGeneral Manager
• Former SES Deputy
Chief of Staff
• Deputy Associate
Administrator for
Capital Access at SBA
• Special Advisor to the
Undersecretary for the
U.S. Patent and Trade
Office
Erin AndrewManaging Director
• Former SES Associate
Administrator at SBA
• Director of Cluster
Initiatives and Senior
Advisor at SBA
• Senior Consultant Booz
Allen and PMP
Eric RabinovichDirector
• Former Contract
Specialist at FDA
• PwC Senior
Consultant and
Project Management
Professional (PMP)
Jackie Robinson-BurnetteDomain Expert
• Former SES Deputy
Associate
Administrator of
SBA’s Government
Contracting & head
of 8(a) Program
• Head of Army and
Corp of Engineers
Small Business
Programs
and CO
Ken DoddsDomain Expert
• Former SES at SBA
in charge of legal
gov con issues
• Wrote parts of the
FAR and gov con
regs
Steve SmitsChief Credit Officer
• Former SES
Associate
Administrator for
Capital Access at SBA
• 27 years of lending to
government
contractors
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Disclaimer
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