Business Transitions Forum

Your Roadmap to a Successful Transition

PricewaterhouseCoopers Corporate Finance Inc.

Introduction

2

Excellent market conditions

13.4xEV/EBITDA

3.3%Yield

$1.4Trillion

$1.3Trillion

Average multiple of S&P 500

companies*

U.S. investment grade corporate bond index yield

Cash and cash equivalents, and short

term investments of S&P 500 companies*

Private equity ‘dry powder’ waiting to

be deployed

Average valuation multiples have

returned to peak levels

Debt costs are at an all-time low, fueling

acquisitions and contributing to rich

valuations

Corporations are strongly cash positive

and aggressively competing for deals

Private equity money raised but not yet

invested is comfortably above the

pre-crisis peak

Favorable Foreign Exchange Rate for International Buyers

*Excludes Financials and Oil & Gas (includes 375 companies)Sources: Capital IQ, Prequin, PwC research as at September 2015

3PricewaterhouseCoopers Corporate Finance Inc.

Current State of Capital Markets

4

Source: Statistics Canada, CFIB, PwC Analysis

Changing demographics

PricewaterhouseCoopers Corporate Finance Inc.

Aging Population

PricewaterhouseCoopers Corporate Finance Inc.

Primary reasons business owners transition

5

Approached by a (strategic or financial) potential buyer1.

Succession/age2.

Shareholder/Matrimonial3.

Distress – health or financial4.

Opportunistic5.

PricewaterhouseCoopers Corporate Finance Inc.

Strategic options for a company

Sale to strategic buyer

Sale to financial buyer (Private Equity)

Management buyout (MBO)

Refinancing

IPO

6

PricewaterhouseCoopers Corporate Finance Inc.

Typical owner concerns in connection with ownership transition

Complicated

Costly

Uncertain process and experience

Disclosure of information

7

1

2

3

4

PricewaterhouseCoopers Corporate Finance Inc.

Typical owner concerns in connection with ownership transition

Due diligence requirements

Employee continuity

Price (gross proceeds and net of taxes)

Emotional impact

8

5

6

7

8

PricewaterhouseCoopers Corporate Finance Inc.

Potential sale process options

Exclusive Sale Process

Targeted Sale Process

Auction Process

9

PricewaterhouseCoopers Corporate Finance Inc.

Potential sale process options

Overview Advantages

Disadvantages

• Approach one potential buyer

• Permit the buyer to conduct initial due diligence, including a management presentation discussing the company’s operations

• The party then submits a non-binding Letter of Intent (“LOI”) (expected to be a more reliable indicative offer than under an auction process)

• Assuming the LOI is acceptable, the party will be given exclusivity to undertake detailed due diligence and negotiations to finalize its bid

Most confidential approach

Delivers competitive tension through the option of opening up the process to other parties

Expedites the sale process as no Confidential Information Memorandum (“CIM”) is prepared and only requires negotiation of detailed terms with one party

x Risk that single successful party subsequently seek to change its initial LOI (the threat of widening the process can mitigate this risk)

x Given only one party is approached, there is a lack of competitive tension – used where there is a limited universe of buyers or significant confidentiality concerns

10

Exclusive Sale Process

PricewaterhouseCoopers Corporate Finance Inc.

Potential sale process options

Overview Advantages

Disadvantages

11

Targeted Sale Process

• Identify the key buyers most likely to pay a strategic premium for the business

• Approach +/- 10 potential buyers

• Permit buyers to conduct initial due diligence, including a management presentation

• Parties then submit a non-binding LOI (expected to be a more reliable indicative offer than under an auction process)

• One to three successful parties then selected to proceed to detailed due diligence

• Parties are then required to submit final and binding bids

• A winning bidder is selected based on final offers

A middle ground between an auction process and exclusive process – seeks to get the best of both worlds

Delivers competitive tension throughout process

Expedites the sale process compared to an auction process

x Requires information disclosure and negotiations with a number of parties

x May limit competitive tension, as only a small number of parties approached initially – often used where there is a limited universe of buyers or significant confidentiality concerns

PricewaterhouseCoopers Corporate Finance Inc.

Potential sale process options

Overview Advantages

Disadvantages

12

Auction Process

• Identify relevant local and global interested potential buyers

• ~50+ parties are approached and provided with a CIM upon signing a Non Disclosure Agreement (”NDA”)

• Parties submit a non-binding LOI with proposed purchase price and key terms

• Based on LOIs, a “shortlist” of parties (typically three or more parties) are permitted to conduct detailed due diligence and attend management presentation

• Parties are then required to submit final and binding bids

• A winning bidder is selected based on final offers

Intended to maximize the competitive tension in the process by having multiple bidders compete against each other

Important to restrict shortlist as each bidder needs to know they have a realistic chance of being successful otherwise they will not engage

x Requires information disclosure and negotiations with a number of parties

x As LOI is based on CIM and not due diligence, there is a risk of bidders adjusting their LOIs

PricewaterhouseCoopers Corporate Finance Inc.

Process and timeline

Sale Preparation(3-4 weeks)

Formal Marketing(4 weeks)

Due Diligence & Final Offers(2-4 weeks)

Negotiation & Closing(3 ─ 5 weeks)

Phase 1 Phase 2

• Potential buyers, including strategic and private equity, to be identified and further analysis performed

• Finalize buyer shortlist

• Review and confirm normalized historical and forecast earnings

• Prepare assessment of synergies, where applicable

• Work with taxation, accounting, and legal advisors to develop an effective structure and readiness for sale

• Positioning messages around performance, position, and prospects of the business

• Draft Teaser and CIM

• Meet with owners and/or management and discuss strategies in greater detail

• Discuss and agree sale process and go-to-market strategy with board and senior management

• Initiate discussions with prospective purchasers

• Confidentiality Agreements signed

• Distribute Teaser and CIM

• Assess degree of interest from buyers and keep the board and key management informed and involved

• Respond to clarification queries and requests for additional information

• Obtain initial non-binding expressions of interest (“EOIs”) from prospective purchasers

• Evaluate EOIs in the context of your objectives

• Conduct preliminary negotiations

• Select shortlisted buyer(s) to be admitted to due diligence

• Finalize due diligence materials required by buyer(s)

• Manage the due diligence process

• Conduct management presentations

• Continue negotiations and maintain competitive tension through to final binding offer

• Agree key terms of Purchase and Sale Agreement

• Strategic planning

• Preparation

13

Phase 0

Time leading up to process

• Assist counsel with key terms of transaction documents, as required

• Finalize and execute the Purchase and Sale Agreement

• Manage any pre-completion actions

• Manage process and provide advice through to successful completion

PricewaterhouseCoopers Corporate Finance Inc.

Costs

14

Data room

Administration

Others

Legal

Financial advisor

Bonuses to employees

Costs to Expect

PricewaterhouseCoopers Corporate Finance Inc.

Company history1.

Products and/or services and life cycles2.

New product and/or services development 3.

Customer/supplier dependence

Geographic concentration

4.

5.

15

Key Due Diligence issues to consider/address

PricewaterhouseCoopers Corporate Finance Inc.

Competitors

IT and systems

6.

7.

16

Facilities (including land and building lease)8.

Capital equipment and expenditures 9.

Key Due Diligence issues to consider/address

Capacity and expansion opportunities10.

PricewaterhouseCoopers Corporate Finance Inc. 17

Change of control11.

Management (including depth)12.

Normalized earnings13.

Key Due Diligence issues to consider/address

Working capital14.

Related party transactions15.

PricewaterhouseCoopers Corporate Finance Inc.

Transaction issues to consider/address

18

Retained ownership

Representation and warranties

Asset v. share sale

ContractsSynergies

1 2 3

4 5 6

Timing of release of sensitive information

PricewaterhouseCoopers Corporate Finance Inc.

Value disruptors on a sale

19

Company not marketed properly1

Significant deal issues2

(Adverse) Change in earnings

4

3

Income taxes

Thank you.Questions?