© 2013 Exit Planning Institutewww.exit-planning-institute.org
Presented by
October 27, 2016
Investment Banking services are provided by Chaffe Securities Inc., member FINRA/SIPC
© 2016 Exit Planning Institutewww.exit-planning-institute.org2
Vanessa Brown Claiborne President & CEO, Chaffe & [email protected]
Frank deVay Senior VP, Chaffe & [email protected]
© 2016 Exit Planning Institutewww.exit-planning-institute.org3
Introduction
I. Not Ready for Exit
II. Value Acceleration
III. Business Valuation
IV. Market for Exit Planning
V. Mission Focused Team
© 2016 Exit Planning Institutewww.exit-planning-institute.org4
Exit Planning addresses the
business, personal, financial, legal
and tax questions involved in
transitioning a privately owned
business.
It includes contingencies for illness,
burnout, divorce, death.
Purpose:
◦ Maximize the value of the business
◦ Minimize taxes
◦ Ensure the owner is able to accomplish all his or her personal and financial goals in the process.
© 2016 Exit Planning Institutewww.exit-planning-institute.org5
Maximizes the value of the business
Ensures you are personally and financially prepared
Ensures you have planned for the third act of your life
- Peter Christman
Cofounder of the Exit Planning Institute
© 2016 Exit Planning Institutewww.exit-planning-institute.org6
Exit Strategy focuses on the client/business owner
Regardless of control 80-90% of their wealth is tied up in a single stock with a high level of risk
Begins with maximizing Enterprise Value of the business ◦ Increasing value by de- risking the business
◦ Integrating best in class business practices into daily operations
◦ Maximizing valuation throughout the business cycle making exit timing irrelevant???
◦ Helping the owner figure out their “third-act”.
Building a team of trusted advisors to professionalize the process and improve the experience for owners.
© 2013 Exit Planning Institutewww.exit-planning-institute.org
© 2016 Exit Planning Institutewww.exit-planning-institute.org8
70%-80% of businesses put on the market don’t sell.
Only 30% of all family-owned businesses survive into the second generation; 12% survive into the third generation; and only 3% operate at the fourth generation and beyond
12 months after selling, 3 out of 4 business owners surveyed “profoundly regretted” the decision.
© 2016 Exit Planning Institutewww.exit-planning-institute.org9
2/3rds are not familiar with all exit options
78% have no formal transition team; 83% have no written transition plan; 49% have done no planning at all
93% have no formal life after plan
1/2 feel ownership transition plans require the company to remain profitable for plans to be properly executed, yet 86% have not taken on a strategic review or a value enhancement project
56% felt they had a good idea of what their business is worth yet only 18% have had a formal valuation in the last two years.
Source: Exit Planning Institute’s State of Owner Readiness Survey 2013
© 2016 Exit Planning Institutewww.exit-planning-institute.org10
40% have no plans in place to cover illness, death or forced exit
50% of exits are not voluntary due to 5 Ds◦ Death
◦ Disability
◦ Divorce
◦ Distress
◦ Disagreement
© 2016 Exit Planning Institutewww.exit-planning-institute.org11
Tom Hagen, Consigliere, Corleone Family Business
© 2016 Exit Planning Institutewww.exit-planning-institute.org12
“YOU HAVE VALUE AS A PERSON AND NOT JUST AS A BUSINESS.”
“Although business owners intellectually understand their identity is not their business, it can be hard to separate the emotional attachment.”
-Bob Berk – Master Vistage Chair, Chicago, IL.
Long term◦ No goals or objectives◦ No consideration of life after business◦ Business personal identity fusion
Risk◦ No contingency plans◦ No advisory board or formal transition team◦ Dated buy-sell agreements◦ Shareholders and/or family members not on same page◦ Forced generational transfers
© 2016 Exit Planning Institutewww.exit-planning-institute.org13
Financial Planning◦ Financial plan that is not aligned with personal plan
◦ Income requirements post transaction not quantified
◦ Inadequate estate and tax planning
◦ Inappropriate portfolio allocation
Business as an asset◦ Financial plan does not properly consider valuation of
the business. (Over or understated valuation)
◦ After tax proceeds of potential transaction not analyzed
◦ Transition options not adequately considered
© 2016 Exit Planning Institutewww.exit-planning-institute.org14
80% of companies below $50MM in sales never sell
Owners don’t realize their cost of capital is between 20-30%◦ Most are not making returns greater than this to
cover the risk of ownership
Personal guarantees on debt
© 2016 Exit Planning Institutewww.exit-planning-institute.org15
Key valuation drivers◦ People- Strong management team with deep bench◦ Sector/ Economic Factors◦ Growth opportunities exist, business scalable, growth
strategy well planned & clearly articulated◦ Diverse customer base (no one customer > 25%)◦ Earnings/ EBITDA
Key business attributes◦ Accurate financial statements that drive management
decisions. (Interim statements)◦ Scalable asset, personnel and systems infrastructure◦ Strong, adequately capitalized balance sheet
© 2016 Exit Planning Institutewww.exit-planning-institute.org16
Owner/key man dependency
Transferrable sales relationships
Customer concentration
Poor internal controls and documentation that are not transferrable and scalable
Financial reporting that is inaccurate or superficial (internal financials acceptable with independent review)
© 2013 Exit Planning Institutewww.exit-planning-institute.org
© 2016 Exit Planning Institutewww.exit-planning-institute.org18
© 2016 Exit Planning Institutewww.exit-planning-institute.org19
Due Diligence - questionnaire
Valuation◦ Market based models- Public peer multiples & precedent
transactions◦ Income based models- Discounted Cash Flow (DCF) and
Leveraged Buyout Model
RMA Analysis – Comparison of subject company’s financial metrics to survey
Comprehensive/ integrated report
Triggering event –Team of advisors engaged
© 2016 Exit Planning Institutewww.exit-planning-institute.org20
Business: ◦ Increase value by de-risking the company (denominator
effect)◦ Focused on Value Acceleration vs. Income◦ Starts with Assessment and Valuation
Personal de-risking:◦ Integrates the Three Legs – (puts owner and family at
center)Estate and contingency planning
Insurance, personal guarantees, other liability reduction
Address health issues
Financial planner engaged to implement plan
© 2016 Exit Planning Institutewww.exit-planning-institute.org21
De-risking personal financial◦ Begin personal financial planning (net worth analysis)
◦ Understand and address liability issues associated with business
◦ Review personal insurance
◦ Family meeting- contingency & back-up plans
◦ Write or update will
◦ Begin or update estate planning
◦ Tax planning
Personal/ Financial◦ Personal goals and objectives for present and life after business
◦ Net worth analysis
◦ Exit options analysis
© 2016 Exit Planning Institutewww.exit-planning-institute.org22
Increase value by de-risking the company (denominator effect)◦ Contingency/disaster plan
◦ Reduce owner dependence (key man discount)
◦ Buy sell agreements
◦ Insurance audits
◦ Management development & succession
◦ Documentation management
◦ Accounting, IT, HR, tax, and management systems
Longer term action items◦ Customer concentration
◦ Financial forecasts
◦ Metrics and dashboards
◦ Assets and capital expenditures
© 2016 Exit Planning Institutewww.exit-planning-institute.org23
Immediately addresses reducing risk
Breaks big strategic programs into 90 day chunks (Sprints!) & connects daily activities to value.
Ensures the owner can CASH IN whether planned or unplanned
Integrates personal, financial AND business objectives into one Master Plan.
Ensures owner and owner family wealth are at the center of the business plan
Measureable at the micro AND macro level.
Aligns the team and establishes a rhythm or routine for continuous improvement.
© 2016 Exit Planning Institutewww.exit-planning-institute.org24
Produces a higher quality lower risk company
More sustainable and profitable growth
Reduces owner stress and improves work balance
Improves customer, supplier and employee relations
Better access to capital
Maximizes transferrable Enterprise Value
© 2013 Exit Planning Institutewww.exit-planning-institute.org
A Buyer’s Perspective
© 2016 Exit Planning Institutewww.exit-planning-institute.org26
Most strategic and private equity buyers seek companies with EV >$20MM
Integration, diligence costs level of sophistication
Market multiples reward larger businesses
Great variance on smaller transactions
95% of M&A professionals believe a business owners unrealistic expectations of company value are the biggest obstacle to sale or transfer
© 2016 Exit Planning Institutewww.exit-planning-institute.org27
Source: GF Data
© 2013 Exit Planning Institutewww.exit-planning-institute.org
© 2016 Exit Planning Institutewww.exit-planning-institute.org29
Baby boomers age wave
First boomers turned 65 in 2011
10,000 turn 65 everyday
Youngest boomers now 51.
They own 63% of private businesses in US
80-90% wealth tied up in their business
76% plan to transition in over next 10 years (48% in next 5 years)
Represents transfer of 4,500,000 businesses and over $10 trillion of wealth
© 2016 Exit Planning Institutewww.exit-planning-institute.org30
Companies Sales
Sales Range (Thousands) % (Trillions $) %
Micro Market <$5MM 5,678 94% 3.57 12%
Lower Middle Market $5MM-$100MM 351 6% 5.84 20%
Upper Mid Mkt. & Above >$100MM 21 0% 20.33 68%
Total Employer Firms 6,050 100% 29.74 100%
Non-Employer Firms 21,708 0.99
Total All Firms 27,758 30.73
Source: MidMarket All iance 2013
© 2013 Exit Planning Institutewww.exit-planning-institute.org
What’s in it for me?
© 2016 Exit Planning Institutewww.exit-planning-institute.org33
Owner
Specialists Attorney CPAFinancial
PlannerBanker
Family
BOA
© 2016 Exit Planning Institutewww.exit-planning-institute.org34
A global community of advisors that help owners realize their dreams of not only succeeding in business but passing a legacy, protecting and maximizing
family values and wealth, and achieving a fulfilled life in their third act.
© 2016 Exit Planning Institutewww.exit-planning-institute.org35
Owners Need Advice◦ Current and potential business value
◦ Impact of de-risking and qualitative improvements on value
◦ M&A transaction process and market dynamics
◦ Disciplined, methodical and prioritized approach
◦ Advisors whom they can trust as business experts
Advisors Need ◦ Education and awareness of current market trends
◦ Collaborative approach to facilitate an effective process
Top Related