Building A Private Building A Private Equity/M&A Brand Carroll - PDF document

9/9/2014 Building A Private Building A Private Equity/M&A Brand Carroll D. Hurst, CPA Partner | Keiter CPAs Partner | Keiter CPAs churst@keitercpa.com Experienc Experience | | Kno Knowledge ledge | | Rela lations tionships hips | | Insight Insight Building a New Private Equity/M&A Practice Brand St Steps: eps: I. Evaluate market size/competition II. Determine service offerings III. Identify strategic referral sources IV.Develop your brand Experience | Experienc | Kno Knowledge ledge | | Rela lations tionships hips | | Insight Insight 1

9/9/2014 I. Evaluate Market Size and Competition 1. Determine whether the M&A market i l is large enough to support an M&A h t t M&A service practice 2. Identify potential competitors, their service offerings and differentiators Experienc Experience | | Kno Knowledge ledge | | Rela lations tionships hips | | Insight Insight II. Determine Service Offerings M&A A M&A Advisory Servic visory Services es 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 Experienc Experience | | Kno Knowledge ledge | | Rela lations tionships hips | | Insight Insight 2

9/9/2014 II. Determine Service Offerings, Continued M&A A M&A Advisory visory servic services: es: 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) Experience | Experienc | Kno Knowledge ledge | | Rela lations tionships hips | | Insight Insight II. Determine Service Offerings, Continued 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 Experienc Experience | | Kno Knowledge ledge | | Rela lations tionships hips | | Insight Insight 3

9/9/2014 II. Determine Service Offerings, Continued Transaction Advisory Services 1 1. Buy ‐ side or sell ‐ side 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 Experienc Experience | | Kno Knowledge ledge | | Rela lations tionships hips | | Insight Insight 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 Experience | Experienc | Kno Knowledge ledge | | Rela lations tionships hips | | Insight Insight 4

9/9/2014 IV. Developing Your Brand 1 1 - Kno Know all the r w all the rele levant nt deal t deal terms rms of the of the tr transactions ansactions with y with your our legac legacy client base client base over the pas er the past thr three t ee to f four our years: ars: A. Valuation metrics database by industry and by strategic or financial buyer B. Law firm, commercial bank, PE or VC Firm, subordinated debt lender Experienc Experience | | Kno Knowledge ledge | | Rela lations tionships hips | | Insight Insight IV. Developing Your Brand, Continued 1 - Kno 1 - now w all the r all the rele levant deal t nt deal terms of the rms of the tr transactions ansactions with with your legacy client base o our legacy client base over er ars , , continued the pas the past t thr three t ee to f four y our years ontinued : 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 d. All cash; Cash plus earn-outs; cash plus earn-out h C h l t h l t and bonus e. Working capital targets calculation methodology f. Ancillary documents including employment contracts, non-compete, license, and transition services agreements Experienc Experience | | Kno Knowledge ledge | | Rela lations tionships hips | | Insight Insight 5

9/9/2014 IV. Developing Your Brand, Continued 2 2 - Develop elop a M&A A a M&A Advisory visory Practic Pr actice Gr Group oup A. All group members should be familiar with legacy client base transactions 1. Valuation multiples 1 Valuation multiples 2. Debt multiples 3. Other transaction terms by quarter and year, by industry, as noted in previous slide Experienc Experience | | Kno Knowledge ledge | | Rela lations tionships hips | | Insight Insight IV. Developing Your Brand, Continued 2 2 - Develop a elop a M&A M&A Advisory Pr visory Practic actice Gr Group oup, , Cont Cont ntinued ntinued inued inued 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 transactions t ti 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 Experienc Experience | | Kno Knowledge ledge | | Rela lations tionships hips | | Insight Insight 6

9/9/2014 IV. Developing Your Brand, Continued 2 - 2 - Develop a M&A elop a M&A Advisory Pr visory Practic actice e Gr Group oup, Continued ontinued 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 3 I b k 4. Sub debt lenders 5. Private equity and venture capital fund managers Experienc Experience | | Kno Knowledge ledge | | Rela lations tionships hips | | Insight Insight IV. Developing Your Brand, Continued 2 - 2 - Develop a M&A elop a M&A Advisory Pr visory Practic actice e Gr Group oup, Continued ontinued 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 chapters 2. Alliance of Mergers & Acquisition Advisors 3. Exit Planning Institute Experienc Experience | | Kno Knowledge ledge | | Rela lations tionships hips | | Insight Insight 7

9/9/2014 IV. Developing Your Brand, Continued 2 - 2 - Develop elop a M&A a M&A Advisory visory Pr Practic actice G oup Group oup, Co oup, Co Continu Co ntinued e 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. 3 Purchase price allocation and valuation of specific intangibles P h i ll i d l i f ifi i 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 Experienc Experience | | Kno Knowledge ledge | | Rela lations tionships hips | | Insight Insight 2014 Representative Engagements Our 2014 M&A engagements Our 2014 M&A engagements to dat 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 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 Experienc Experience | | Kno Knowledge ledge | | Rela lations tionships hips | | Insight Insight 8

9/9/2014 2014 Representative Engagements 3. M&A advisory services and growth 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 4. Senior debt financing negotiations for a growth company combined with negotiations of convertible debt issuance. Experienc Experience | | Kno Knowledge ledge | | Rela lations tionships hips | | Insight Insight 2014 Representative Engagements 5. Referral of a non-client, out of market, 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 6 M&A d i i i b d b d equity capital negotiations related to a management buy-out and redemption of all of the stock of the company. Experienc Experience | | Kno Knowledge ledge | | Rela lations tionships hips | | Insight Insight 9