Maximizing Enterprise Value San Diego A&D Forum It’s Never too Soon to Start! January, 2017 Larry O’Toole – CEO Integrated Polymer Solutions (formerly Sanders Industries Holdings, Inc.) 1
Ask Yourself….. ….can you point to who owns building your sales and is there a plan? ….who owns delivering my product and is there a plan? ….who owns the quality of your financial controls and is there a plan? ….who owns driving your Enterprise Value and IS THERE A PLAN?
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What is Enterprise Value Economic measure reflecting the market value of a business. It is a sum of • claims of all claimants: creditors (secured and unsecured) and equity holders. Multiple - Debt Trailing Twelve Months (TTM) EBITDA X - By driving revenues and profits, I am maximizing EV - The “multiple” is whatever the market will give me - When it’s time to sell…it’s time to focus on EV
Don’t Fall Into This Trap! Scenario Outcome • Year after year, business owner • Engage a professional & employees work hard to drive revenues and profits • Inquisition begins • Key business decisions get Owner surprised by buyer findings • made – generally with near term and expectations – offended by impact in mind valuation – Facilities/equipment “Event” manages the owner…not • – People them managing the event! – Systems – Customers – market segments Decision time….stop the sale or • – Customer/Supplier contracts accept buyer’s value. “Wish I could turn back the clock. This Triggering event for owner that • isn’t what I was expecting!!” sets wheels in motion to entertain a sale….. 5
Successful Scenario Sanders Industries Timeline 2 Successful events High buyer interest 5 - 6 Years Buyers impressed w/readiness Attractive multiples Met Sellers End in Mind!! Initiated two separate events 2.5 years Monitored market & timing New team, new planning, new direction - Training/aligned team with EV target - Identified and worked the key drivers of value Gave priority to what buyers would expect…and excite them - Planning steps – advisors gathered – EV target versus date 3 years 6
What Created Value – Impacting Multiple Having an end in mind EV target!!! • Created a tangible target…not a nebulous one Created alignment between leadership team and owner • Made investment decisions much easier • – Would a buyer see value….would investment help seller or only the buyer • Provided framework for priority setting and focused oversight • Gave advisors a target to shoot at…drove healthy dialog around break up value METALS Starting Point End Result POLYMERS Starting Point End Result 2012 2013 2012 2014 Industry Mix A&D 25% A&D 30% Industry Mix A&D 70% A&D 70% Ind’l 75% Ind’l 70% Ind’l 30% Ind’l 30% Sole Source % 25% 25% Sole Source % 30% 45% Trackable 10% 10% Trackable 40% 50% Platform Content Platform Content EV Multiple 5.2x EV Multiple 9.3x 7
What Created Value Pre-Planning Allowed for Positive Impact on Multiple • Financials – integrity of…and upward trends • Exciting Opportunity Pipeline reflecting strong growth runway • Platforms/Programs that are early to mid stage vs maturing • Customer contracts & agreements that are “clean” • Stickiness – meaningful sole source content • Pricing – ability to show some level of pricing control • Continuous Improvement Pipeline and link to P&L • Capacity and healthy equipment – obvious signs of investment • Ability to support a successful Voice of the Customer • Team that could transfer to new owner 8
Example of EV Progress Tool EV Enablers Description Status Comments Regarding Current Status Financials/Reporting Performance Trends. Integrity of. Sales Pipeline Tracking tool and trending Platforms Tracked content, growth platforms Customer Contracts NDA’s, PIA”s, LTA’s, All Contracts Vendor Contracts Sole source reliance Stickiness Customer confidence in our value Pricing Management Policy, ownership & control of Industry Mix A&D primary market mix Intellectual Property Company developed/controlled CI Pipeline Healthy cost out pipeline discipline Capacity/Equipment Available capacity. Health of equip and customer expectation of Team/organization Structure of and right people IT/systems ERP/MRP/CRM tools in place Mission/Vision/Value Consistent across the organization Value Proposition Identified & articulated by product Acquisitions Enabler to EV
Key Questions To Think About NOW Who will see AND PAY value for my business? Am I clear on “what good looks like” at the end? What are exit multiples in What “special sauce” do we the general market? How offer? Do we price it effectively? do I achieve the upper end? What personnel will a buyer Do we have a Mission, require? Ease of assimilation Vision & Values? Will our “go to market” strategy What level of IT systems align with buyers? will be expected? Will they see value in the Is our data ready for scrutiny? market segments we serve? What should we fix versus Will our Brand deliver any value? leave as upside to the buyer? Will our culture attract or Are customer and vendor detract a buyer? contracts ready for scrutiny? 10
Avoiding Why Deals Go South Issue How to Avoid Seller/buyer not Get early guidance. Monitor the market. aligned on valuation Know what “fair” looks like. Seller changes deal Know what good looks like well in advance. Don’t change the rules in the 4 th quarter elements Articulate early expectations for brand, people, facility. Cash at close vs Determine acceptance to the concept in advance. earn out Deliver positive financial trends so buyer has confidence in your projections Deal “fatigue” Be ready with resources, data, clarity of process – and agreed upon timelines Deal experts versus generalists Personality conflicts Select a proven, trusted deal negotiator Bad contracts or Customer – change of control, restrictive LTA’s agreements Employee – off market wages and/or perks 11
Recommended Success Formula Desired Guidance - Business and personal planning + Desired Value - What will good look like…EV target Desired + Outcomes Desired Timing - Readiness of owner and business + Desired Actions - Right people, right plan, right focus 12
Takeaways Maximizing Enterprise Value It’s Never too Soon to Start! • Start early – define what good looks like – EV target • Get external help – - advisors • Link key team members to the end game • Identify EV drivers – track progress • Identify who will see value in your business • Place yourself in the buyers mindset…excite them • Manage the process…don’t let it manage you! 13
Thank You! Larry O’Toole Larry.OToole@IPSintl.com 14
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