The Marathon of Strategic Acquisitions: Making it to the Finish Line - PowerPoint PPT Presentation

The Marathon of Strategic Acquisitions: Making it to the Finish Line Rebecca White Director Western Reserve Partners LLC April 12, 2016 l l l

Rebecca Lynn White For more than a dozen years, Rebecca has worked closely with a variety of middle market and public companies, assisting them in finding solutions to achieve their growth and liquidity goals. She started her career in the M&A Group at KeyBanc Capital Markets and joined Western Reserve Partners LLC in 2005. Currently, Rebecca is Director and Head of Capital Raising at Western Reserve Partners LLC. She has successfully closed more than 35 transactions, including sell ‐ side M&A, capital raising, bankruptcies and fairness opinions. Rebecca has a passion for assisting industrial/manufacturing companies and has also advised a variety of consumer products and business services companies throughout her career. As a result, she has developed extensive knowledge of a variety of niche industries and respective growth drivers, ranging from metal fabrication to non ‐ woven materials to ice cream manufacturing to ready ‐ mix concrete. Rebecca received a B.S. in Mathematics and Accountancy from Mount Union College and her M.S.M. in Operations Research with a concentration in Finance from the Weatherhead School of Management at Case Western Reserve University. She was named as a Smart Business “Women Who Excel” finalist in 2014. Rebecca is a founding board member of the Women in Manufacturing Ohio Chapter and currently serves as the Treasurer. She also serves on the Board of the Association of Corporate Growth (ACG) Cleveland. Rebecca Lynn White While her career and board activities keep her running throughout the day, Rebecca laces up her running shoes and Director & Head of Capital Raising hits the road each morning at 5AM. She has completed 24 marathons, including 11 Boston Marathons…and counting. Western Reserve Partners LLC (216) 574 ‐ 2109 Rebecca welcomes connections at: rwhite@wesrespartners.com www.linkedin.com/in/rebeccalynnwhite @RebeccaLWhite1 2 An M&A International Inc. firm

The Acquisition Process Identify & Refine Documentation Submit Offer Post ‐ Close Due Diligence Contact Assess Value Acquisition & Final & Negotiate Integration Targets Strategy Negotiations Lace up your shoes – It’s a marathon! 3 An M&A International Inc. firm

Which Race Are You Going To Run? Identify & Refine Documentation Submit Offer Post ‐ Close Due Diligence Contact Assess Value Acquisition & Final & Negotiate Integration Targets Strategy Negotiations Vertical Geographies Integration End Markets Size Employees Capacity Cultural Fit Products/ Technology Distribution 4 An M&A International Inc. firm

Develop a Training Plan Identify & Refine Documentation Submit Offer Post ‐ Close Due Diligence Contact Assess Value Acquisition & Final & Negotiate Integration Targets Strategy Negotiations 5.0 LOW ‐ VALUE / HIGH ‐ VALUE / HIGH ‐ SYNERGY HIGH ‐ SYNERGY 8 11 S Y N E 2.5 R G Y LOW ‐ VALUE / HIGH ‐ VALUE / LOW ‐ SYNERGY LOW ‐ SYNERGY 3 3 0.0 0.0 2.5 5.0 VALUE 5 An M&A International Inc. firm

Size Up the Competition Identify & Refine Documentation Submit Offer Post ‐ Close Due Diligence Contact Assess Value Acquisition & Final & Negotiate Integration Targets Strategy Negotiations Valuation Considerations: • Historical and projected financial performance – focus on EBITDA • Growth trends, scalability and opportunities within the industry • Acquisition trends among competitors • Acquisition target’s desires, personal goals and abilities to execute their growth plan • Asset vs. Stock deal 6 An M&A International Inc. firm

Start the Race Identify & Refine Documentation Submit Offer Post ‐ Close Due Diligence Contact Assess Value Acquisition & Final & Negotiate Integration Targets Strategy Negotiations Speed Price Structure Certainty to Close 7 An M&A International Inc. firm

Determine the Pace Identify & Refine Documentation Submit Offer Post ‐ Close Due Diligence Contact Assess Value Acquisition & Final & Negotiate Integration Targets Strategy Negotiations • Recognize potential risks and synergies • Leverage third party advisors • Avoid “deal fatigue” – maintain an efficient process 8 An M&A International Inc. firm

The Final Mile Identify & Refine Documentation Submit Offer Post ‐ Close Due Diligence Contact Assess Value Acquisition & Final & Negotiate Integration Targets Strategy Negotiations • Working capital targets • Indemnification and escrow provisions • Tax implications • Employment contracts, non ‐ competes and co ‐ investment opportunities 9 An M&A International Inc. firm

After the Finish: The Finish Line Chute Identify & Refine Documentation Submit Offer Post ‐ Close Due Diligence Contact Assess Value Acquisition & Final & Negotiate Integration Targets Strategy Negotiations “of the merged concerns lagged behind industry averages …” 57% ~ Mercer Management Consulting, Wall Street Journal, 1997 70% “of all strategic alliances fail or fall short …” ~ McKinsey & Company / Coopers & Lybrand, 1997 “of M&As fail to achieve their financial objectives …” 85% ~ American Management Association, HR Magazine, 1997 “only 9% of European business leaders considered their deal to have achieved its original objective [91% failure] …” 9% ~ The Hay Group, 2007 10 An M&A International Inc. firm

Exhibit A: Corporate Strategy Industry Trends Corporate Vision  Trend #1  Vision in response to trend #1 (helps to include some that are  #2 measureable and time ‐ based)  #2  #3  #4  #3  #5  #4  #5 11 An M&A International Inc. firm

Exhibit B: Acquisition Prospect Criteria • U.S.: Kentucky, Missouri, Southeastern states • Canada: Ontario, Manitoba, Saskatchewan Geographies • Europe: Germany, Switzerland • Asia: China, Thailand • Key product #1 • #2 Products/Technologies • #3 • #4 • Service or application area #1 • #2 Services [or Applications] • #3 • #4 • Key end market #1 • #2 Customers / End Markets • #3 • #4 12 An M&A International Inc. firm

Exhibit C: Ideal Acquisition Prospect Criteria Fits within product criteria (1, 2 or 3) Serves the right end markets (x, y or z) Located in a target geography (country A, country B, etc) At least 50% of revenue from service $30 ‐ 75 million of revenue 10% EBITDA margins Revenue CAGR of 8%  Keep it simple □ One sheet per business unit □ Best to start with small number of criteria (5 is good, no more than 7) * We offer this simple tool to help build consistency and discipline when evaluating a diverse set of candidates. When evaluating actual candidates the dot would either be Green, Yellow or Red, providing a quick visual grading system for each target. 13 An M&A International Inc. firm

Exhibit D: Financing Sources Risk Minority Equity Funds Minority Equity Funds • Enterprise value driven • Mid ‐ 20% cost of capital Mezzanine Funds Mezzanine Funds • Enterprise value driven • 12 ‐ 18% cost of capital Unitranche Funds Unitranche Funds • Collateral and/or cash flow driven • 8 ‐ 12% cost of capital Structured Finance Institutions Structured Finance Institutions • Cash flow driven and/or collateral driven • 7 ‐ 10% cost of capital Banks Banks • Cash flow and/or collateral driven • 2 ‐ 6% cost of capital Cost of Capital 14 An M&A International Inc. firm

Exhibit E: Due Diligence Request List 1. List of key historical highlights and evolution of the business 2. Discussion of products, services and sales network a. List of all products / services offered b. List of all geographies covered c. Description of marketing and sales strategies, including sales reps vs. internal sales force 3. General business strategy, including: a. Key sustainable competitive advantages and any aspects of the company that make it unique in its core markets when competing against others b. Significant growth initiatives in the next several years 4. Customers a. List and description of key customers, along with revenue by customer for the past three years b. Description of key terms of each contract by key customer 5. Personnel a. Org chart b. Breakdown of employees by division c. Description of benefits policies and compensation (hourly vs. salary) d. Biographies of key management 6. Financial Information a. Detailed quarterly or monthly income statements, balance sheets and cash flows for the last four years, as well as reviewed annual statements for the last four years b. Income statement and capital expenditure projections for the next two years c. Detailed schedule of adjustments to the income statements d. Description and value of assets owned and leased 7. Description and list of the company’s compensation and insurance policies 8. List of any and all potential outstanding liabilities and pending or threatened litigation 15 An M&A International Inc. firm

Exhibit F: Sample Acquisition Process Timeline Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Initial Screening & Prep Preliminary Discussions with Targets Assess Fit and Value Submit IOI Acquisition Process Site Visits Initial Due Diligence Submit & Negotiate LOI Confirmatory Diligence Documentation & Final Negotiations Close 16 An M&A International Inc. firm