1 / 43

Lower Middle Market M&A for the CPA, CFO, Controller

David L. Perkins, Jr. Acquisition Advisors. Lower Middle Market M&A for the CPA, CFO, Controller. Oklahoma Society of CPAs Tulsa Chapter May 2014. Publicly Announced Transactions. Acquisition Advisors. Private Equity Transactions. Acquisition Advisors. P/E Multiples Paid.

field
Download Presentation

Lower Middle Market M&A for the CPA, CFO, Controller

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. David L. Perkins, Jr. Acquisition Advisors Lower Middle Market M&A for theCPA, CFO, Controller Oklahoma Society of CPAs Tulsa Chapter May 2014

  2. Publicly Announced Transactions Acquisition Advisors

  3. Private Equity Transactions Acquisition Advisors

  4. P/E Multiples Paid Acquisition Advisors

  5. Acquisition Advisors

  6. Acquisition Advisors

  7. Acquisition Advisors

  8. Acquisition Advisors

  9. Acquisition Advisors

  10. Acquisition Advisors

  11. Acquisition Advisors

  12. Not Just Anybody The average annual growth rate of PE-purchased companies is 15% The average EBITDA margin is 20% Acquisition Advisors

  13. Acquisition Advisors

  14. For what do small businesses sell? Transaction Patters by Toby Tatum • 49% of annual revenue. • 2.4 times seller’s discretionary cash flow (SDCF). • 70% include seller financing. Acquisition Advisors

  15. Transaction Patters by Toby Tatum (cont’d) • Most frequent % of price financed by seller is 50%. • When sellers finance, 70% of the notes are amortized over five years or less. • Payback period for buyer’s down payment has a mean of 1.1 years. Acquisition Advisors

  16. PV = E1 / (k-g) Where: PV = Present Value E1 = Expected Income in Year One k = Discount Rate g = Annual Growth Rate of Expected Income And: k = Rf + R k - g = Capitalization Rate Acquisition Advisors

  17. PV = E1 / (k-g) Example 1: Buyer of ABC Company projects $100,000 of pre-tax income in year 1, assigns a 25% required rate of return based on the overall risk profile of ABC, and anticipates zero growth. As such, Buyer values ABC as: PV = $100,000 / (.25 - .00) = $100,000 / .25 = $400,000 Acquisition Advisors

  18. PV = E1 / (k-g) Example 2: Buyer of XYZ Company projects $100,000 of pre-tax income in year 1, assigns a 25% required rate of return based on the overall risk profile of XYZ and anticipates 15% annual growth PV = $100,000 / (.25 - .15) = $100,000 / .10 = $1,000,000 Acquisition Advisors

  19. Build value through your income statement, not your balance sheet. Wisdom Acquisition Advisors

  20. Required Rate of Return 1 - Returns are returns to total capitalization (debt and equity). 2 - Micro-Cap. Stocks is defined as the portfolio of stocks comprised of the 9th and 10th deciles of the New York Stock Exchange. According to the Center for Research in Security Prices, University of Chicago, the average capitalization of Micro-Cap Companies from 1926 to 2000 was $68 million. Source: Ibbotsons Acquisition Advisors

  21. Acquisition Advisors

  22. Goodwill The intangible asset that may arise or exist in a business as a result of name, reputation, competency, location, product, service, customer lists, etc. Such value, when it exists, is separate and distinct from the tangible assets of the business enterprise. A term accountants use for purchase price paid for a business in excess of the book value of the business’ assets. Acquisition Advisors

  23. “Blue Sky” The slang term for goodwill. Acquisition Advisors

  24. Paid off by seller with after-tax proceeds. How Does i-Bearing Debt Impact Value? Acquisition Advisors

  25. How important is the seller? Transferability of the Business Acquisition Advisors

  26. BUYER TYPES Individual Industry Private Equity Groups (PEG’s) Acquisition Advisors

  27. Mr. Cooper earns $300K per year after paying $100K salary to the owner. Business sells for $1.2 million. The owner, Larry, leaves the business, loses his salary, and puts his $750K in a mix of stocks, bonds and cash and earns an average annual return of 7%. Cooper Service Company Larry now earns $52,500. Acquisition Advisors

  28. If your business is profitable, you’ll be financially better off keeping your business Owners of high value businesses sell when they value their freedom more than the money Acquisition Advisors

  29. If your business is perpetually under-performing, you may be better off selling (for whatever you can get) Acquisition Advisors

  30. Value is not absolute (it’s elastic) Acquisition Advisors

  31. Stupid buyers (with money) are hard to find. It’s hard to judge a buyer by his babble. Wisdom Acquisition Advisors

  32. The Absolute Key to Maximizing Sale Value, Minimizing Time, Maintaining Confidentiality • Multiple high quality buyers “worked” simultaneously, with urgency • Auction characteristics (going, going, gone!) Acquisition Advisors

  33. How Do You Know if an Offer is “Good”? Acquisition Advisors

  34. Acquisition Advisors

  35. Acquisition Advisors

  36. How Sale Price is Maximized Sale Price = Enterprise Value + Packaging + Process + Dealmaker Skill Acquisition Advisors

  37. Acquisition Advisors

  38. A value killer for many business sellers Confidentiality Acquisition Advisors

  39. An appraisal before you sell? Acquisition Advisors

  40. Questions? David L Perkins, Jr. Acquisition Advisors, LLC www.AcquisitionAdvisors.com 918-748-7995

  41. Additional Topics 100% cash at closing? When is the right time to sell a business? Quality financial statements Presenting financials in most favorable light C-Corps How to move from CFO to owner? MBO? Acquisition Advisors

  42. Acquisition Advisors

  43. Acquisition Advisors

More Related