Private Company Wealth : Understanding and Unlocking It

1. Private Company Wealth: Understanding and Unlocking It PLEASE, Questions are encouraged! T. J. Liles-Tims, MBA, CVA, CFE, MAFF BVFF Partners, LLC. Business Valuation and Financial Forensics

2. T. J. Liles-Tims, MBA, CVA, CFE, MAFF T. J. Liles-Tims is Co-Founding Partner at BVFF Partners, LLC, a business valuation and financial forensics firm. His expertise lies in business valuations, business litigation and fraud examination. T. J. received a B.B.A and an M.B.A in Finance from the University of Central Oklahoma, where his field of graduate study was financial management and investment analysis focusing on valuation models and financial analysis. Additionally, he has earned his designation as a Certified Valuation Analyst (CVA), Certified Fraud Examiner (CFE), and Master Analyst in Financial Forensics. He is a Contributor, Author and Subject Matter Expert for the National Association of Valuators and Analysts (NACVA) in the areas of business valuation, litigation consulting, expert witness, and various consulting disciplines. He has also taught continuing education classes in the areas of business valuations and financial forensics. T. J. has provided consulting and financial management services for a variety of industries. These services have included business valuations, financial fraud examinations, and financial consulting to distressed companies. Experience in litigation consulting includes business valuations, detection and quantification of various forms of financial fraud, divorce-related matters, embezzlement, criminal tax fraud, and damages associated with securities fraud. Testimonial experience includes cases in federal and state court, as well as, FINRA arbitrations.

3. Outline of Today’s Discussion“You have got to know the rules before you can play the game.” • Specifically address the HVAC Industry, but the concepts apply across all industries • Industry Trends • Variables that affect Pricing of an HVAC business • Business Valuation Tips • Resources

4. Industry Trends “Everybody is ignorant, only on different subjects.” – Will Rogers • In determining the value of a business, the industry should always be analyzed to determine where it is headed, because this will have a direct affect on the company being valued.

5. Industry Trends • Larger and stronger are consuming the mid-size and weaker; • Home Energy Services • High barriers to entry due to certification and equipment costs • Increasing market, but spotty acceptance within the state and country • HVAC and Plumbing are joining forces to create synergies;

6. Industry Trends – cont’d • Business scope changes: • Installation specialists entering service and repair work (vice versa) • Single Family Residence specialists entering Multi-Family Residents • Residential new construction specialists entering commercial work • Contractors adding specialty services: • Irrigation • Lawn fertilization • Water softeners • Bottled water • Geothermal market • Water-well drilling

7. Take Home from Industry Trends • Diversification in products or services creates value; • Be prepared in the event a larger, stronger competitor approaches to purchase your business; • Be aware of what is going on in the industry and where it is headed – knowledge is power.

8. Business Pricing Tips “There are plenty of good five-cent cigars in the country. The trouble is they cost a quarter. What this country needs is a good five-cent nickel.” - Franklin Pierce Adams, an American columnist

9. Key Pricing Variables • VALUE DRIVERS: • Higher volume of Single Family Residence service work; • Mixture of products and services; • Commercial service work • HOLDS VALUE: • Maintenance agreements • DRAIN ON VALUE: • Heavy reliance on new construction; • Heavy reliance on ONE revenue source

10. Business Valuation Tips “Business without profit is not business anymore than a pickle is a candy.” –Charles F. Abbott “There are several commonly used methods of valuation. Each method may at times appear more theoretically justified in its use than others. The soundness of a particular method is entirely based on the relative circumstances involved in each individual case. The valuation analyst responsible for selecting the most appropriate method must base his or her choice of methods on knowledge of the details of each case. When this knowledge is appropriately applied, much of the art factor is eliminated from the process and valuation becomes more of a science.” – NACVA Handbook

11. Risk Factors Considered • COMPETITION: Highly fragmented, over 50,000 contractors; • RISK: Required recurring revenue; • PROFITS: Varies due to highly fragmented industry; • LOCATION: Not as big of a deal so long as close to target market; • MARKETABILITY: Heavily owner influenced; • GROWTH: Somewhat mature – slow growth industry; • REPLICATION: Easy with license

12. RULES OF THUMB • Usually termed a “quick and dirty” approximation of value; • NOT accepted as a proper valuation approach or determination of value; • Limited knowledge upon how the Rules of Thumb were developed; • Most rules of thumb assume an AVERAGE business in the industry; SHUT UP AND TELL ME WHAT MY BUSINESS IS WORTH!

13. HVAC Rules of Thumb • 25% to 35% of annual gross sales PLUS inventory; • 2 to 3 times Shareholder Discretionary Earnings PLUS inventory; • 3 to 4 times Earnings Before Interest and Taxes (EBIT); • 2.75 to 3 times Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) ***DISCLAIMER: A proper business valuation should be conducted to determine the appropriate business value.***

14. Resources for the HVAC Industry “Keep It Short and Simple!” • Contracting Businesspublication; www.contractingbusiness.com • Air Conditioning and Refrigeration News; www.achrnews.com • Indoor Environment and Energy Efficiency Association; www.acca.org

15. Questions? Private Company Wealth: Understanding and Unlocking It T. J. Liles-Tims, MBA, CVA, CFE, MAFF TJ@BVFFPartners.com BVFF Partners, LLC 3035 N.W. 63rd Street, Suite 105 Oklahoma City, OK 73116 Telephone: (405) 608-8805