sema 2011 marx group advisors "acquiring or selling: preparing your business to achieve maximum...

The Art of

Buying & Selling an Aftermarket Business

PRESENTERS:

TOM MARX

CEO AND CO-FOUNDER

PAUL COOPERSTEIN

PRESIDENT & CO-FOUNDER

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Mergers & Acquisitions Advisors with over 25 years of experience in the Automotive, Performance,

Specialty, Heavy Duty, and Commercial Aftermarket

Consulting services

Brokerage: Buy-Sell-Merge

Equity and debt financing

Marx Group Advisors

© 2011 Marx Group Advisors

Marx Group Advisors

TOM MARX

• Business growth & marketing focus

• 25+ years industry experience

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PAUL COOPERSTEIN

• Venture capitalist & investment banker

• Business lawyer & mediation specialist

DAVE BARBEAU

• Parts distributor & aftermarket executive

• Industry management consultant

CHRISTINE LEMAy

• Business development manager

• International specialist

9 Associates in key regions:

Houston, Detroit, New York, Boston, Chicago, Northern California, Southern California, Florida, Phoenix


MORE THAN JUST MEMBERS…

4 © 2011 Marx Group Advisors

TODAY WE WILL COVER:

1. Current state of the M&A landscape

2. Factors for considering selling or buying

3. Deal structures

4. Typical steps in the buy/sell process

5. Valuation methods

6. Perceptions of value – buyer & seller

7. Why hire an intermediary?


Understand Your Short, Mid and Long Term Goals


70% of all small and midsized businesses don’t sell after they are put on the market


Current State of the M&A Landscape

• M&A activity increased starting Q4 2010

• Transactions are being hampered by low valuations, tight fisted banks and cautious buyers

• As competition for acquisitions increases, prices will rise

• We live in times of great uncertainty


Sellers


When Do You Know It Is Time to Sell?

• You are tired of the hassles

• You want to do something else in life

• Nostalgia – “It ain’t like it used to be”

• You aren’t sleeping at night

• You don’t want to talk with your spouse – or even your dog!


What Do You Need To Do During the Sales Process

• Keep making profit

• Maintain adequate inventory, fill rates and margins

• Retain key people

• Keep customers happy


What Financial Documents Do You Need to Prepare

• Up to date balance sheet

• Accurate inventory

• Recasted P&L

• Accurate EBITDA


Buyers


Why Buy?

• Take out a competitor

• Take out low price leader

• Organic growth isn’t enough

• Expand into regions or markets that allow you to grow your business


Preparing for the Purchase

• Have strategic plan in place

• Identify focused target profile

• Have proof of financing lined up

• Have experienced management team available


General Frameworks


Typical Deal Structures

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Mergers

Acquisitions &

Divestitures

Joint Ventures

Mgmt. Buy-Out


What Are The Typical Steps In Buying/Selling Process:

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STEPS IN SELLING:

• Pre-Deal Preparation

• Confidentiality Agreements

• Create Offering Memorandum

• Identify Buyers

• Letter of Intent

• Due Diligence

• Definitive Agreement

• Close

• Post-Close Execution

STEPS IN BUYING:

• Evaluation of Transactional Assumptions/Marketplace Assessment

• Financing/Equity Partners

• Target Selection

• Confidentiality Agreements

• Letter of Intent

• Due Diligence

• Definitive Agreement

• Close and Integration


Why Hire an Intermediary or a Succession Planning Expert

• Having someone else find buyers or sellers and negotiate the deal reduces emotions and usually results in higher sell price

• Focus on what you do best: running your business

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“I don’t do my own dental work.”


Reducing the Stress

• Full disclosure of all positives and negatives

• Timely review and response

• Carefully think through all responses so they are complete and accurate

• Have an intermediary do the heavy lifting


Cashing In Does Not Always Mean Selling Out

• Stay on in some fashion (if you choose)

– Employee

– Consultant

– Run the business for a defined period of time

• Grow the business with someone else’s investment

• Join acquirer’s team/help them build their business


Valuation


The Value Lies in the Eye of The Beholder

• Buyer vs. seller

• Sale to company management

• Passing down to family member

• Sale to privately or publicly held company

• Book value

• Industry standards, benchmarks, trends


Potential Factors That Increase the Value

Strong revenue & profit growth = higher multiple

Above average margins= higher multiple

Strong buyer marketplace = higher multiple

Valuable assets = higher value


Potential Factors that Reduce the Value

• Long term debt

• High level of goodwill compared to assets and net income

• High percentage of aged receivables

• Dominance of a few customers

• Lower operating margin than that of buyers


Increase the Value of Your Business


How to Increase the Value of Your Business if You Are a

Retailer

• Is your store front clean?

• Is your inventory current?

• Are your counter people customer centric and well-informed about products?

• Are uniforms, signs, trucks in good shape?

• Is branding consistent?



Distributor • Have you cleared dead inventory?

• Are the financials up to date and accurate?

• Are margins sufficient to generate profit?

• Do you have a niche that separates you from other distributors?

• Are counter people trained to develop relationship with customers?

• Are your IT systems updated so you can process orders online?



Manufacturer

• Is the concentration of customers well-distributed (i.e. not top-heavy)?

• Did you get obsolete equipment off your books?

• Do your marketing programs truly state your value proposition

• Do you have competitive pricing?

• Do you continually introduce new and innovative products?



Repair Shop

• Do your service advisors have excellent customer service skills?

• Are your technicians using the latest diagnostic equipment

• Are waiting rooms and bathrooms clean and inviting (to both men AND women)?

• Are repairs completed on time and on budget

• Are you able to green face your business?


Getting Paid


TYPICAL PAY OUT STRUCTURE

• Typically 50%+ paid at closing in cash, balance debt/equity

• Earn-out based on multiples of earnings

• Earn-out based on revenues

• Additional payments over 2 – 5 years based on meeting profit targets

• A kicker for revenue growth

• A hold-back if key customer is lost; key metric is missed; or if AR is uncollectible

• Seller financing


Getting Paid: Other Options for Owners

• Management Buyout

• ESOP

• Mezzanine/Equity Partner

• Deferred Compensation Payment


Deferred Payment

• Company buys back stock – resells to management

• Payout over time – 5 to 10 years

• Secured by life insurance – in case something happens to principals

• Avoid bank borrowing – hopefully, financed by company cash flow

• Includes sale to family members


What to Look For When Hiring a Broker or M&A Consultant

• Industry knowledge

• M&A experience

• References

• Intelligent strategy


Summary

• Preparation = Increased ROI

• Buyers & Sellers need to understand each others’ perceptions

• Make sure you understand the basics

• Don’t do this alone – get the support of professionals WHO HAVE EXPERIENCE and KNOW YOUR INDUSTRY


If you would like a copy of this presentation or further information on buying or selling, please contact us below:

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TOM MARX 415.453.0844 ext. 106

[email protected]

Paul Cooperstein 617.328.7333

[email protected]

www.marxgroupadvisors.com

BOSTON SAN

RAFAEL HOUSTON DETROIT

NEW YORK

FLORIDA PHOENIX

Marx Group Advisors are located nationwide:

THANK YOU


sema 2011 marx group advisors "acquiring or selling: preparing your business to achieve maximum...

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