taking advantage of a recession by buying a business · better results throbetter results through...

Better Results Through Better ControlsmBetter Results Through Better Controlsmwww.jcjones.com

MANAGEMENT ADVISORY SERVICES

Taking Advantage of a Recession by

Buying a Business

Oct 12, 2010

Presented byJC Jones & Associates, LLC

1



and click on the bent arrow button to submit

To ask a question, type here

Questions will be accepted during the entire webinar and addressed at the end of the session.

Have a Question?



3

Today’s Discussion Framework

Why is it a good time to consider acquisitions?

Baby-boomers beginning to retire

Recent recession has resulted in bargains

Businesses must reposition themselves for recovery

Grow Value Through Acquisition

Why Companies Acquire

Proceed with Caution

The Acquisition Road Map

Summary/Wrap-up/Questions



4

I. Why is this a good time to consider acquisitions?

I. Why is this a good time to I. Why is this a good time to consider acquisitions?consider acquisitions?



5

“The majority of boomer wealth is held in 12 million privately owned businesses, of which more than 70% are expected to change hands in the next 10-15 years.”

--Robert Avery, Cornell University, February 2006

“Within the next 35 years, $10.4 Trillion of net worth from private businesses will be transferred.”

--Robert Avery, Cornell University, February 2006

Interesting Facts / Projections



6

Growth in Real GDP



Unemployment Rate Lagging Indicator

7

Source: US Dept of Labor Statistics

Jun-10 = 9.5%


MANAGEMENT ADVISORY SERVICES Summary

Is the recession over? It is not clear• Questionable GDP growth and no great news on the job

front

If not the bottom, most believe we are near it

The recession may create an opportunity for and acquisitive and creative business to reposition itself for the recovery.• Fatigued business owners and corp. carveouts• Low valuations

8



9

II. Grow Value Through Acquisition

II. Grow Value Through II. Grow Value Through AcquisitionAcquisition



10

Why Companies Acquire

Synergies 1+1>2• Expand geographic footprint

• Acquire competitors and market share

• Expand or round-off product offerings

• Bring on new talent

• Take advantage of under utilized capacity

• Leverage opportunities to cut costs



11

Proceed with Caution!

Merging of two or more organizations is complex and risky• Research shows that over 70% of all M&A

activity fail to achieve expected results– Culture, culture, culture – inability to integrate the

cultures– Unrealistic expectations– Due diligence failed to disclosed risks– Integration not timely or not completed– Customer retention



12

Proceed with Caution!

The most successful transactions follow a structured and disciplined approach.



1. Begin with the End in Mind

2. Check Your Team3. Get Your Oars in

the Water4. Establish a Filter5. Be Realistic

6. Efficient and Effective Due Diligence

7. Deal Structure and Negotiation

8. Final Checkpoint9. Integration10. Monitor

13

The Acquisition Road Map



14

Begin with the End in Mind

Understand what you are looking for• What is the underlying rationale for embarking

on the acquisition– Market Share?; Portfolio Expansion ; etc.

• It starts with the company’s overall strategy

• Before proceeding, establish a picture of the combined companies

– Integration planning begins now



15

Check Your Team

Do you have the internal talent needed?• Doing deals puts a strain on your staff

• Augment your team during the deal process with professionals

• Make sure that you have the horsepower to run things after the dust has settled

– Integration plan may include picking up new talent



16

Get Your Oars in the Water

The more deals you see, the more likely that you’ll find one that fits your need

Let people familiar with your marketplace know of your interests• Investment bankers and business brokers

• CPA

• Key sales people

• Etc.



17

Establish a Filter

A good process should yield several opportunities to consider.

Each should be vetted against your strategic rationale and potential for value creation

Focus on the best opportunities



18

Be Realistic

Build a financial model• At a minimum understand potential impact to

your cash flow

Expectations should be realistic and achievable• Don’t build a deal model that requires

everything to go 100% right.

• On the other hand, if you are overly conservative you will never pull the trigger



19

Efficient and Effective Due Diligence

Utilize a two step due diligence process• Step 1 is done quickly and focuses on the key

deal aspects, for example,– Are the underlying business assumptions real

– Understand expectation, can a deal be done?

• Step 2 is typically much more detailed and costly to all. Proceed here only after getting comfortable with step 1

– Level of Step 2 detail depends upon the deal size



20

Deal making is glamorous, due diligence is not: Be consistent, thorough and objective in due diligence.

Due diligence should be synergistic effort with cross functional sharing of learnings

Bubble up and document potential issues

Consider integration planning while performing due diligence

Focus attention on people and culture

Get a feel for the individuals strengths and weaknesses

Understand the obstacles and opportunities re: the existing culture

There are different ways to get at key facts

Due Diligence Key Principles



• Financials - Historical and projections

• Strategic Plans • Product Information/R&D• Customer

information/Competition• Sales and Marketing and

Distribution

• Control environment (access to information)

• Capital structure• Management talent• Legal/Environmental issues• HR - employee agreements,

benefits, pay scale• Manufacturing processes

21

Due Diligence Areas to Consider



22

Deal Structuring and Negotiation

Access to traditional capital is difficult. Creative deal structuring is critical• Typical deal of equity + debt may not get deals done

– Consider multi-layer capital structures

• Understand what is motivating the seller– Explore seller financing and earn-outs to provide seller with

potential upside not available with today’s valuations



Creative Deal Structures – Earn-out Provisions

Selling in a down economy – is it a permanent or temporary decline?

Typically different perspectives on valuation – buyer vs. seller

It is common for management of target to stay through a transition and it may be necessary to effectively complete a product or marketing initiative

Consider an earn-out

Seller stays on with company as employee (established role)

Establish incentive target to improve valuation over the next 2-3 years

If valuation improves, seller is rewarded, if not no upside paid.

Structures can vary widely and creatively.

23



Creative Deal Structures – Mezzanine Debt/Equity

Fills gap in financing• Provides capital to get deal done• Senior lender more likely to be interested in participating

Squeezed between senior debt and common equity

Structured as debt (subordinated) / preferred stock

More expensive than senior debt (15%-20%)

Often structured as interest only with buy-out at maturity

Typically short term - 2-3 years

24



Creative Deal Structures – Private Placement

Financing gap can be filled by finding a minority investor to contribute equity to the deal.

Private placements are offered to a small number of investors and public offering requirements often waived.

Usually large banks, insurance companies, pension funds.

Typically higher cost

Professional fees to prepare memorandum to avoid Blue Sky laws

Higher closing costs25



Creative Deal Structures – Royalties

If part of value be sought is from the bet on a new product being successful, assign a portion of valuation to a royalty agreement – dependent on future sales

Advantage – less paid at closing and future payments made only if successfully selling product

26



Creative Deal Structures - Strip Out Assets

Consider striping out assets to lease back from owner

Typically real estate

Advantage – reduces cash required at close

Most likely a long-term lease will be required

Provides flexibility at the end of the lease

However, need to be proactive about alternatives

Provides seller with a cash flow stream into the future and may provide a tax advantage to seller depending on tax basis in property.

27



28

Final CheckpointDon’t fall prey to deal fever! Stay true to

you objectives

Use final checkpoint to:• Understand key due diligence findings

• Understand any due diligence gaps

• Get confirmation from the deal team that the deal can meet the financial and strategic goals

• Understand the integration plan



29

Integration, Integration, Integration!

Integration planning should begin when you first imagine a deal. • Detailed pre and post deal activities and responsibilities

need to be understood

• Ensure the integration team is comprised of individuals from both companies

• Poor integration planning will doom a great deal– Energy business closed a deal without licenses in place and

could not make deliveries post acquisition

– Manufacturing company closed acquired distribution centers without being prepared to ship new goods



30

Monitor

Monitor the integration plan after the deal is done:• An individual should have overall

responsibility. – Incentives should be aligned to integration success

• Clear understanding on key milestones



31

SummarySummarySummary



32

The 2008-2010 recession has been devastating to many companies

However, some people will use this economic upheaval as a springboard

There will be some big winners in the coming years

Consider taking bold, disciplined steps to make it be you

Summary



33

VI. Questions, Comments, Feedback?

Link to re-listen or download:Link to re-listen or download:

Robert Baker:• Telephone 585-820-1350• Email: [email protected]

Jack Canty:• Telephone 315-730-1444• Email: [email protected]

www.amtonline.org/archive

mailto:[email protected]

http://www.amtonline.org/archive



3434

1250 Pittsford Victor Road - Bldg 100, Suite 180 - Pittsford, New York 14534Tel: 585-899-0472 - Fax: 866-498-9625 - www.jcjones.com



35

A Few Words on JC Jones & Associates

Profit Improvement, Business Turnaround, M&A, and IT consulting firm

14th year; consultants average 25 years’ experience; 30+ employees

Main office - Rochester, New York

More than 120 clients:• Many middle market commercial businesses: $10m - $300m sales• >10 multinationals: $1b - $30b in sales• Not-for-profit organizations including health care and higher education

Wide reach: 22 states, 15 countries

Rochester 100 and Rochester Ethics award winners

Winner: • National Turnaround of the Year – 2 times• National M&A Transaction of the Year

Battle Cry: “Better Results through Better Control”



36

Our Business Performance Improvement Consulting

Profit Improvement & Business Turnaround

Merger & Acquisition Support

Information Technology Services

Audit Advisory / Sarbanes Oxley Support

We provide these services as part of “the JC Jones Business Solution,” all with the goals of driving specific, measurable business improvements and generating significant financial performance gains.



37

The JC Jones Business Solutionsm

A thoughtful, thorough, aggressive approach to problem- solving with six fundamental core competencies:

Unparalleled Experience:• no lightweights• all senior-level executives

Vigorous attitude: • run toward problems others avoid • the tougher the problem, the more determined we

are to overwhelm it and fix it, forever

Relentless Focus:• bias toward action• concentrate on achieving the desired outcome

quickly, efficiently, and completely



38

The JC Jones Business Solutionsm

Honest, proactive communications – tell clients what they need to know - popular or not – in a manner that fosters immediate client support and aggressive action.

Dynamic teamwork:• always work in teams• transform clients into partners through knowledge transfer• ensure old problems never re-emerge

Imaginative use of technology - creatively interact with advanced technology tools to:• provide significantly more value to clients• help meet commitments faster and more effectively

Our goal is to utilize all of these traits - in everything we do - to provide world class consulting services to help our clients in ways others cannot.



39

Our Philosophy Better Results Through Better Controlsm

Optimizing all assets - people, equipment, technology, and capital - has never been more important to business survival and success.

You can’t maximize efficiency and profitability without solid control of the business.

Gaining control requires access to the right business information at the right time.

Accountability and focus on key indicators are central to success.

“Better Results through Better Control” means sharpening management focus and targeting action on the information, data, processes, and key business drivers that contribute most to customer value and profitability.



40

Representative Large Clients

Adelphia Cable Company Rich Products

Altra Holdings, Inc. Rochester Institute of Technology

Clearwire Corporation Standex International Corporation

Constellation Brands, Inc. Suburban Propane Partners, L.P.

Delaware North Companies, Inc. Terex Corporation

Dover Corporation Thomas & Betts Corporation

Flextronics International, Ltd Time Warner Cable

Mannatech, Inc. Xerium Technologies, Inc.

Oneida Limited



41

Representative Middle Market Clients

Camillus Cutlery Company Infotonics Technology CenterCanfield & Tack, Inc. Keymark CorporationChelsea Modular Homes Knowlton Specialty Papers, Inc.Clarkson University Master Packaging CompanyClimax Manufacturing Company MC Iron Works, Inc.Colgate University Premier Exhibitions, Inc.DeCarolis Truck Rental, Inc. Ridge Lumber CompanyDills Best Building Centers Rochester Business Alliance Empire Beef Company, Inc. Rochester Lumber Company Edscha Corporation Sage Rutty & Co., Inc.

Forbes Products Corporation St. John Fisher College

Hanford Pharmaceuticals StockerYale, Inc.Harman Stove Company Ultralife CorporationHigh Falls Brewing Company Wynit, Inc.



Automotive (OEM, supplier) Higher Education

Plastic injection molding Retail

Metal fabrication and assembly Construction and civil engineeringIron and steel fabrication Cable Television

Machine tools fabrication Food and Beverage

Paper manufacturing Financial services

Equipment manufacturing Professional servicesElectronics manufacturing LP Gas

Contract manufacturing Food service and distribution

Banking Leasing

Distribution Health Care

42

Diverse Industry Experience



4343

1250 Pittsford Victor Road - Bldg 100, Suite 180 - Pittsford, New York 14534Tel: 585-899-0472 - Fax: 866-498-9625 - www.jcjones.com

taking advantage of a recession by buying a business · better results throbetter results through...

Documents