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BENEFITS SHAREHOLDERS' BENEFITS
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maximum
value is realized when selling
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confidentiality
is assured
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the
transaction is managed by a mature business
principal
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shareholders
understand and direct the selling process
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prospective
buyers are motivated and capable
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optimum
buyers are identified
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the company
is properly prepared for a sale
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likely deal
structures are identified
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maximum tax
advantages are balanced with total value
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the prime
elements of value to buyers are identified and
professionally presented
THE SELLING PROCESS
We have
developed a proven three phase approach to selling a
company.
1. PREPARATION
PHASE
2. MARKETING THE
OPPORTUNITY
3. CLOSING THE
TRANSACTION.
PREPARATION PHASE
DETERMINING
VALUE AND TRANSACTION STRUCTURE
Our interest is
in answering one simple question; "What is the most
that a capable, motivated buyer will pay for this
company?". The question may be simple to ask; but
the process of finding an answer is not. A total view of
the business is necessary. Historical profits alone do
not determine value. There are often strategic,
synergistic or competitive considerations for a buyer. We
strongly believe that buyers must appreciate the business
opportunity of a potential acquisition before any
discussion of value. Mergers and acquisitions are
essentially business transactions, not financial deals.
A BUSINESS
PROFILE
A thorough
review of the industry and the company is completed prior
to marketing the opportunity to prospective buyers. An
assessment of all key issues affecting the value of the
business, both internal & external helps identify
those elements of the business that are likely to reduce
value as well as those that are likely to enhance value.
There are frequently hidden or unique elements of value.
A comprehensive review is conducted of the last five
year's operating results. Suggested alternatives for
business development over the next five years are
identified.
DETERMINING
VALUE
In closely held
companies, it is often necessary to "re-cast"
or restate financial values to more accurately describe
operating results and potential. Shareholders' historical
objectives may be different from those of a prospective
buyer.
One must learn
how buyers think. It is important to know what a
"fully priced" deal is. If the sellers'
expectation of value is unrealistically high and not
negotiable; the experience of selling will be
frustrating, costly and ultimately unsuccessful. If the
sellers' expectation of value is too low, then there will
be money left on the table. It is important to know what
a full or "target" price really is. If an
offer, initially, sounds much too high; it probably is
not a legitimate offer. It may have some twists that are
not immediately obvious.
A STATISTICAL
VALUATION MODEL IS DEVELOPED
Appropriate
statistical methods are used to evaluate financial
results and projections. We employ several methods
including discounted cash flow, present value, investment
recovery period, loan value, current values in the public
market and the prices of comparable transactions.
TRANSACTION
STRUCTURE
The form or
structure of a transaction reflects the joint needs of
buyer and seller. Often a seller realizes a diminished
value in a transaction by not recognizing all the
alternatives available. The personal and financial needs
of a seller must be balanced. The alternatives are many.
During the early negotiation of a deal, a form emerges
and becomes more and more refined as negotiations
progress. There is need for expert advice and assistance
during this negotiation. There is a need to understand
and meet the requirements of a buyer while protecting the
seller. There needs to be a broad view of the total
process.
Many factors can
effect deal structure; including the tax effects for both
seller & buyer, total asset value, personal needs of
shareholders and management, net worth or book value and
the potential for tax-free asset exchanges. A simple
asset or stock sale may not be advisable.
There are
additional considerations if the seller is interested in
remaining in a management position following a sale;
including employment contracts, non-compete agreements,
the acceptance of stock or equity interests, leases of
related party assets, continuance of medical and other
benefits and provisions for bonus or incentive
compensation. PREPARATION PHASE
FINANCING
Financing
alternatives may become a key element of the transaction.
It is important to anticipate alternatives available for
financing; including seller financing, debt assumption by
a buyer, long term debt capacity, additional capital
requirements, mezzanine financing alternatives, the cash
flow potential and asset based lending potential.
MARKETING THE OPPORTUNITY
MARKETING
STRATEGY
The most likely
buyers are targeted. We determine the method of initial
contact, including identifying the key contact person in
the company. A pricing strategy is planned. We develop a
database specifically for the transaction. In addition, a
plan is implemented to address each potential buyer
segment. Buyers considered are strategic, competitive or
financial in nature.
UNDERSTANDING
THE BUYER
We are very
conscious of how a buyer thinks. It is very difficult for
a prospective seller to appreciate the needs of a buyer.
First time sellers are often surprised at the number of
questions asked by a buyer. A buyer is interested in how
to improve the combination of himself and the acquired
company. Typical questions a buyer may ask, include:
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How does
the company's operating results compare to
industry norms?
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What can I
expect the cash flow to be for each of the next
five years?
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How can I
improve on the operation of this company?
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What
immediate risks do I face
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Is there
any synergy with my other business; how can the
combined businesses complement and improve each
other?
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What is
current market value (what other buyers are
currently paying and what attracts them)?
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What form
of financing is available for the long term
acquisition debt financing; and will the current
owner assist in financing?
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What return
on total capital employed can I expect?
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What will
be the recovery time for my initial cash
investment?
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How does
this compare to other deals I have done or know
about?
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Are there
public companies similar to this; and what are
their values?
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How can I
structure this deal to get maximum tax
advantages?
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And many,
many more.
SELLING THE
FUTURE
A five year plan
demonstrates the future cash flow and growth potential of
the company. It is prepared with company management and
includes pro forma income statements as well as proposed
capital requirements.
DESCRIPTIVE
MEMORANDUM
A comprehensive
Descriptive Memorandum provides prospective buyers with
enough initial information to determine their level of
interest and to estimate transaction value and structure.
The total business is summarized in this document. A
Confidentiality Agreement is executed prior to the
release of a Descriptive Memorandum. Although
comprehensive, it is carefully screened to exclude any
damaging confidential information. Whenever possible,
five year historical trends are included. The Descriptive
Memorandum is prepared from a review of key business
information including:
! operating
policies and practices ! business risk assessment,
marketing strategy and opportunities ! personnel policy,
benefits and unions status ! computer systems, accounting
procedures and internal controls review ! analysis of the
contribution from each element of the business ! analysis
of fixed and variable expenses ! examination of recent
property appraisals ! key asset comparisons to current
market prices ! financial covenant requirements !
outstanding contractual liabilities ! outstanding
litigation ! ownership structure, shareholder agreements
and by-laws ! capital investment requirements ! aged
accounts receivable and any uncollected debts ! manpower
productivity ! slow moving or obsolete inventory ! fixed
asset values ! borrowings, their terms and the security
held by lenders continued MARKETING THE OPPORTUNITY
Special
attention is paid to contingent liabilities; including:
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repurchase
commitments
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performance
guarantees
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recourse
accepted as part of any customer financing
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service
maintenance agreements
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product
warranty liabilities
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outstanding
contractual claims by customers or suppliers
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outstanding
litigation
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unresolved
regulatory agency issues;
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esp: EPA,
FTC, FDA, IRS, state and local
CLOSING THE TRANSACTION
We negotiate
offers, often through many revisions or even through
complete changes in structure. The closing process
generally begins with a letter of intent. This document
should address all major business, financial and personal
issues involved in successfully closing a transaction. It
is quickly followed by extensive diligence on the part of
the buyer to verify all critical business information
prior to closing. The closing itself is documented in
definitive purchase agreements. We understand closings
and are prepared to manage the various stages of the
process.
CAPABILITIES
DATABASE
We prepare a
"custom" database for every transaction we
manage. This database is prepared from industry research
as well as our own proprietary buyer databases. We
maintain over 10,000 active database records.
MARKETING
All transactions
are managed by one principal in the firm. Principals are
full-time, experienced professionals, exclusively
committed to the successful closing of PMC's transactions. We have the capability to
market companies on a regional, national and
international basis. We maintain strategic affiliations
in major financial and business centers to assist in the
national and international marketing of transactions.
RETURN TO TOP
 
VALUING YOUR BUSINESS
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