Legal and Practical Advice – Roadmap to Buying a (Competing) Business

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LEGAL AND PRACTICAL ADVICE – ROADMAP TO BUYING A (COMPETING) BUSINESS

BUSINESS ADVICE- FROM START UP TO SALE 2016 SERIESPremier date: May 11, 2016

Premier Date: MAY 11, 2016

LEGAL AND PRACTICAL ADVICE – ROADMAP TO BUYING A (COMPETING) BUSINESS

BUSINESS ADVICE- FROM START UP TO SALE 2016 SERIES

© 2016 DailyDAC, LLC d/b/a/ Financial Poise™ 2

WE WOULD LIKE TO TAKE THIS OPPORTUNITY TO THANK OUR SPONSORS



meet the facultyPANELISTS

Lynda Davey Avalon Net WorthTrisha Lotzer Lotzer Law Group, PCMatt Schiff Sugar Felsenthal Grais & Hammer LLP

MODERATOR Michael Schwarzmann

Crowe Horwath LLP


Practical and entertaining education for business owners and executives, accredited

investors, and their legal and financial advisors. For more information, visit

www.financialpoise.comDISCLAIMER: THE MATERIAL IN THIS PRESENTATION IS FOR INFORMATIONAL PURPOSES ONLY. IT SHOULD

NOT BE CONSIDERED LEGAL ADVICE. YOU SHOULD CONSULT WITH AN ATTORNEY TO DETERMINE WHAT MAY BE BEST FOR YOUR INDIVIDUAL NEEDS.

http://www.financialpoise.com/


about this webinarYou have identified an opportunity to acquire a business or product offering, and are excited about the prospect of taking over operations (and perhaps merging the company with your existing company). You have done some research, reviewed the 2 page “teaser” summary and think the price makes sense. What are the steps you need to complete to both evaluate the opportunity and determine how the company will perform if you buy it? Are there key employees, relationships, or customers you must make sure stay in place? How do you negotiate price? What will you transition plan be to fold the new business into yours? This Financial Poise webinar gives you some real world tips of things to consider and evaluate before considering the purchase of another business.


about this seriesGreat companies fail for lots of reasons that have nothing to do with the product or service they are selling. Turning an idea into a business is hard, often because the creative entrepreneur with the great idea does not have the same level of skill, training, experience, and passion in the other critical areas required to make a product into a successful company.

These areas include knowing how to attract and retain people, understanding accounting and finance, and being able to negotiate various contracts - including potentially a contract to buy a competitor or, ultimately, to even sell the business. This Financial Poise webinar series covers some of these topics, as always, in plain English.

As with all Financial Poise webinars, each episode in the series is designed to be viewed independently of the other episodes, and listeners will enhance their knowledge of this area whether they attend one, some, or all of the programs.

episodes in this series

EPISODE #1 Legal and Practical Advice – 2/10/2016Starting a Business

EPISODE #2 Legal and Practical Advice – 3/9/2016Negotiating a Commercial Lease

EPISODE #3 Legal and Practical Advice – 4/13/2016Roadmap to Selling your Business

EPISODE #4 Legal and Practical Advice – 5/11/2016Roadmap to Buying a (Competing) Business

Dates above are premier dates All webinars also available On Demand through West LegalEd Center and Vimeo



Reasons to Buy a BusinessThere are several disparate reasons to purchase a business• Lack start up expertise• Buyer has value added expertise (improve performance)• Acquire critical relationships (vendors, customers, etc.)• Product or Service is complementary to your existing

business (expansion of sales to existing customers; buying IP)

• Reduce Overhead via integration (synergies)


Reasons NOT To BuyThere are also (potentially) bad reasons to buy a business• You are a customer• You have a little free time & home equity to

invest• You have great ideas for improvements to the

product / menu (but no industry experience)


Self EvaluationCarefully consider what you can risk / lose• What are you willing to invest in the business

(time, savings, 401(k), home equity, friends & family money)?

• How passionate are you about the product or service?

• Does the business need your area of proven expertise, is training provided (i.e. a franchise), or does this a stretch your skills?


Threshold QuestionsStated or unstated, these are things to think about:• Why is the business for sale?• What has changed (competitors, employees,

costs, customers)?• Is the product a want or a need?• Can technology replace the product?• Are there barriers to entry?


Threshold QuestionsMore things to investigate and analyze• How many competitors are there?• How much will you need to invest to improve /

“fix” it?• Are there key customers (volume or strategic)?• Are there irreplaceable employees (sales or

manufacturing)?• Is the current owner’s operational role critical?• Will you be teaching or learning?


Advantages of BuyingBuying an existing business provides these advantages:• Existing customer base / brand loyalty• Employees hired and trained• Vendors in place, with credit terms• Equipment installed and operating• Quality location – possibly below market rent• Financing easier


The Traditional Sale processThe 7 Steps• Review Teaser and Confidential Information Memorandum (NDA

signed)• Prepare Term Sheet or LOI, negotiate and execute• Analyze Data Room contents & Prepare Supplemental Document

Request List• Participate in Management meetings• Negotiate and Execute Definitive Purchase and Sale Agreement

(Step 1)• Seek Regulatory Approvals and Consents (Step 2 – if necessary)• Post-closing matters (e.g. true up of balance sheet, working

capital)


Diligence Items to ConsiderDiligence is broad and deep – don’t miss the basics:• Stable operations & customer base?• Buying salable or stale inventory?• WIP current year items readily salable?• Growth potential?• Add backs – are they overstated


Standard Diligence TopicsFinancial Performance• Balance Sheet – annual (at least) for a couple years• Income Statement – monthly, for at least 3 years• Cash Flow Statement• Tax ReturnsCorporate Governance• Current filings (tax, regulatory, etc.)• Litigation Search & Pre-litigation searches (EEO, etc.)


Two Types of DiligenceMore Information• Customer concentrations & quality• AR quality & AP terms• Detailed trends in financial statement line

itemsVeracity of the Information• Is the information fairly presented?• Is the information complete?


Diligence into AdvantagesVerify perceived advantages exist• Employees – are key employees staying?• Customers happy? Ill will that will cause

revenue decline?• Vendor contracts at market rates?• Lease terms favorable or neutral?• Equipment appropriate or obsolete?


Value DiligenceValue• How is the business valued (EBITDA, Gross Sales, IP,

FF&E)?• Is the seller “gaming” value by altering expenses or

revenue to show positive trends?• Do seller add backs materially alter value?• Did seller’s delay of Cap Ex shift risk (will expenses

achieve results)?• Are there signs seller neglected the business?


Corporate FormalitiesCheck to make sure there are no hidden problems:• Corporate records: in order and up to date• Taxes current (returns filed) at close (IRS, FTB, BOE,

Payroll, etc.)? • Benefit plans in place and fully funded (401(k) or

pension liabilities)?• Deferred maintenance: “wants” versus “needs”• Pending litigation• Plaintiff – who gets proceeds awarded post-sale?• Defendant – who pays costs / damages?


Insider Compensation It is not unusual for an owner to run expenses through a company. Typically, owners pro forma reverse this expense to increase the value of the business. • What is reasonable compensation?• Are expenses being classified as personal in

contradiction to the owner’s personal tax reporting?

• Relatives on payroll (salary and perks) – will you need to hire someone to perform that task?


Understand Seller’s MotivationsAcquisition Options• Seller wants out: Buy it all• Seller wants to diversify investments: Buy

controlling interestTransition Agreements• Interim / Transition Management• Earn out (portion of purchase price is paid if

company performs)


Negotiate Be thoughtful, strategic, and ask• You never get what you don’t ask for• Think about an earn out• Will seller take back financing (putting their $ at

risk)• Pay less for A/R that is likely uncollectable• Adjust for slow moving A/R• Leave seller’s guarantees in place to keep “skin

in the game”


Letter of IntentKey Terms• Price• Exclusivity / Stand Still• Assets Acquired• Liabilities Assumed & Strategy• Remaining Diligence• Timing• Contingencies


Buyer ProtectionsSeveral tools to protect value• Covenant Not to Compete• Cash hold back• Releases / indemnity (scope)• Earn Out


Getting Help

Professional Retention:• Lawyers are critical part of diligence – don’t

overlook them• Accountants are needed to evaluate financial

statements• Business advisors help understand what is

“customary” and identify when that is an excuse

More About The Faculty: MICHAEL SCHWARZMANN

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[email protected] Schwarzmann is a Director at Crowe Horwath LLP. Michael has over 20 years’ experience providing advisory services to lender groups, companies, bondholder groups, unsecured creditors committees, and other stakeholders on financial, operational and strategic issues affecting underperforming, stressed, and distressed companies. Michael ‘s advisory and consulting work experience focuses on assisting distressed companies, revitalizing underperforming businesses, marketing troubled companies and advising their creditor constituents. In addition, he is a licensed bankruptcy attorney.

Michael has assisted clients in developing and evaluating business and turnaround plans, analyzing financial and operational performance, and formulating successful workout, restructuring or bankruptcy strategies to preserve or improve asset values for stakeholders. Michael’s industry experience includes: health care, manufacturing, agricultural, construction, restaurants and franchising, energy, travel, and investment banking.

He has experience in identifying and implementing positive near term and long term change for clients, including identifying opportunities, negotiating with constituents, and building consensus where possible. © 2016 DailyDAC, LLC d/b/a/ Financial Poise™ 28

More About The Faculty:

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LYNDA [email protected]

Lynda Davey's finance career spans 30 years of advising, financing and investing in public and private companies. She serves as Co-Chief Executive Officer of Avalon Net Worth. Ms. Davey brings broad expertise to her clients, having assisted them strategically position their companies for success by focusing on balanced capitalization, developing and implementing strategic growth plans and optimally structuring transactions.Ms. Davey is the Chairman and Founder of Avalon Securities Ltd, one of the few woman-owned FINRA and SEC registered broker dealers. Since 1992, Avalon has provided bulge bracket investment banking assistance to mid-market clients. The firm cultivates long term relationships with high caliber business owners and senior executives by assisting them with both short-term and long-term needs including financing for business expansions, balance sheet recapitalizations, acquisitions and liquidity events.Prior to founding Avalon, Ms. Davey worked at Salomon Brothers on public offerings, divestitures, acquisitions and private placements for clients in a variety of industries. She was also President of Tribeca Corp, a merchant bank with large equity investments in public consumer companies and private buyouts. Before commencing her finance career Ms. Davey practiced as a registered architect.


More About The Faculty: D

TRISHA [email protected]

Ms. Lotzer's expertise as an entrepreneur as well as her eighteen years of experience as a corporate and healthcare attorney make her an exceptional resource for business clients and healthcare practice owners. She began her career in corporate and healthcare law with in-house counsel positions at the University of California San Francisco Medical Center and Mercer Transitions and Advisors before launching her own companies, the Lotzer Law Group, PC and Yogattorneys, LLC in 2008 and Ideal Transitions, Inc. in 2011. The Lotzer Law Group is dedicated to achieving exceptional results and solutions for business owners, doctors, dentists, veterinarians, optometrists, nonprofits and first-time entrepreneurs and provides business valuations, practice appraisals, brokerage and business transition consulting services including buyer and seller-side representation, mergers, “business divorce” and dissolutions. Trisha is an attorney licensed in California (1998) and Arizona (2007), an SBA designed attorney, a certified mediator and a contributing expert for publications including Entrepreneur.MD, Financial Poise and Physicians Practice Journal. You can read more about Trisha and find articles and resources at www.lotzerlaw.com.© 2016 DailyDAC, LLC d/b/a/ Financial Poise™ 30

mailto:[email protected]

http://www.lotzerlaw.com/


More About The Faculty: D

MATT [email protected]

Matthew B. Schiff leads the Labor & Employment group at Sugar Felsenthal Grais & Hammer. Matt represents management in defense of claims of discrimination retaliation, harassment, workers' compensation and employment torts. He counsels clients in all aspects of employment and labor relations.

Matt is an experienced litigator who has tried many cases and argued appeals of workers' compensation and related matters. He also counsels and litigates wage and hour disputes and assists his clients in protecting their trade secrets and enforcing non-compete and non-solicitation agreements.

Matt has tried numerous jury and nonjury cases on behalf of employers before state and federal courts and agencies on behalf of public and private sector clients.

Matt assists his clients in developing employee handbooks and contracts. He negotiates collective bargaining agreements and helps his clients with contract administration.

Visit www.eisneramper.comEisnerAmper. Let's Get Down to Business®

EisnerAmper LLP is a leading full-service advisory and accounting firm, and is among the largest in the United States. We provide audit, accounting, and tax services, as well as corporate finance, internal audit and risk management, litigation services, consulting, private business services, employee

benefit plan audits, forensic accounting, and other professional advisory services to a broad range of clients across many industries. We work with high net worth individuals, family offices, closely held businesses, start-ups, middle market and Fortune 500 companies. EisnerAmper is PCAOB-registered and provides services to more than 200 public companies and to thousands of entities spanning the hedge, private equity, brokerage and insurance

space in the financial services marketplace. As companies grow we help them reach their goals every step of the way. With offices in New York (NY), New Jersey (NJ), Pennsylvania (PA), California (CA), and the Cayman Islands, and as an independent member of Allinial

Global, EisnerAmper serves clients worldwide.

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Important Notes

• THE MATERIAL IN THIS PRESENTATION IS FOR GENERAL EDUCATIONAL PURPOSES ONLY.

• IT SHOULD NOT BE CONSIDERED LEGAL, INVESTMENT, FINANCIAL, OR ANY OTHER TYPE OF ADVICE ON WHICH YOU SHOULD RELY.

• YOU SHOULD CONSULT WITH AN APPROPRIATE PROFESSIONAL ADVISOR TO DETERMINE WHAT MAY BE BEST FOR YOUR INDIVIDUAL NEEDS.

Legal and Practical Advice – Roadmap to Buying a (Competing) Business

Education

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