Marketing bán hàng - Chapter 11: Reasons for selling

Copyright 2015 Jack M. Kaplan & Anthony C. WarrenPatterns of Entrepreneurship Management5th Edition,Chapter 11Chapter 11Reasons for SellingValuation and CandidatesRunning and Selling a BusinessIntra-family saleExiting the VentureESOP’s andMBO’sFinancial IssuesCopyright 2015 Jack M. Kaplan & Anthony C. WarrenPresentation OutlinePersonal Reasons for SellingBusiness Reasons for SellingValuing the CompanyDetermining Best Candidates Tax ConsiderationsSelling to Employees or ManagersTransferring to Family MembersIPO’sRunning the Business while SellingChapter 11Reasons for SellingValuation and CandidatesRunning and Selling a BusinessIntra-family saleESOP’s andMBO’sFinancial IssuesCopyright 2015 Jack M. Kaplan & Anthony C. WarrenPersonal Reasons for Selling Investors are demanding a LIQUIDITY eventEntrepreneur wishes to cash-in part or all of their ownership Disagreements between shareholdersAcceptable Unsolicited OfferBusiness - Burn OutPersonal EventPoor HealthRetirement PlanningChapter 11Reasons for SellingValuation and CandidatesRunning and Selling a BusinessIntra-family saleESOP’s andMBO’sFinancial IssuesCopyright 2015 Jack M. Kaplan & Anthony C. WarrenBe Clear Why You are SellingStrategic ReasonsGrowth Exceeded Management CapabilitiesDiversify Personal Net WorthOther InterestsGetting Older - Illness - DivorceOwner DisagreementsInvestors Desire to LiquidateChapter 11Reasons for SellingValuation and CandidatesRunning and Selling a BusinessIntra-family saleESOP’s andMBO’sFinancial IssuesCopyright 2015 Jack M. Kaplan & Anthony C. WarrenBusiness Reasons for SellingBusiness Requires Significant Capital for GrowthNew Competition AppearingLimited Opportunity for GrowthClose to BankruptcyMarket Condition Forecasts are UnattractiveConsolidation is Occurring in the SectorChapter 11Reasons for SellingValuation and CandidatesRunning and Selling a BusinessIntra-family saleESOP’s andMBO’sFinancial IssuesCopyright 2015 Jack M. Kaplan & Anthony C. WarrenDetermine the Company’s ValuationBefore considering a sale of the company, it is important to estimate the potential value: Valuation based on purely financial evaluation Valuation on strategic fit that might be perceived by an existing corporate purchaser. This often attracts a premium in a competitive market sector.Chapter 11Reasons for SellingValuation and CandidatesRunning and Selling a BusinessIntra-family saleESOP’s andMBO’sFinancial IssuesCopyright 2015 Jack M. Kaplan & Anthony C. WarrenAs a company grows and has a few years’ history of asset purchases, sales, and profits, conventional methods for valuation are used: Asset Valuations include:Book Value = Current assets + property + equipment Adjusted Book Value =Current assets + market value of property + equipment + intangible assetsLiquidation Value does not include intangible factors such as reputation, talent, or goodwillReplacement Value is cost of replacing assets after a total lossValuation Techniques for Later Stages –Asset BasedChapter 11Reasons for SellingValuation and CandidatesRunning and Selling a BusinessIntra-family saleESOP’s andMBO’sFinancial IssuesCopyright 2015 Jack M. Kaplan & Anthony C. WarrenCan be based on either historical or projected earnings, or a blendEstimate Price/Earnings (P/E) ratio by comparing to similar public companies if availableor use S&P quarterly industry analysis handbookModify based on an assessment of these factors on a 1-6 scale Risk (high/low)Competitive position (strong/weak)Industry (attractive/non-attractive)Growth opportunity (high/low)DesirabilitySum the factors and take the average as a multiplier for the P/EValuation Techniques for Later Stages – Earnings BasedChapter 11Reasons for SellingValuation and CandidatesRunning and Selling a BusinessIntra-family saleESOP’s andMBO’sFinancial IssuesCopyright 2015 Jack M. Kaplan & Anthony C. WarrenOnce there is a history and solid projections on future financial performance the DCF method can be used effectively for later stage companiesThe discount rate and risk adjustment factors are much lower than for a pre-revenue companyValuation Techniques for Later Stages – DCF BasedChapter 11Reasons for SellingValuation and CandidatesRunning and Selling a BusinessIntra-family saleESOP’s andMBO’sFinancial IssuesCopyright 2015 Jack M. Kaplan & Anthony C. WarrenDetermine Best CandidatesStrategic Buyers Competitors Related or Complementary Businesses Manufacturers of Related Products Companies with Announced Acquisition PlansFinancial Buyers Management – ESOP Management Buy-out Firms Related Businesses High Net Worth IndividualsChapter 11Reasons for SellingValuation and CandidatesRunning and Selling a BusinessIntra-family saleESOP’s andMBO’sFinancial IssuesCopyright 2015 Jack M. Kaplan & Anthony C. WarrenTypes of TransactionsSeveral different methods of payment are used for a corporate transactionIn a “Stock for Stock” purchase the seller takes certain risks – if the buyer is a public company and the stock is restricted then the final price might decline, for a private company there may be no liquidity optionCash for Stock is the preferred method but the final price is usually lowerInstallment transactions are common, in which the final payment depends on the performance after purchase which has inherent risks associated with control issues. Chapter 11Reasons for SellingValuation and CandidatesRunning and Selling a BusinessIntra-family saleESOP’s andMBO’sFinancial IssuesCopyright 2015 Jack M. Kaplan & Anthony C. WarrenBeware - Double TaxationIt is important to take tax advice long before selling is contemplatedTaxation rules are complicated and depend on the form of transaction that is usedFor example Asset Sales can lead to two levels of taxation, both Corporation. Tax + Stockholder TaxChapter 11Reasons for SellingValuation and CandidatesRunning and Selling a BusinessIntra-family saleESOP’s andMBO’sFinancial IssuesCopyright 2015 Jack M. Kaplan & Anthony C. WarrenUp-to-Date FinancialsMaintain the finances on a consistent monthly P & L and cash flow basis long before a sale is contemplatedFully audited accounts for the last three years are mandatory prior to a sale unless it is a strategic sale of assetsChapter 11Reasons for SellingValuation and CandidatesRunning and Selling a BusinessIntra-family saleESOP’s andMBO’sFinancial IssuesCopyright 2015 Jack M. Kaplan & Anthony C. Warren3-Year ProjectionsAs well as historical financial records at least 3- year detailed forecasts are required:by Month Actual Account Plus Future Accountsby Actual Product Plus New Productsby Region and/or by Locationby Division or SubsidiariesChapter 11Reasons for SellingValuation and CandidatesRunning and Selling a BusinessIntra-family saleESOP’s andMBO’sFinancial IssuesCopyright 2015 Jack M. Kaplan & Anthony C. WarrenChapter 11Reasons for SellingValuation and CandidatesRunning and Selling a BusinessIntra-family saleESOP’s andMBO’sFinancial IssuesSelling to Employees - ESOPsDefinition of 'Employee Stock Ownership Plan - ESOP‘A qualified, defined contribution, employee benefit plan designed to invest primarily in the stock of the employer. ESOPs are "qualified" in the sense that the ESOP's sponsoring company, the selling shareholder and participants receive various tax benefits. ESOPs are often to align the interests of a company's employees with those of the company's shareholdersAn ESOP can be structured so that over time employees can end up with owning the company and thereby “cashing out” the foundersIt is also a way in which the culture and uniqueness of the company can be retainedAlthough the gross value to the founders may be somewhat lower than an outright sale to a third party, the net proceeds may be attractive because of the special tax treatments.Copyright 2015 Jack M. Kaplan & Anthony C. WarrenChapter 11Reasons for SellingValuation and CandidatesRunning and Selling a BusinessIntra-family saleESOP’s andMBO’sFinancial IssuesSelling to Managers – MBO’sDefinition of 'Management Buyout – MBO’ -When the managersand/or executives of a company purchase a controlling interestin a company from existing shareholders These shareholders can be founders who feel they wish to “cash-out” and allow key managers to continue to run the companyIn most cases, the management will buy out all the outstanding shareholders because it feels it has the expertise to grow the business better if it controls the ownership completelyif the company is public, the new team will take the company privateOften, management will team up with a venture capitalistspecializing in MBO’s to acquire the business because it's a complicated process that requires significant capital. Often much of the purchase price is funded through debt in which case the transaction is referred to as a “leveraged buy-out, (LBO)”Copyright 2015 Jack M. Kaplan & Anthony C. WarrenChapter 11Reasons for SellingValuation and CandidatesRunning and Selling a BusinessIntra-family saleESOP’s andMBO’sFinancial IssuesTransferring Ownership to Family MembersFamily owned businesses constitute the largest percentage group of private companies ( More on family businesses under chapter 14):Copyright 2015 Jack M. Kaplan & Anthony C. WarrenChapter 11Reasons for SellingValuation and CandidatesRunning and Selling a BusinessIntra-family saleESOP’s andMBO’sFinancial IssuesTransferring Ownership to Family MembersDespite the need to transfer ownership to later generations, the process is fraught with difficulties. This chart shows the survival rate just through two generational shifts: Copyright 2015 Jack M. Kaplan & Anthony C. WarrenChapter 11Reasons for SellingValuation and CandidatesRunning and Selling a BusinessIntra-family saleESOP’s andMBO’sFinancial IssuesTransferring Ownership to Family MembersTransferring to the next family generation is much more difficult that to an established and trusted management team. Some of the reasons are: Unwillingness to confront mortality by the founders Emotional family relationships hinder rational decision makingFailure to prepare the new management team – holding onto controlFamily members not engaged so passionately to the business as the foundersCompany is in poor financial health Systematic planning is required to hand-over control and preparation for a smooth transition take several years. Often the transition is forced for health reasons unexpectedlyCopyright 2015 Jack M. Kaplan & Anthony C. WarrenThings to Do While Still Running the BusinessKeep Term Liability Agreements ShortLeases - 2 to 3 Years with Options to RenewDistributor Agreements - Short Term CancellationSupplier Agreements - Cancel at Your Option or in 30 - 60 DaysKeep Term Asset Type Agreements LongerEmployee Non-Compete AgreementsLicense and Royalty AgreementsSales Agreements with Price EscalationAll Agreements Must Be Assignable if possibleChapter 11Reasons for SellingValuation and CandidatesRunning and Selling a BusinessIntra-family saleESOP’s andMBO’sFinancial IssuesCopyright 20152 Jack M. Kaplan & Anthony C. WarrenA Model for Running the Business for Greater Perceived ValueDevelop a Prestigious and Stable Customer ListKeep a Well-Maintained FacilityShow a Continuous Growth in Sales and ProfitsDevelop Propriety Assets Patents, Copyrights, Trademarks Process Know How: Formulations and Clear DocumentationDevelop a Well-Respected Sales Distribution ChannelDocument and Organize All Contractual and Legal ObligationsIn General, Do Things That Others Will Value Much Higher Than Your Cost to Create ThemChapter 11Reasons for SellingValuation and CandidatesRunning and Selling a BusinessIntra-family saleESOP’s andMBO’sFinancial IssuesCopyright 2015 Jack M. Kaplan & Anthony C. WarrenThe Actual Process of Selling(Average Time from Beginning to Closing is Up to One Year)Develop a List of Candidates Choose a group of strategic buyersTry to Play the Role of a “Reluctant Suitor” Have Others Make Initial Contacts Investment Bankers - Consultants - Brokers, etc.Get More Than One Serious Candidate Use Competitive Negotiation Strategies Let All Candidates Know Others Are Interested Negotiate An Equitable Sales Price And Related IssuesChapter 11Reasons for SellingValuation and CandidatesRunning and Selling a BusinessIntra-family saleESOP’s andMBO’sFinancial IssuesCopyright 2015 Jack M. Kaplan & Anthony C. WarrenThe Actual Process of Selling(Average Time from Beginning to Closing is Up to One Year)Select One Candidate Develop A Letter of Intent A) All Equity Issues Described “How Much” B) A Period of Due Diligence - up to 60 DaysNegotiate a Definitive Agreement of SaleClosingChapter 11Reasons for SellingValuation and CandidatesRunning and Selling a BusinessIntra-family saleESOP’s andMBO’sFinancial Issues