Transition Planning - (Sellers/Second Edition)
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GUIDE<br />
2ND EDITION
LIFE VALUES<br />
“Wisdom cannot be imparted. Wisdom that a wise man<br />
attempts to impart always sounds like foolishness to someone else...<br />
Knowledge can be communicated, but not wisdom. One can find it,<br />
live it, do wonders through it, but one cannot communicate and teach it”<br />
- Hermann Hesse, Siddhartha<br />
DIVESTITURE » SUCCESSION » EXIT PLANNING » SELL<br />
1.888.859.5388 | www.pavilionservices.com
WHAT’S INSIDE<br />
The Journey of Life for a Business Owner<br />
2<br />
Begin with the End in Mind<br />
4<br />
What is an Exit Plan?<br />
6<br />
How to Build Recurring Revenue: A Key to a Valuable Business<br />
8<br />
Working Together as a Team<br />
10<br />
Valuation - Risks & Rewards<br />
14<br />
The Pavilion Sale Process<br />
16<br />
The Silent Auction Process<br />
18<br />
Risk & Rewards<br />
20<br />
How Does Pavilion Obtain Extra Value for Each Client?<br />
22<br />
It Takes a Team<br />
23<br />
Pavilion Factsheet<br />
24<br />
Our Values<br />
25<br />
IT TAKES A TEAM<br />
The process of preparing and selling a business is complex and requires a dedicated team<br />
of professionals. Deal success is dependent on having the right team working together to<br />
facilitate the sale process. The team players are different on each transaction:<br />
• Accountant<br />
• Valuation specialist<br />
• Merger & Acquisition lawyer<br />
• Merger & Acquisition specialist<br />
• Marketing team<br />
•Wealth management<br />
Designed and created by Firstbase Business Services (www.firstbase.ca)<br />
Copyright Firstbase 2016<br />
TRANSITION PLANNING GUIDE 1
THE JOURNEY OF LIFE<br />
Have a<br />
family<br />
Start a<br />
business<br />
Invest<br />
in the<br />
business<br />
Grow the<br />
business &<br />
wealth<br />
Design<br />
transition &<br />
estate plans<br />
GENERATION 1<br />
MAKE SUCCESSION A SUCCESS<br />
If you have invested a serious portion of your energy, time and life into<br />
building and nurturing your business, the choices you make relating<br />
to who to work with on the last phase of your succession journey can<br />
make a significant difference.<br />
This guide details the specific key issues and challenges that can<br />
increase your final sale price and terms by several million dollars.<br />
As you begin the journey towards retirement, it is essential to plan a<br />
head for the best options for all owners and shareholders.<br />
“<br />
Selling a business is a marathon not<br />
a sprint. A journey that takes careful<br />
preparation and planning.<br />
“<br />
“Nowadays people know the price of everything and the value of nothing.”<br />
- Oscar Wilde<br />
2<br />
TRANSITION PLANNING GUIDE
FOR A BUSINESS OWNER<br />
Assign team<br />
to transition<br />
business<br />
<strong>Transition</strong><br />
business<br />
Decrease<br />
business<br />
involvement<br />
Retirement<br />
& freedom<br />
NEW SHAREHOLDERS<br />
Establish<br />
a living and lasting legacy<br />
BEGIN WITH THE END IN MIND<br />
<strong>Planning</strong> is essential to enable a successful outcome. As a business<br />
owner, it’s important to ensure that all the elements are in place to<br />
achieve the best result.<br />
Many businesses fail to sell for a variety of reasons:<br />
• Financial performance<br />
• High levels of risk and volatility<br />
• Marketplace conditions<br />
• Inadequate management team<br />
This document outlines some of the key aspects needed to consider<br />
and prepare for the best outcome.<br />
“<br />
“<br />
Coming together is a beginning.<br />
Keeping together is progress. Working<br />
together is success.<br />
- Henry Ford<br />
However good our futures research may<br />
be, we shall never be able to escape<br />
from the ultimate dilemma that all our<br />
knowledge is about the past, and all our<br />
decisions are about the future.<br />
- Ian Wilson<br />
“<br />
“<br />
“Place a priority on discovering what a win looks like for the other person.”<br />
- Harvey Robbins<br />
TRANSITION PLANNING GUIDE 3
BEGIN WITH THE END IN MIND<br />
<strong>Planning</strong> includes not only when and to whom you intend<br />
to sell or transition your business, but also ways to maintain<br />
your company’s value through tax planning and being<br />
prepared for unforeseen events. Through this process, you’ll<br />
gain peace of mind that both you and your company are<br />
ready for transition.<br />
There are several factors to consider when planning to exit or<br />
retire from your business:<br />
• Business partners or key executives<br />
• Your business plan<br />
• Your family situation<br />
• The structure of your company<br />
• Your retirement plans<br />
• Tax laws<br />
• Your health<br />
• Business debt<br />
• Market conditions<br />
Most business owners will only ever sell one business and as<br />
a result of that will not have the experience of the numerous<br />
challenges and pitfalls involving finance, legal and taxation<br />
issues that impact the business sale process and outcome.<br />
Understanding the value of the business in the open market<br />
and ensuring the right mix of elements will lead to the key<br />
objective of maximizing the value on the sale.<br />
THERE IS ONLY ONE SALE THAT MATTERS<br />
Despite plans to exit their firms within the next decade, few<br />
business owners have developed a formal succession plan;<br />
that could greatly diminish their returns on a business sale. It<br />
is vital to plan ahead with the exit planning process several<br />
years in advance to ensure all the key elements are in place.<br />
In this document there are several sections and chapters to<br />
be a guide and resource for business owners to facilitate and<br />
manage the outcome.<br />
WHY DOES IT TAKE A TEAM?<br />
Selling a business is one of the most complex transactions<br />
imaginable and requires a diverse team to enable a<br />
satisfactory result. Deal success requires having the right<br />
team on board including:<br />
• Accountant<br />
• Valuation specialist<br />
• Mergers & Acquisition lawyer<br />
• Mergers & Acquisitions specialist<br />
• Marketing team<br />
• Wealth Management<br />
Each of these specialists will play a pivotal role to steer your<br />
transaction from concept to completion. It is vital that the<br />
selection process of the team be assessed for their prior<br />
experience in transactions involving Mergers & Acquisitions.<br />
An important element to remember is that the buyer<br />
will have a similar team representing them during the<br />
negotiation process; therefore selecting the best quality of<br />
team members will be a determining factor in achieving the<br />
best value and terms.<br />
“Insanity is doing the same thing over and over again and expecting a different result.”<br />
- Albert Einstein<br />
4<br />
TRANSITION PLANNING GUIDE
5
WHAT IS AN EXIT PLAN?<br />
An exit plan asks and answers all the business, personal, financial, legal, and tax questions<br />
involved in selling a privately owned business. It includes contingencies for illness,<br />
burnout, divorce, and even the owner’s death. Its purpose is to maximize the value of<br />
the business at the time of exit, minimize the amount of taxes paid, and ensure that the<br />
business owner is able to accomplish all of his or her personal and financial goals in the<br />
process.<br />
An exit plan can be complex and usually requires advice from a number of different<br />
specialties. A well-designed and implemented exit plan enables business owners to:<br />
• Control how and when they exit<br />
• Maximize company value in good times and bad<br />
• Minimize, defer, or eliminate capital gains taxes<br />
• Retain control by generating a number of strategic exit options<br />
• Ensure they achieve all of their business and personal goals<br />
• Reduce their stress and that of their employees and families<br />
• Ensure continuity of the business<br />
On the other hand, the failure to create a well-defined exit plan virtually guarantees that<br />
business owners will:<br />
• Exit their companies as a result of pressure from outside circumstances, not as a<br />
result of their own desires<br />
• Exit their companies on a timetable that’s forced on them instead of one that meets<br />
their needs<br />
• Undervalue their companies and leave hard-earned wealth on the table<br />
• Pay too much in taxes<br />
• Lose control over the process by being reactive and limiting their exit options<br />
• Fail to realize all of their business and personal goals<br />
• Suffer unnecessary psychological stress<br />
• Watch a lifetime of work disintegrate as a result of poor business continuity planning<br />
• Lose confidentiality during the sale or exit process<br />
A recent survey showed the number one reason private business sales fail or only partially<br />
succeed is a lack of planning on the seller’s part.<br />
6<br />
TRANSITION PLANNING GUIDE
TRANSITION PLANNING GUIDE 7
HOW TO BUILD RECURRING REVENUE:<br />
A KEY TO A VALUABLE BUSINESS<br />
Recurring revenue is the Holy Grail for business owners looking to have<br />
a valuable and desirable company.<br />
A customer base with a subset of recurring revenue that is contractual<br />
and repeating in nature increases the probability that the business will<br />
have stable, predictable revenues and cash flow into the future.<br />
From a buyer’s perspective, this reduces future risk and therefore<br />
enhances perceived value. The value associated with acquiring the<br />
available cash flow is directly related to risk.<br />
Although all recurring revenue will have a positive impact on business<br />
value, some forms are more desirable than others. Here is a list of the<br />
types of recurring revenue in an order from good to best:<br />
CONSUMABLES<br />
If you sell a consumable product, whether it is diapers, commercial<br />
cleaning supplies, or office supplies, start tracking your repurchase rate<br />
from existing customers. This will be a number that buyers will use to<br />
calculate your projected sales into the future — and to calculate how<br />
much they’re willing to pay to buy your company today.<br />
“<br />
Recurring revenue is the Holy Grail<br />
for business owners looking to have a<br />
valuable and desirable company.<br />
- Rose Stabler<br />
“<br />
8<br />
TRANSITION PLANNING GUIDE
SUBSCRIPTIONS<br />
Even better than having loyal customers who repurchase is having revenue that is guaranteed into the future.<br />
For example, loyal subscribers to magazines, newspapers, and other publications get a renewal letter each year<br />
and pay upfront for the next 12 issues. They make the conscious decision to renew into the future for a certain<br />
period of time.<br />
Automatically renewed subscriptions are even more attractive than periodic renewals because they require<br />
a conscious decision to cancel rather than renew. For example, Mozy.com automatically backs ups office<br />
computers online on a daily basis and charges a fee each month. This subscription service has no end date<br />
unless the client tells them to stop providing the service. By tracking historic cancellation rates, revenues can be<br />
predicted well into the future, which is why these types of revenue streams enjoy higher valuations.<br />
CONTRACTS<br />
The only thing more valuable than an automatic renewal subscription is a hard contract for a defined term.<br />
Wireless cell phone companies come to mind as one of those industries that push hard to get you on a multiyear<br />
contract. When a company is acquired, the owner and some employees may leave after the acquisition,<br />
however customers with plenty of time remaining on their contracts are security for the acquirer. As you ascend<br />
the recurring-revenue hierarchy, the value of the business will go up accordingly.<br />
RECURRING REVENUE MODELS FOR YOUR BUSINESS<br />
Do you think that recurring revenue is tough to achieve in your business? Here are some examples of recurring<br />
revenue models:<br />
• Maintenance contracts<br />
• Annual license agreements<br />
• Warranties<br />
• Subscriptions<br />
• Landscape maintenance companies<br />
• Pool service companies<br />
• Janitorial companies<br />
• HVAC companies that perform routine maintenance of<br />
equipment<br />
• Accounting firms that provide annual tax return preparation and<br />
audits<br />
• Security firms that monitor home and commercial businesses on<br />
a monthly basis<br />
• Software companies that provide annual user support and<br />
software upgrades for a maintenance fee<br />
BENEFITS OF RECURRING REVENUE<br />
The recurring revenue customer base you build for your company will:<br />
• Increase the probability that you will have stable revenues and cash flow<br />
• Decrease future risk in the mind of a potential buyer<br />
• Provide you with an opportunity to sell additional products or services to your existing customer base<br />
• Keep you more attuned to your customer needs while helping you ward off competition<br />
• Provide a corporate buyer with the opportunity to cross-sell its products to your customers<br />
• Provide a justification for a higher sales price of your business<br />
“Ensuring your company has a predictable and stable revenue base will mitigate<br />
risk in your business and leads to a much higher valuation.”<br />
TRANSITION PLANNING GUIDE 9
WORKING TOGETHER AS A TEAM<br />
ACCOUNTANTS<br />
In order to maximize the benefits of the sale value, forward planning is<br />
essential. It’s important that sellers seek advice from their accountant,<br />
regarding tax planning or structuring the business for sale.<br />
When you are planning to exit and sell your business, it usually takes<br />
between two to three years of advance planning. Advance planning<br />
is essential to ensure the most effective business corporate structure<br />
meets with CRA accepted standards that will enable full access to the<br />
Capital Gains Exemption (CGE).<br />
Currently the CGE is set at $800,000 tax free benefit for each<br />
shareholder based on a share sale transaction. However, in order to<br />
gain access to these tax free funds, the sellers business must meet a<br />
wide range of criteria in order to achieve a successful outcome. Her e<br />
are some of the examples of the challenges involved:<br />
1. The business structure must be “on side” from a CRA perspective in<br />
order to qualify.<br />
2. Each shareholder must have held the shares in the business for<br />
two (2) years prior to selling the business to a third party.<br />
3. The business model must pass the buyer scrutiny of “due<br />
diligence” and only when the buyer is satisfied that the risks<br />
involved in the purchase of the business will they consider a share<br />
sale. If the risk is unacceptable to the buyer, then they will proceed<br />
with an Asset sale that doesn’t have the same tax free benefits.<br />
4. If the business has a track record of any substantive legal action,<br />
then this illustrates risk to the new buyer and will probably result in<br />
an Asset sale.<br />
There are a wide range of issues involved when selling your business<br />
that are impacted by the sellers accounting records, for example:<br />
Every business has to pay taxes, but a solid tax strategy will help your<br />
client pay what’s fair. There are two possible scenarios, Share Sale or<br />
Asset Sale.<br />
While a Share sale is the obvious preference, often business<br />
circumstances dictate that buyers will only consider an Asset sale.<br />
“<br />
“<br />
Where there is no guidance, a<br />
people falls, but in an abundance of<br />
counselors there is safety.<br />
- Proverbs 11:14<br />
Opportunity is missed by most people<br />
because it is dressed in overalls<br />
and looks like work.<br />
- Thomas Edison<br />
“<br />
“<br />
“The difference between failure and success is doing a thing<br />
nearly right and doing it exactly right.”<br />
- Edward Simmons<br />
10<br />
TRANSITION PLANNING GUIDE
DOES YOUR BUSINESS MEET THE LOW RISK CRITERIA<br />
THAT BUYERS SEEK?<br />
• A consistent trend of increasing sales and profits over many years<br />
• Dominant market share in its trade area<br />
• A diversified customer base<br />
• Excellent receivables management<br />
• Good banking credit and payables history<br />
• Low employee turnover<br />
• More than adequate working capital<br />
• Financial ratios compare favourably with other industry averages<br />
There is a wide range of issues involved when selling your business that<br />
are impacted by your accounting records, for example:<br />
Every business has to pay taxes and developing a solid tax strategy<br />
will help your client pay what’s fair. It’s important to plan ahead for a<br />
tax efficient strategy with your client. There are two possible scenarios,<br />
Share Sale or Asset Sale. In many circumstances, providing your<br />
client with a Review Engagement process carries more strength and<br />
substance than Notice to Reader.<br />
While a Share sale is the obvious preference, often as a result of the due<br />
diligence phase, the clients business circumstances dictate that buyers<br />
will only consider an Asset sale because of high perceived risks.<br />
“<br />
Without advice plans go wrong, but with<br />
many advisors they succeed.<br />
- Proverbs 15:22<br />
“<br />
SERVING OUR CLIENT’S BEST INTEREST<br />
Pavilion has acted for many respected businesses to structure<br />
and execute significant corporate financial merger & acquisition<br />
transactions in the small / mid-cap marketplace.<br />
The advantages of working with Pavilion include:<br />
• Access to objective advice, professional insight and judgment<br />
• Strategic partner that keeps the clients best interests in mind<br />
throughout the transaction<br />
• Essential market intelligence both locally, nationally and globally<br />
• Maximize the transaction value<br />
• Access to pre-qualified investors and strategic buyers<br />
It’s a fact, Pavilion has the skills, talent and know-how to negotiate and<br />
achieve a significantly higher selling price than any other organization.<br />
Working together to serve the<br />
common purpose of the clients goals.<br />
“The great accomplishments of man have resulted from the<br />
transmission of ideas and enthusiam.”<br />
- Thomas J. Watson<br />
TRANSITION PLANNING GUIDE 11
LAWYERS<br />
Legal issues are always at the forefront of M&A deals. The lawyer is a<br />
very important advisor to both Seller or Buyer. The lawyer should be<br />
someone who is well versed in M&A; only use an attorney who has<br />
actually engaged in M&A transactions.<br />
Buying and selling a business is one of the most complex transactions<br />
that exist in the marketplace today. It’s a complicated process with<br />
multiple concurrent moving pieces in the transaction that effect:<br />
• Taxation matters relating to the CRA<br />
• Human Resources and Employment Contracts<br />
• Real Estate – Sale or Lease<br />
• Trusts<br />
• Deal / Transaction Structure: Share Sale or Asset Sale<br />
• Terms of Payment: Vendor Financing, Earn Outs and other<br />
conditions<br />
• Purchase / Sale Agreement<br />
“<br />
“<br />
“<br />
There is gold and abundance of costly<br />
stones, but the lips of knowledge<br />
are a precious jewel.<br />
- Proverbs 20:15<br />
Earnings can be pliable as putty when<br />
a charlatan heads the company<br />
reporting them.<br />
- Warren Buffet<br />
Rule No.1: Never lose money. Rule No.2:<br />
Never forget rule No.1<br />
- Warren Buffet<br />
“<br />
“<br />
“<br />
“Proficient is defined with one word: skilled. In order to become skilled you must<br />
have more than knowledge, you need to apply that information.”<br />
- Jac Fitz-Enz<br />
12<br />
TRANSITION PLANNING GUIDE
WEALTH PRESERVATION<br />
While every business has to pay taxes, a solid tax strategy should help<br />
to pay what’s fair. There are many aspects to consider to prepare a<br />
clients business for transition planning, including:<br />
• Wills<br />
• Trusts & Corporate Structure<br />
• Estate <strong>Planning</strong><br />
• Tax Strategies<br />
In many instances, either accountants or lawyers are key proponents of<br />
best practice in this regard and help structure the clients’ tax strategy<br />
–and enabling more revenue toward their bottom line.<br />
“<br />
And if anyone forces you to go one mile,<br />
go with him two miles.<br />
- Matthew 5:41<br />
“<br />
MERGERS & ACQUISITION - IT TAKES A TEAM<br />
The lawyers for both sides (buyer and seller) work together and craft<br />
the details of the purchase agreement.<br />
These agreements are very complex and often utilize complex terms<br />
and phrase and it’s a key responsibility to craft a document that think<br />
makes sense, protects the clients interest and not cause the transaction<br />
to collapse.<br />
The lawyer selected must specialize in Mergers & Acquisitions<br />
transactions and will help resolve the following issues:<br />
• Assisting with a transaction strategy;<br />
• Conducting due diligence on legal matters;<br />
• Drawing from previous mid-market M&A transactions, in order to<br />
provide the owner with some comfort and reassurances as to:<br />
o The process that the owner will undergo; and<br />
o What types of problems and concessions are customary in<br />
similar circumstances?<br />
CORE COMPETENCY<br />
The primary role of the lawyer is focused on negotiating the legal terms<br />
of the purchase agreement. Lawyers are worth their weight in gold<br />
providing they are proactive and assist in protecting their clients best<br />
interest and enable a successful outcome.<br />
Lawyers – during the sale process of every transaction, an experienced<br />
M&A lawyer will play a key role in determining and facilitating the key<br />
components of the final Purchase Agreement.<br />
In most cases, it is the buyers’ lawyer who drafts the Purchase<br />
Agreement and it will be weighted in their favour. Selecting a lawyer<br />
who is specializes in Merger and Acquisition services and is aware of<br />
the unique language and aspects of these complicated transactions is<br />
essential.<br />
The lawyer is there to protect the clients best interests and often will<br />
save their client unnecessary taxes and post closing costs.<br />
“<br />
A negotiator should observe everything.<br />
You must be part Sherlock Holmes and<br />
part Sigmund Freud.<br />
- Victor Kiam<br />
“<br />
If you are considering selling your<br />
business with the plan of being out<br />
in 3 to 5 years, the best time to strart<br />
the process is today<br />
“<br />
“<br />
TRANSITION PLANNING GUIDE 13
VALUATION - RISK & REWARDS<br />
IT’S ALL ABOUT VALUE<br />
Pavilion has a team of highly qualified professionals who utilize various<br />
methods for conducting valuations.<br />
We recognize that a sound valuation will be based on all the relevant<br />
facts including the elements of common sense, informed judgment<br />
which must enter into the process of weighing those facts and<br />
determining their combined or cumulative significance.<br />
“<br />
The value of a thing is the amount of<br />
laboring or work that its possession<br />
will save the possessor.<br />
- Henry George<br />
“<br />
In addition, Pavilion has further resources that help smaller and midcap<br />
clients optimize their current “fair marketplace” value.<br />
INTERNAL VALUE DRIVERS<br />
Our team works closely with sellers to assess the business internal<br />
“value drivers” that ultimately determine the Enterprise Value in the<br />
marketplace. In addition, we utilize real time access to the following<br />
resources:<br />
4 Precedent database of completed transactions across North<br />
America that provide evidence to support the valuation.<br />
4 Real time access to the financial performance in each SIC or<br />
Industry sector to enable an independent “yard stick” for key<br />
performance indicators (KPI’s).<br />
4 RMA Ratio’s – The Risk Management Association provides a wide<br />
range of metrics that we use to assess the business and provide a<br />
“score card”.<br />
The true indicator of a company’s success is measurable by a wide<br />
range of factors. One of the main components is the financial metrics<br />
of the business including the Profit and Loss statements and Balance<br />
Sheet performance. While this is a key financial metric, there are<br />
numerous other factors that enhance enterprise value.<br />
“<br />
4.<br />
Normalization of financial statements and<br />
assesment as to future maintainable earnings<br />
2.<br />
Risk Profile<br />
(internal/external)<br />
7.<br />
Valuation<br />
Conclusion<br />
6.<br />
Transaction reviews<br />
including the number of<br />
buyers and sellers<br />
market sector<br />
5.<br />
Application of valuation<br />
approaches and methods<br />
3.<br />
Future Opportunities/<br />
Growth Potential<br />
1.<br />
Collection and analysis of all relevant information<br />
necessary to support the valuation conclusion<br />
Everything that can be counted does not<br />
necessarily count; everything that counts<br />
cannot necessarily be counted.<br />
- Albert Einstein<br />
“<br />
14<br />
TRANSITION PLANNING GUIDE
MORE THAN EBITA<br />
EBITA plays a significant contribution to the business valuation<br />
however there are multiple other factors that can make a considerable<br />
difference to the outcome.<br />
Today, up to 80% of a firm’s value can be associated with intangible<br />
assets, such as brand, reputation, culture, customer satisfaction, human<br />
capital, risk management, R&D pipelines and a company’s trading<br />
license to operate.<br />
“<br />
There is gold and abundance of costly<br />
stones, but the lips of knowledge<br />
are a precious jewel.<br />
- Proverbs 20:15<br />
“<br />
EXTERNAL VALUE DRIVERS<br />
When taking your business to market, it is important to consider the<br />
external value drivers:<br />
• Economic factors<br />
• Strategic buyer synergies<br />
• Recurring revenue<br />
• Competition from buyer groups<br />
• Innovation & IP: proprietary technology, trademarks, patents, etc<br />
• <strong>Transition</strong> timeline for existing management<br />
Each of these factors can substantially increase the final selling price for<br />
the benefit of the seller.<br />
IT’S COMPLICATED<br />
Selling a private company is not just about finance, accounting or legal<br />
matters. It is a team effort that is dependent on sales and marketing to<br />
ensure the best value.<br />
A marketing strategy is critical to the sale process primarily because it<br />
will enable multiple bidders for the sellers business which will ensure<br />
they obtain maximum value for your clients’ years of hard work.<br />
AVOIDING THE PITFALLS<br />
Traditional approaches for selling a business involves little sales or<br />
marketing activity. There is an over reliance on “word of mouth” and<br />
networking connections from third party advisors. As a result, the client<br />
often does not achieve optimum price, value, or terms - referred to as a<br />
“short sale”.<br />
“<br />
“<br />
We are in danger of valuing most<br />
highly those things we can measure<br />
most accurately, which means that we<br />
are often precisely wrong rather than<br />
approximately right.<br />
- Sir John Banham<br />
Money, which presents the prose of life,<br />
and which is hardly spoken of in parlors<br />
without an apology, is, in its effects and<br />
laws, as beautiful as roses.<br />
- Ralph Waldo Emerson<br />
“<br />
“<br />
“If you are considering selling your business with the plan of<br />
being out in 3 to 5 years, the best time to start the process is today”<br />
TRANSITION PLANNING GUIDE<br />
15
“<br />
THE PAVILION SALE PROCESS<br />
The successful sale of a business involves many moving parts, making<br />
it the largest and possibly most complicated transaction of your life.<br />
The Pavilion process ensures practical advice that will help you select<br />
the best professionals to sell your company while ensuring that you<br />
get the best price and terms.<br />
It’s often possible to sell your business for 50% more value if you<br />
do everything right. Unlike selling a home in the residential or<br />
commercial real estate market, the process of selling your business is<br />
deemed “inefficient” for a myriad of reasons.<br />
The purchase price for your company will vary greatly depending on<br />
who you are selling to and what type of buyer you are looking for.<br />
For example, Pavilion utilizes a dedicated marketing team who<br />
specializes in researching niche and vertical markets to identify<br />
strategic buyers from around the Globe. Strategic buyers will often<br />
pay a premium for your business.<br />
“<br />
It’s complicated<br />
EFFECTIVELY STRUCTURING YOUR COMPANY<br />
FOR TRANSITION<br />
When you sell your business you may face a significant tax bill, if<br />
you’re not careful, you could find yourself with less than half of<br />
the purchase price in your pocket. Fortunately, there are multiple<br />
opportunities to reduce or even eliminate tax, with the right<br />
preparation and enough time to implement.<br />
The moral of the story? Structure your company well in advance of a<br />
potential sale and reap the benefits; or fail to plan ahead of time and<br />
pay the price – literally to the CRA.<br />
Our team has substantial experience in establishing proactive tax<br />
planning practices to mitigate your taxes, so that shareholders take<br />
full advantage of your enterprise value benefits.<br />
Whereas in the M&A market,<br />
the selling and marketing<br />
process itself can have a<br />
major impact on the price<br />
of your company. Plan and<br />
execute the process correctly<br />
and you could increase the<br />
price of your company by<br />
upwards of 50%.<br />
16<br />
TRANSITION PLANNING GUIDE
HOW DOES PAVILION ATTRACT MORE<br />
BUYERS?<br />
The Pavilion team works closely with our marketing<br />
agency Firstbase Business Services (www.firstbase.ca). This<br />
relationship provides the basis for our strategic advantage.<br />
Firstbase is an international strategic marketing agency<br />
with an exceptionally talented team to provide “best value”<br />
solutions for clients.<br />
Our marketing strategies are unique and comprehensive,<br />
when we implement the marketing program, we invariably<br />
have a significant level of high quality enquiries for each<br />
unique business enterprise we represent. The result is obvious<br />
very quickly – a higher level of qualified buyer enquiries based<br />
on our geo-demographic targeting initiatives.<br />
ABOUT FIRSTBASE<br />
Established in 1985, Firstbase was founded by Greg Spafford<br />
in 1985 in the UK and the business was a founding member<br />
of the Direct Marketing Association. The basis for success is<br />
that geo-demographic targeting enables precisely targeted<br />
messaging to niche and vertical markets. This expertise<br />
enables the selection of the most appropriate audience for<br />
specific messages to target business audiences around the<br />
globe.<br />
Unlike other indiscriminate media including newspapers,<br />
magazines, radio and television; targeted messaging ensures<br />
the message being delivered that the audience is relative.<br />
The result is higher levels of engagement and response<br />
based on accurate targeting.<br />
TARGETED RESULTS<br />
TARGETED RESULTS<br />
1. The Project Brief<br />
230<br />
25<br />
5-10<br />
5-7<br />
3<br />
2<br />
1<br />
1. The 2. Exhaustive Project Brief Research<br />
2. Exhaustive 230 prospective Research purchasers<br />
230 prospective purchasers<br />
3. Prospect Generation<br />
3. Prospect Generation<br />
25 interested parties “Dry-run”<br />
25 interested parties “Dry-run”<br />
negotiation negotiation training training<br />
4. Qualification<br />
4. Qualification<br />
& Bidding<br />
& Bidding<br />
5-10 exploratory meetings<br />
5-10 exploratory meetings<br />
5-7 Competitve<br />
5-7 Competitve<br />
bids<br />
bids<br />
3 Bids 3 worth Bids worth considering considering<br />
2 Alternatives maintain competition<br />
2 Alternatives maintain competition<br />
5. Concluding<br />
5. Concluding<br />
the<br />
the<br />
Deal<br />
Deal<br />
1 purchaser 1 purchaser<br />
“The great accomplishments of man have resulted from the<br />
transmission of ideas and enthusiam.”<br />
- Thomas J. Watson<br />
TRANSITION PLANNING GUIDE 17
THE SILENT AUCTION PROCESS<br />
Due to our proactive marketing programs, we generate more<br />
buyer enquiries than anyone in our industry. The result, increased<br />
competition between buyers enables us to negotiate higher sales value<br />
and improved terms for the client.<br />
INFORMATION AT OUR FINGERTIPS<br />
We have access to a database of buyers from around the world<br />
including:<br />
• Venture Capital firms<br />
• Private Equity Groups<br />
• Strategic Buyers with selection by industry category, sales revenue,<br />
etc.<br />
• Comprehensive database of most companies in USA and Canada<br />
• International buyers including: China, Europe, Middle East, and<br />
Australasia<br />
The Benefits of the Silent Auction:<br />
• Pavilion generates a wide range of buyers for each listing and<br />
operates the silent auction process.<br />
• Bidders are coached through the bidding to negotiate the best<br />
price and terms.<br />
• The result is a higher sales value and improved terms for our client.<br />
Pavilion comprises of a dedicated M&A specialists who have the skill<br />
set, know-how and experience to enhance and improve the final selling<br />
price by as much as 50% over any other firm in the USA or Canada.<br />
WHY DOES COMPETITION FROM BUYERS<br />
INCREASE YOUR SALE PRICE?<br />
The purchase price for your company can vary greatly depending on<br />
who you are selling to and what type of buyer you are looking for. The<br />
team at Pavilion market your business under the radar and in stealth<br />
mode while managing the complexity of a confidential sale process.<br />
“<br />
You only have to do a very few things<br />
right in your life so long as you don’t do<br />
too many things wrong.<br />
- Warren Buffett<br />
“<br />
An expert is a man who knows some<br />
of the worst errors that can be made<br />
in the subject in question and knows<br />
how to avoid them.<br />
- Thomas Stewart<br />
“<br />
“<br />
“If you know what you are talking about you have something<br />
more valuable than gold or jewels.“<br />
- Proverbs 20:15<br />
18<br />
TRANSITION PLANNING GUIDE
MAXIMIZE THE VALUE OF YOUR BUSINESS<br />
Selling your business is a complex process that requires thorough<br />
preparation, skillful presentation of your company, identifying the right<br />
buyers, and sophisticated negotiation skills.<br />
At Pavilion, you’ll work with a senior member of our team. We will<br />
work closely with you to prepare your business for sale, present your<br />
company to a highly targeted group of national and international<br />
buyers and work with you to negotiate a transaction that meets all of<br />
your objectives.<br />
Your Pavilion advisor will guide you through each step of the sales<br />
process, help you solve every challenge, be your advocate throughout<br />
the deal, and leverage our firm’s years of experience to successfully sell<br />
your company for maximum value and on the best terms.<br />
By preparing your business for a voluntary sale, you can build a<br />
sustainable operation that will attract both strategic and investment<br />
buyers who will pay a premium for your business enterprise.<br />
“<br />
There really is only one sale that matters<br />
to your business: your final sale. The one<br />
where you exit. Your brand, your culture,<br />
your reputation, your revenue - they all<br />
culminate in that one big transaction.<br />
So while you’ve got to be thinking<br />
about your revenue numbers every<br />
quarter, you’ve also got to be building a<br />
business that creates value. Ultimately,<br />
you’re going to capture that value<br />
if you do it well.<br />
- Razor Suleman<br />
Director of software company<br />
Achievers, which sold for $110 Million<br />
“<br />
INTERNAL VALUE DRIVERS<br />
4 Stable and predictable cash flow<br />
4 Reliable financial information<br />
4 Customer diversity<br />
4 Human capital / quality of workforce<br />
4 Growth potential<br />
4 Facility and equipment condition<br />
4 Product / service diversity<br />
4 Goodwill<br />
4 Barriers to competitive entry<br />
4 Operating systems and procedures<br />
EXTERNAL VALUE DRIVERS<br />
4 Economic factors<br />
4 Strategic buyers synergies<br />
4 Reccuring revenue<br />
4 Competition from buyer groups<br />
4 Innovation & IP: proprietary technology, trademarks, patents, etc.<br />
4 <strong>Transition</strong> timeline for existing management<br />
“<br />
The only source of knowledge<br />
is experience.<br />
- Albert Einstein<br />
“<br />
“Those who fail to acknowledge and adapt themselves to the digital<br />
revolution will become the “Kodak“ of this industry.“<br />
- Aakash Educational Services<br />
TRANSITION PLANNING GUIDE 19
RISKS & REWARDS<br />
RISKY BUSINESS – AVOIDING THE PITFALLS<br />
Some advisors don’t like to talk about risk. They’d much rather talk about<br />
howmuch money you’ll make when their advice produces positive<br />
returns, overlooking the potential that a collaboration with an M & A<br />
specialist can provide.<br />
WHAT CIRCUMSTANCES LEAD TO A SHORT-<br />
SELL?<br />
Many advisors are seeking to diversify their revenue streams and enter<br />
the Mergers & Acquisitions arena. In many instances, because business<br />
owners have worked closely with advisors for years or decades, they are<br />
of the opinion that the advisor is able to sell the business in the most<br />
effective manner.<br />
The final sale result is underwhelming, the advisors’ firm sells the clients<br />
business to the best of their ability however, the outcome results in a<br />
lesser sum than the business enterprise is worth.<br />
Without collaboration from other advisors with more knowledge of M &<br />
A, millions of dollars can be left on the table resulting in a short-sell.<br />
IT’S ALL ABOUT VALUE<br />
The Pavilion approach to valuation is comprehensive and distinctly<br />
different than any other advisor. Primarily because, we review the<br />
strategic combined value and multiplies it, offering maximum return for<br />
the client.<br />
A sound valuation will be based on all the relevant facts including the<br />
elements of common sense, informed judgment and rationally which<br />
must enter into the process of weighing those facts and determining<br />
their combined or cumulative significance.<br />
“<br />
CAUTION & RISK<br />
Traditional approaches for selling<br />
a company involves little sales or<br />
marketing activity, resulting in a<br />
short sale for the client.<br />
There is an over-reliance on word of<br />
mouth and networking connections<br />
from third-party advisors that<br />
fail to deliver a sale structure and<br />
offers that are in the best interest of<br />
the business owner.<br />
“<br />
20<br />
TRANSITION PLANNING GUIDE
REWARDS<br />
Pavilion has acted for many respected businesses to structure and<br />
execute significant corporate financial transactions in the mid-cap<br />
marketplace. The advantages of working with Pavilion include:<br />
4 Access to objective advice, professional insight and judgment<br />
4 A strategic partner that keeps our best interests in mind<br />
throughout the transaction<br />
4 Essential market intelligence both locally, nationally and globally<br />
4 Maximize the transaction value<br />
4 Access to pre-qualified investors and strategic buyers<br />
It’s a proven fact, Pavilion has the skills, talent and know-how to<br />
achieve a significantly higher selling price than any other organization<br />
in Western Canada.<br />
AVOIDING THE PITFALLS<br />
What is the difference between a company that is sold versus bought?<br />
It’s a fact that most business owners will only sell one significant business in their lifetime. The process of selling<br />
a business is complicated with many concurrent moving parts. Selecting the right partner in the selling process<br />
will make a significant difference in the outcome, as outlined below.<br />
CASE STUDY<br />
In a recent example, a mid cap business owner worked closely with their highly reputable top tier advisors for<br />
over 15 years. When the owner was ready to sell, the advisors conducted a valuation and stated that they could<br />
sell the company for an estimated value of $12 million. After a year on the market with no success, the business<br />
owner approached Pavilion.<br />
Pavilion conducted a new valuation, which determined the business was actually valued at nearly $20 million.<br />
With Pavilion’s innovative marketing initiatives, the business gained interest from prospective buyers and within<br />
8 months, the right buyer was found.<br />
Target enterprise value<br />
Other Advisors<br />
$12 Million<br />
The Pavilion Team<br />
$19 Million<br />
Number of bidder enquiries 29<br />
132<br />
Shortlisted bidders in negotiation 5<br />
19<br />
Highest bidder $ 9.5 Million $16.5 Million<br />
$7Million<br />
Difference in sale value<br />
The bought company had significantly more buyer enquiries and resulted in more<br />
competition and enabled an improved outcome for our client. The Pavilion fee<br />
was paid for many times over and the client got the increased value they deserved<br />
for their years of hard work.<br />
TRANSITION PLANNING GUIDE 21
HOW DOES PAVILION OBTAIN EXTRA<br />
VALUE FOR EACH CLIENT?<br />
Due to our proactive marketing programs, we generate more buyer enquiries than anyone in our industry.<br />
The result, more competition means we are able to negotiate better value and improved terms for our clients.<br />
MOTIVATED BUYERS<br />
IMPROVED NEGOTIATION OUTCOME<br />
THROUGH MOTIVATED BUYERS<br />
FAIR MARKET VALUE RANGE<br />
MOTIVATED SELLERS<br />
BUYER WITH STRONG<br />
NEGOTIATION SKILLS<br />
A MYRIAD OF BUYER CATEGORIES<br />
We have access to database of buyers from around the world<br />
including:<br />
• Venture Capital firms<br />
• Private Equity Groups<br />
• Strategic Buyers with selection by industry category, sales<br />
revenue, etc.<br />
• Comprehensive database of most companies in USA and<br />
Canada<br />
• International buyers including: China, Europe, Middle East,<br />
and Australasia<br />
“Invest in truth and wisdom, discipline and good sense, and don’t part with them.”<br />
- Proverbs 23:23<br />
22<br />
TRANSITION PLANNING GUIDE
“<br />
IT TAKES A TEAM<br />
The process of preparing and selling a business for sale is complex and<br />
requires a dedicated team of professionals. Deal success is dependent<br />
on having the right team working together to facilitate the sale<br />
process.<br />
KEY TEAM MEMBERS<br />
The team players are different on each transaction:<br />
“<br />
Without advice plans go wrong, but with<br />
many advisors they succeed.<br />
- Proverbs 15:22<br />
“<br />
• Accountant<br />
• Valuation specialist<br />
• Merger & Acquisition specialist<br />
• Marketing team<br />
• M&A lawyer<br />
TEAM WORK<br />
Each of these team players will play a pivotal role and need to work<br />
collaboratively with each other at different stages in the sale process.<br />
The Pavilion team works with clients to facilitate the sale process in the<br />
following manner:<br />
• Maximize their client’s value<br />
• Minimize their risk<br />
• Support an effective and efficient transition<br />
At Pavilion, we believe in teamwork and don’t displace the client’s<br />
existing professionals.<br />
SERVING CLIENTS BEST INTEREST<br />
Pavilion has acted for many respected businesses to structure<br />
and execute significant corporate financial merger & acquisition<br />
transactions in the small / mid-cap marketplace.<br />
The advantages of working with Pavilion include:<br />
Working together to serve the<br />
common purpose of the clients goals.<br />
• Access to objective advice, professional insight and judgment<br />
• Strategic partner that keeps the clients best interests in mind<br />
throughout the transaction<br />
• Essential market intelligence both locally, nationally and globally<br />
• Maximize the transaction value<br />
• Access to pre-qualified investors and strategic buyers<br />
It’s a fact, Pavilion has the skills, talent and know-how to negotiate and<br />
achieve a significantly higher selling price than any other organization.<br />
If you are interested in collaborating together, we would be pleased to<br />
hear from you.<br />
“<br />
Unity is strength. . . when there<br />
is teamwork and collaboration,<br />
wonderful things can be achieved.<br />
- Mattie Stepanek<br />
TRANSITION PLANNING GUIDE 23
PAVILION FACTSHEET<br />
OVERVIEW<br />
Pavilion Business Services is an independent Mergers & Acquisitions (M&A)<br />
advisory firm operating and serving Canada’s small to mid-cap market.<br />
Pavilion provides specialized advice to management teams of publicly and<br />
privately-owned businesses. Pavilion’s team of experts is comprised of M&A<br />
Specialists, Business Consultants, Succession Planners, Valuation Experts and<br />
Marketing Specialists. Our team provides advisory services in the areas of:<br />
• Succession / exit planning<br />
• Mergers & Acquisitions<br />
• Raising capital<br />
• Business valuations<br />
• Corporate restructuring<br />
• Business growth strategies<br />
Pavilion specializes in working with companies and organizations with<br />
typically $2 million – $500 million in annual revenue.<br />
CORPORATE INFORMATION<br />
• Serving clients across Canada<br />
• Attracting strategic and investment buyers across the<br />
globe<br />
• Financial analysis specialists<br />
• Access to domestic, national and international markets<br />
• Skilled and experienced negotiators<br />
INTERNATIONAL BUYERS<br />
Pavilion’s extensive networking partners allow us to provide<br />
business advice on an international scale with direct access<br />
to buyers and investors in over 120 countries. We work with<br />
professional equity, strategic buyers and investment firms<br />
from USA, Europe, Middle East, China and Australia.<br />
North America is increasingly being regarded as the<br />
preferred location for business investments. Established<br />
businesses with a solid cash flow are in huge demand from<br />
buyers around the world.<br />
ADVANTAGES OF WORKING WITH A<br />
MERGERS & ACQUISITIONS ADVISOR<br />
Pavilion has acted for many respected businesses to<br />
structure, negotiate and execute significant corporate<br />
financial transactions and has successfully completed<br />
numerous transactions in the mid-cap market space.<br />
The advantages of working with Pavilion include:<br />
• Access to objective advice, professional insight and<br />
judgment<br />
• A strategic partner that keeps your best interests in mind<br />
throughout the transaction<br />
• Essential market intelligence both locally, nationally and<br />
globally<br />
• The ability to maximize transaction value based on our<br />
experience and track record<br />
• Access to pre-qualified investors/buyers<br />
PHILOSOPHY<br />
The Pavilion management team instinctively know that great companies are built on the principle of doing the right thing each<br />
and every day, and treating business partners, customers, and employees honestly, fairly and with respect.<br />
KNOWLEDGE » INTEGRITY » RESULTS<br />
24<br />
TRANSITION PLANNING GUIDE
OUR VALUES<br />
dedication<br />
innovation quality<br />
entrepreneurship<br />
excellence<br />
sustainability<br />
teamwork accessibity<br />
integrity<br />
collaboration<br />
honesty<br />
openness<br />
persistence simplicity<br />
transparency aware<br />
empathy<br />
OUR MISSION<br />
In partnership, we build trusting relationships with individuals, business owners<br />
and organizations to provide strategic exit planning and transition services.<br />
“Do not use harmful words, but only helpful words, the kind that<br />
build up and provide what is needed, so that what you<br />
say will do good to those who hear you.”<br />
- Ephesians 4:29<br />
TRANSITION PLANNING GUIDE 25
With vision and imagination,<br />
we sell your business for maximum value.<br />
(Image of Pavilion Business Services’ reception area)<br />
26<br />
TRANSITION PLANNING GUIDE
TRANSITION PLANNING GUIDE
DIVESTITURE » SUCCESSION » EXIT PLANNING » SELL<br />
1.888.859.5388 | www.pavilionservices.com