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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

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