Transition Planning 2nd Edition

pavilion

GUIDE

2ND EDITION


TRANSITION PLANNING GUIDE


LIFE VALUES

“Wisdom cannot be imparted. Wisdom that a wise man

attempts to impart always sounds like foolishness to someone else...

Knowledge can be communicated, but not wisdom. One can find it,

live it, do wonders through it, but one cannot communicate and teach it”

- Hermann Hesse, Siddhartha

DIVESTITURE » SUCCESSION » EXIT PLANNING » SELL

1.888.859.5388 | www.pavilionservices.com


WHAT’S INSIDE?

The Journey of Life for a Business Owner

2

Begin with the End in Mind

4

What is an Exit Plan?

5

8 Keys To Preparing Your Business For Sale

6

How to Build Recurring Revenue?

8

Risks

10

Working Together as a Team

11

Accountants

12

Lawyers

13

Mergers & Acquisitions Specialist

14

The Valuation

16

The Pavilion Sales Process

18

What is the Silent Auction Process?

22

Pavilion Fact Sheet

24

IT TAKES A TEAM

The process of preparing and selling a business is complex and requires a dedicated team

of professionals. Deal success is dependent on having the right team working together to

facilitate the sale process. The team players are different on each transaction:

• Merger & Acquisition specialist

• Valuation specialist

• Merger & Acquisition lawyer

• Wealth Manager

• Marketing team

• Accountant

INTEGRITY • AGILITY •RESULTS 1


THE JOURNEY OF LIFE

Have a

family

Start a

business

Invest

in the

business

Grow the

business &

wealth

Design

transition &

estate plans

GENERATION 1

MAKE SUCCESSION A SUCCESS

If you have invested a serious portion of your energy, time and life into

building and nurturing your business, the choices you make relating

to who to work with on the last phase of your succession journey can

make a significant difference.

This guide details the key issues and challenges that can increase your

final sale price and terms by several million dollars.

As you begin the journey towards retirement, it is essential to plan

ahead for the best options for all owners and shareholders.

Selling a business is a marathon not

a sprint. A journey that takes careful

preparation and planning.

If you are considering selling your business with the plan of being out in 3 to 5

years, the best time to start the process is today.

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INTEGRITY • AGILITY •RESULTS


FOR A BUSINESS OWNER

Assign team

to transition

business

Transition

business

Decrease

business

involvement

Retirement

& freedom

NEW SHAREHOLDERS

Establish

a living and lasting legacy

BEGIN WITH THE END IN MIND

Planning is essential to enable a successful outcome. As a business

owner, it’s important to ensure that all the elements are in place to

achieve the best result.

Many businesses fail to sell for a variety of reasons:

• Financial performance

• High levels of risk and volatility

• Marketplace conditions

• Inadequate management team

This document outlines some of the key aspects needed to consider

and prepare for the best outcome.



Coming together is a beginning.

Keeping together is progress. Working

together is success.

- Henry Ford

However good our future research may

be, we shall never be able to escape

from the ultimate dilemma that all our

knowledge is about the past, and all our

decisions are about the future.

- Ian Wilson



“Place a priority on discovering what a win looks like for the other person.”

- Harvey Robbins

INTEGRITY • AGILITY •RESULTS 3


BEGIN WITH THE END IN MIND

Planning includes not only when and to whom you intend to sell or

transition your business, but also ways to maintain your company’s

value through tax planning and being prepared for unforeseen events.

Through this process, you’ll gain peace of mind that both you and your

company are ready for transition.

There are several factors to consider when planning to exit or retire

from your business:

• Business partners or key executives

• Your business plan

• Your family situation

• The structure of your company

• Your retirement plans

• Tax laws

• Your health

• Business debt

• Market conditions

Most business owners will only ever sell one business and as a result

will not have the experience of the numerous challenges and pitfalls

involving finance, legal, taxation and negotiation issues that impact the

business sale process and outcome.

Understanding the value of the business in the open market and

ensuring the right mix of elements will lead to the key objective of

maximizing the value of the sale.


There really is only one sale that matters

to your business: your final sale. The one

where you exit. Your brand, your culture,

your reputation, your revenue - they all

culminate in that one big transaction.

So while you’ve got to be thinking

about your revenue numbers every

quarter, you’ve also got to be building a

business that creates value. Ultimately,

you’re going to capture that value

if you do it well.

- Razor Suleman

Director of software company

Achievers, which sold for $110 Million


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INTEGRITY • AGILITY •RESULTS


WHAT IS AN EXIT PLAN?

THERE IS ONLY ONE SALE THAT MATTERS

Despite plans to exit their firms within the next few years, many business owners have

not developed a formal succession plan; that could greatly diminish their returns on

a business sale. It is vital to start the exit planning process several years in advance to

ensure all the key elements are in place.

An exit plan asks and answers all the business, personal, financial, legal, and tax

questions involved in selling a privately owned business. It includes contingencies for

illness, burnout, divorce, and even the owner’s death. Its purpose is to maximize the

value of the business at the time of exit, minimize the amount of taxes paid, and ensure

that the business owner is able to accomplish all of his or her personal and financial

goals in the process.

A recent survey

showed the number

one reason private

business sales fail or

only partially succeed

is a lack of planning

on the seller’s part.

A well-designed and implemented exit plan enables business owners to:

• Control how and when they exit

• Maximize company value in good times and bad

• Minimize, defer, or eliminate capital gains taxes

• Retain control by generating a number of strategic exit options

• Ensure they achieve all of their business and personal goals

• Reduce their stress and that of their employees and families

• Ensure continuity of the business

On the other hand, the failure to create a well-defined exit plan virtually guarantees

that business owners will:

• Exit their companies as a result of pressure from outside circumstances, not as

a result of their own desires

• Exit their companies on a timetable that’s forced on them instead of one that

meets their needs

• Undervalue their companies and leave hard-earned wealth on the table

• Pay too much in taxes

• Lose control over the process by being reactive and limiting their exit options

• Fail to realize all of their business and personal goals

• Suffer unnecessary psychological stress

• Watch a lifetime of work disintegrate as a result of poor business continuity

planning

• Lose confidentiality during the sale or exit process

An exit plan can be

complex and usually

requires advice from

a number of different

specialists.

“A goal without a plan is just a wish”

- Antoin de Saint-Exupery

INTEGRITY • AGILITY •RESULTS 5


8 KEYS TO PREPARING YOUR

BUSINESS FOR SALE

As a result of the growing number of baby boomers, many business

owners are considering how to prepare their business for sale. For

some, this simply means sprucing up their operations with cosmetic

improvements. For others, the following steps are necessary to ensure

the goal of selling one’s business can be fulfilled.

1) Know your reason for selling – This is one of the first questions

a buyer will ask, so you need to be able to articulate your

motivation. Your answer needs to be honest, and ideally,

shouldn’t express any urgency. Buyers would expect to hear

things like retirement, moving out of town or pursuing other

non-related business interests. Red flags are raised if the answer

seems ambiguous and unsure. This is why it’s better to sell when

times are good rather than waiting until they aren’t.

2) Get your books in order – Prospective buyers will want to see

at least three years of financial statements, including balance

sheets and income statements. You will need to be able to

document your business’s true profitability by identifying nonoperational

expenses (e.g. personal auto lease and medical fees).

Sellers need to quantify and substantiate these items because,

at the end of the day, buyers purchasing a business are really

buying into its profitability.

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INTEGRITY • AGILITY •RESULTS


3) Make sure all legal commitments are in order – This means reviewing your permits, leases, client and

vendor contracts, etc. and understanding their impact on the business. For example, if the business

location is critical to its performance, a long-term lease with options at or below fair market value would

be appealing to a buyer. If client contracts, particularly large key clients, are coming due for renewal,

buyers would find this less appealing as the risk of a non-renewal is much greater immediately following a

transfer of ownership.

4) Don’t be a business owner who does it all – Some businesses can’t survive without the owners trying to

do everything themselves. They have a shortage of key employees to help manage operations. Buyers may

be concerned if they themselves can’t replace the skills and experience of the owner. If you are absolutely

vital to the business, efforts should be made to gradually delegate key responsibilities to various staff

members. A business that is excessively dependent on the current owner increases the risk in the eyes of a

prospective buyer.

5) Put yourself in the buyer’s shoes – When a buyer comes out to see your business for the first time, it’s

important to make a good first impression. Spotless office spaces, clean machinery, orderly desks, pleasant

and smiling staff and vibrant activity are ways to leave a positive impression. Buyers look for companies

that show well because this can often be indicative of an orderly run business.

6) Integrity is important – The common thread running through all of these steps is credibility. If you want

buyers to move forward, you must show respect by being open, honest and accurate about all things,

both good and bad. This starts with the information that is shared to summarize your business, but is

imperative with all documentation and dialogue exchanged, and will be critical in due diligence through

closing to ensure the transfer stays on track.

7) Assemble a team of professionals – The process of selling your business requires the expertise of

specialists who have years of experience in their respective fields. The team you need will include:

• Mergers & Acquisitions / Business Broker

• Tax Specialist

• Accountant

• Merger & Acquisitions Lawyer

While each of these specialists charge a fee or commission, they will provide knowledge, expertise, save

you stress, time and add value to the ultimate amount of money completed on the sale. As a result, this

allows the business owner to stay focused on the business during the sale process, which typically can last

from 6 to 24 months.

8) Start early – Getting underway several years in advance can make a considerable difference to the end

selling price. Meet with your Mergers & Acquisitions Specialist at the earliest opportunity and engage

them to assemble your team of professionals.

INTEGRITY • AGILITY •RESULTS 7


HOW TO BUILD RECURRING REVENUE?

THE KEY TO A VALUABLE BUSINESS

A customer base with a subset of recurring revenue that is contractual

and repeating in nature increases the probability that the business will

have stable, predictable revenues and cash flow into the future.

From a buyer’s perspective, this reduces future risk and therefore

enhances perceived value. The value associated with acquiring the

available cash flow is directly related to risk.

Do you think that recurring revenue is tough to achieve in your

business? Here are some examples of recurring revenue models:

• Maintenance contracts

• Annual license agreements

• Warranties

• Subscriptions

BENEFITS OF RECURRING REVENUE

The recurring revenue customer base you build for your company will:

• Increase the probability that you will have stable revenues and cash

flow for the future

• Decrease future risk in the mind of a potential buyer

• Security for the buyer that recurring revenue is in place

• Enables the buyer to secure financing for the transaction

• Provide justification for a higher selling price of your business

If you can demonstrate that your sales will continue after you are gone,

an acquirer will pay more for your business today.


Recurring revenue is the Holy Grail

for business owners looking to have a

valuable and desirable company.

- Rose Stabler


8

INTEGRITY • AGILITY •RESULTS


RECURRING REVENUE MODELS FOR YOUR BUSINESS

Although all recurring revenue will have a positive impact on the business value, some forms are more desirable

than others. Here are six types of recurring revenue in an order from good to best:

1. CONSUMABLES

If you sell a consumable product, whether it is commercial cleaning supplies, or office supplies, start tracking

your repurchase rate from existing customers. This will be a number that buyers will use to calculate your

projected sales into the future — and to calculate how much they’re willing to pay to buy your company today.

2. SUBSCRIPTIONS

Even better than having loyal customers who repurchase is having revenue that is guaranteed into the future.

For example, loyal subscribers to magazines, newspapers, and other publications get a renewal letter each year

and pay upfront for the next 12 issues.

Automatically renewed subscriptions are even more attractive than periodic renewals because they require a

conscious decision to cancel rather than renew.

3. CONTRACTS

Automatic renewal subscription is a hard contract for a defined term.

Wireless cell phone companies is an example of those industries that push hard to get you on a multiyear

contract.

4. RESELLERS, AGENTS, DEALERS

Distributors and dealers are participants in a supply / sales channel. Distributors are usually wholesalers who

sell to dealers, while dealers are usually retailers who sell directly to the public.

5. FRANCHISORS

Authorization granted to someone to sell or distribute a company’s goods or services in a certain area. For

example:

• A business or group of businesses established or operated under such authorization.

• A brand name under which a series of products is released

• The right or license granted by a company to an individual or group to market its products or services in a

specific territory.

6. MAINTENANCE SERVICE CONTRACTS

The maintenance performed under contract by commercial organizations (including prime contractors) on

a one-time or continuing basis, without distinction as to the level of maintenance accomplished. Service

contracts may refer to:

• Extended warranty

• Service contracts in service-oriented business

• Maintenance service contract

Ensuring your company has a predictable and stable revenue base will mitigate

risk in your business and leads to a much higher valuation.

INTEGRITY • AGILITY •RESULTS 9


RISKS

DOES YOUR BUSINESS MEET THE LOW RISK

CRITERIA THAT BUYERS SEEK?

• A consistent trend of increasing sales and profits over many years

• Dominant market share in its trade area

• A diversified customer base

• Excellent management of receivables

• Good banking credit and payables history

• Low employee turnover

• More than adequate working capital

• Financial ratios compare favourably with other industry averages

WHAT CIRCUMSTANCES LEAD TO A

SHORT-SELL?

Fact - 90% of deals fall through.

If your Valuation is not calibrated to the marketplace, your initial asking

price may be too high or too low. In that case, one of two things can occur:

1. Short Sale - You will sell your company for a lot less than it is worth

– leaving significant money on the table for the buyer.

2. Your company will not sell and therefore could be branded as

“damaged goods”.

Buyers are usually more sophisticated than Sellers in the market; they

surround themselves with a team of experienced advisors throughout the

process.

To offset that advantage, the sell side needs an accurate valuation with

advisors who know the market and are able to increase the odds of a

favorable completion.

However, if you choose to use an accounting related firm, it is common

knowledge that they do not have access to what the marketplace is willing

to pay. Instead, they rely on multiples of EBITA which are widely known to

be incorrect and in most instances undervalues the fair market value.

Some Advisors don’t like to talk about risk. They’d much rather talk

about how much money you’ll make when their advice produces positive

returns. This advice clearly overlooks the distinct advantages and benefits

of working with a dedicated advisor whose CORE business is Merger &

Acquisitions. As noted in the following chapters, it takes a team to provide

maximum enterprise sale value.


CAUTION & RISK

Traditional approaches for selling

a company involves little sales or

marketing activity, resulting in a

short sale for the client. There is an

over-reliance on word of mouth and

networking connections from thirdparty

advisors that fail to deliver a sale

structure and offers that are in the best

interest of the business owner.


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INTEGRITY • AGILITY •RESULTS


WORKING TOGETHER AS A TEAM

THE RIGHT TEAM

Many advisors are seeking to diversify their revenue streams and enter

the Mergers & Acquisitions arena. In many instances, because business

owners have worked closely with advisors for years or decades, they are

of the opinion that the advisor is able to sell the business in the most

effective manner.

The final sale result is underwhelming, the advisors’ firm sells the

client’s business to the best of their ability however, the outcome

results in a lesser sum than the business enterprise is worth. Without

collaboration from other advisors with more knowledge of M&A,

millions of dollars are left on the table resulting in a short-sell.

WHY DOES IT TAKE A TEAM?

Selling a business is one of the most complex transactions imaginable

and requires a diverse team to enable a satisfactory result. Deal success

requires having the right team on board including:

• Mergers & Acquisitions specialist

• Marketing team

• Accountant

• Valuation specialist

• Mergers & Acquisition lawyer

• Wealth Management

Each of these specialists will play a pivotal role to steer your transaction

from concept to completion. It is vital that the selection process of the

team be assessed for their prior experience in transactions involving

Mergers & Acquisitions.

An important element to remember is that the buyer will have a similar

team representing them during the negotiation process. Therefore

selecting the best quality of team members will be a determining

factor in achieving the best value and terms.

Working together to serve the

common purpose of the clients goals.


Unity is strength. . . when there

is teamwork and collaboration,

wonderful things can be achieved.

- Mattie Stepanek


“Insanity is doing the same thing over and over again and expecting a different result.”

- Albert Einstein

INTEGRITY • AGILITY •RESULTS 11


ACCOUNTANTS

When you are planning to exit and sell your business, it usually takes

between two to three years of advance planning. Advance planning

is essential to ensure the most effective business corporate structure

meets with CRA accepted standards that will enable full access to the

Capital Gains Exemption (CGE).

In order to maximize the benefits of the sale value, forward planning is

essential. It’s important that sellers seek advice from their accountant,

regarding tax planning or structuring the business for sale.

The CGE is up to $900,000 tax free benefit for each shareholder based

on a share sale transaction. However, in order to gain access to these

tax free funds, the seller’s business must meet a wide range of criteria

in order to achieve a successful outcome. Some examples of the

requirements for CGE are:

1. The business structure must be “on side” from a CRA perspective in

order to qualify.

2. Each shareholder must have held the shares in the business for

two (2) years prior to selling the business to a third party.

3. The business model must pass the buyer scrutiny of “due diligence”

and only when the buyer is satisfied will they consider a share sale.

If the risk is unacceptable to the buyer, then they will proceed with

an asset sale that doesn’t have the same tax free benefits.

4. If the business has a track record of any legal action, then this

illustrates risk to the new buyer and will probably result in an Asset

sale.

Every business has to pay taxes and developing a solid tax strategy will

help you pay what’s fair. It’s important to plan ahead for a tax efficient

strategy. There are two possible scenarios, share sale or asset sale

While a share sale is the obvious preference, often business

circumstances dictate that buyers will only consider an asset sale.



Opportunity is missed by most people

because it is dressed in overalls

and looks like work.

- Thomas Edison

Earnings can be pliable as putty when

a charlatan heads the company

reporting them.

- Warren Buffet



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INTEGRITY • AGILITY •RESULTS


LAWYERS

Legal issues are always at the forefront of Mergers & Acquisitions (M&A)

deals. A lawyer is a very important advisor to both Seller and Buyer.

The lawyer selected must specialize in Mergers & Acquisitions

transactions and will help resolve the following issues:

• Assisting with a transaction strategy

• Conducting due diligence on legal matters

• Drawing from previous mid-market M&A transactions, in order to

provide the owner with some comfort and reassurances as to:

o The process that the owner will undergo

o The types of problems and concessions customary in similar

circumstances


And if anyone forces you to go one mile,

go with him two miles.

- Matthew 5:41


During the sale process of every transaction, an experienced

M&A lawyer will play a key role in determining and facilitating the

components of the final Purchase Agreement.

In most cases, it is the buyers’ lawyer who drafts the Purchase

Agreement and it will be weighted in their favour. Selecting a lawyer

who specializes in Mergers and Acquisitions services and is aware of

the unique language and aspects of these complicated transactions is

essential.

The lawyer is there to protect the clients’ best interests and often will

save their client unnecessary taxes and post-closing costs.

Buying and selling a business is a process with multiple concurrent

moving pieces in the transaction that effect:

• Taxation matters relating to the CRA

• Human Resources and Employment Contracts

• Real Estate – Sale or Lease

• Trusts

• Deal / Transaction Structure: Share Sale or Asset Sale

• Terms of Payment: Vendor Financing, Earn Outs and other

conditions

• Purchase / Sale Agreement

The lawyer is there to protect your best interests and often will save

you unnecessary taxes and post-closing costs.

Lawyers are worth their weight in gold; providing they are proactive

and assist in protecting their clients’ best interest and enable a

successful outcome.


Where there is no guidance, a nation

shall fall, but there is safety in an

abundance of counselors.

- Proverbs 11:14


Rule No.1: Never lose money.

Rule No.2: Never forget rule No.1

- Warren Buffet



INTEGRITY • AGILITY •RESULTS 13


MERGERS & ACQUISITIONS SPECIALIST

THE PAVILION TEAM

Pavilion, a Mergers and Acquisitions specialist, has acted for many

respected businesses to structure, negotiate and execute significant

corporate financial transactions and has successfully completed

numerous transactions in the mid-cap market space.

The advantages of working with Pavilion include:

• Access to objective advice, professional insight and judgment

• A strategic partner that keeps your best interests in mind throughout

the transaction

• Essential market intelligence both locally, nationally and globally

• The ability to maximize transaction value, based on our experience

and track record

• Access to a wide range of pre-qualified investors/buyers

Pavilion has the skills, talent and know-how to negotiate and achieve a

significantly higher selling price than any other organization.


A negotiator should observe everything.

You must be part Sherlock Holmes and

part Sigmund Freud.

- Victor Kiam


WHAT IS THE ROLE OF AN M&A ADVISOR?

• Provides confidentiality

• Educates all parties on process

• Creates a customized marketing package

• Executes a strategic marketing plan

• Act as a buffer for emotions

• Provides negotiation skills

• Facilitates the process from start to finish

Mergers and Acquisitions is our core business. We know how to

achieve a higher selling price on the best team; than any other

organization.


If you are considering selling your

business with the plan of being out

in 3 to 5 years, the best time to strart

the process is today

- Greg Spafford


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INTEGRITY • AGILITY •RESULTS


EXPERIENCED ADVISORS

The complex process of selling your business requires thorough

preparation, skillful presentation of your company, identifying the right

buyers, and sophisticated negotiation skills.

At Pavilion, you’ll work with a senior member of our team. We will

work closely with you to prepare your business for sale, present your

company to a highly targeted group of national and international

buyers and work with you to negotiate a transaction that meets all of

your objectives.

Your Pavilion advisor will guide you through each step of the sales

process, help you solve every challenge, be your advocate throughout

the deal, and leverage our firm’s years of experience to successfully sell

your company for maximum value and on the best terms.

By preparing your business for a voluntary sale, you can build a

sustainable operation that will attract both strategic and investment

buyers who will pay a premium for your business enterprise.


The only source of knowledge

is experience.

- Albert Einstein


CASE STUDY EXAMPLE

A recent example, a mid-cap business owner worked closely with their highly reputable top tier advisors for over 15 years. When

the owner was ready to sell, the advisors conducted a valuation and stated that they could sell the company for an estimated

value of $12 million. After a year on the market with no success, the frustrated business owner approached Pavilion for help and

guidance. The details are outlined below:

Target enterprise value

Other Advisors

$12 Million

The Pavilion Team

$19 Million

Number of bidder enquiries 29

132

Shortlisted bidders in negotiation 5

19

Highest bidder/offers $ 9.5 Million $16.5 Million

Pavilion conducted a new valuation, which determined the business was actually valued at nearly $20 million.

With Pavilion’s innovative marketing initiatives, the business gained interest from a wide range of prospective buyers across

Canada, USA and globally.

Within 8 months, the right buyer was found, who paid $7M more than the other advisors selling price.

$7Million

Difference in sale value

The bought company had significantly more buyer enquiries and resulted in more

competition and enabled an improved outcome for our client. The Pavilion fee

was paid for many times over and the client got the increased value they deserved

for their years of hard work.

INTEGRITY • AGILITY •RESULTS 15


THE VALUATION

IT’S ALL ABOUT VALUE

Pavilion has a team of highly qualified professionals who utilize various

methods for conducting valuations.

We recognize that a sound valuation will be based on all the relevant

facts including the elements of common sense and informed

judgment, which must enter into the process of weighing those facts

and determining their combined or cumulative significance.

The true indicator of a company’s success is measurable by a wide

range of factors. One of the main components is the financial metrics

of the business including the Profit and Loss statements and Balance

Sheet performance. While this is a key financial metric, there are

numerous other factors that enhance enterprise value.

MORE THAN EBITDA

Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA)

plays a significant contribution to the business valuation, however

there are multiple factors that can make a considerable difference to

the outcome.

Today, up to 80% of a firm’s value can be associated with intangible

assets, such as brand, reputation, culture, customer satisfaction, human

capital, risk management, R&D (Research and Development) pipelines

and a company’s trading license to operate.

THE PAVILION

VALUATION PROCESS

2.

Risk Profile

(internal/external)

7.

Valuation

Conclusion

6.

Transaction reviews

including the number of

buyers and sellers

market sector

5.

Application of valuation

approaches and methods

4.

Normalization of financial statements and

assessment as to future maintainable earnings

3.

Future Opportunities/

Growth Potential

1.

Collection and analysis of all relevant information

necessary to support the valuation conclusion

“Nowadays people know the price of everything and the value of nothing.”

- Oscar Wilde

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INTEGRITY • AGILITY •RESULTS


VALUE DRIVERS

When taking your business to market, it is important to consider

the internal and external value drivers. Each of these factors can

substantially increase the final selling price for the benefit of the seller.

Each value driver is a characteristic of a business that either reduces the

risk associated with owning the business or enhances the prospect that

the business will grow signifcantly in the future.


We are in danger of valuing most

highly those things we can measure

most accurately, which means that we

are often precisely wrong rather than

approximately right.

- Sir John Banham


EXTERNAL VALUE DRIVERS

4 Economic factors

4 Strategic buyers synergies

4 Reccurring revenue

4 Competition from buyer groups

4 Innovation & IP (Intellectual Property): proprietary technology,

trademarks, patents, etc.

4 Transition timeline for existing management

INTERNAL VALUE DRIVERS

4 Stable and predictable cash flow

4 Reliable financial information

4 Customer diversity

4 Human capital / quality of workforce

4 Growth potential

4 Facility and equipment condition

4 Product / service diversity

4 Goodwill

4 Barriers to competitive entry

4 Operating systems and procedures

Simply put, the better your performance in these areas, the greater the

selling price of your business. The likely result is that you will sell at the

higher range normally associated with our industry.

Note: Accountant valuations are useful for applying to divorces,

partnerships, breakup, etc. However, the fact remains they do not

actually represent “fair market“ enterprise value.


Money speaks sense in a language all

nations understand.

- Aphra Behn


“She knows the value of everything she makes.”

- Proverbs 31:18

INTEGRITY • AGILITY •RESULTS 17


THE PAVILION SALE PROCESS

The successful sale of a business involves many moving parts, making

it the largest and possibly most complicated transaction of your life.

The Pavilion process ensures practical advice that will help you select

the best professionals to sell your company while ensuring that you

get the best price and terms.

It’s often possible to sell your business for 50% more value if you

do everything right. Unlike selling a home in the residential or

commercial real estate market, the process of selling your business is

far more complicated for a myriad of reasons.

EFFECTIVELY STRUCTURING YOUR COMPANY

FOR TRANSITION

When you sell your business you may face a significant tax bill, if

you’re not careful, you could find yourself with less than half of

the purchase price in your pocket. Fortunately, there are multiple

opportunities to reduce or even eliminate tax, with the right

preparation and enough time to implement.

There are many aspects to consider when preparing for transition

planning, including:

• Wills

• Trusts & Corporate Structure

• Estate Planning

• Tax Strategies

Our team has substantial experience in establishing proactive tax

planning practices to mitigate your taxes, so that shareholders take

full advantage of your enterprise value benefits.

The moral of the story? Structure your company well in advance of a

potential sale and reap the benefits; or fail to plan ahead of time and

pay the price – literally to the CRA.


It’s complicated

In the M&A market, the selling

and marketing process itself

can have a major impact on

the price of your company.

Plan and execute the process

correctly and you could

increase the price of your

company by upwards of 50%


18

INTEGRITY • AGILITY •RESULTS


THE MARKETING PROCESS

The marketing strategy is critical to the sale process primarily

because it will enable multiple bidders which will ensure you obtain

maximum value for your years of hard work.

Why do you need a Marketing Strategy to sell your business?

• Generates maximum number of inquiries

• Reaches buyers around the globe

• Elevates the sale value of your business

• Creates competition among buyers

• Enables a higher selling price and improved terms

Without a marketing strategy, optimum price, value or terms are not

achieved; this is referred to as a “short sale”.

The Pavilion team works closely with our marketing agency

Firstbase Business Services (www.firstbase.ca). This relationship

provides the basis for our strategic advantage over any other advisor.

Firstbase is an international strategic marketing agency with an

exceptionally talented team to provide “best value” solutions for

clients.

The marketing strategies are unique and comprehensive, when we

implement them with Pavilion’s unique marketing program; we

invariably have significant levels of high quality enquiries for each

client business enterprise we represent.

The result is obvious very quickly, – a higher level of qualified buyers

enquiries based on our geo-demographic targeting initiatives.

A DIVISION OF PAVILION SERVICES

Firstbase Services is an independent business advisory firm serving

small to mid-cap markets. Firstbase provides specialized advice to

management teams and privately owned businesses.

Firstbase provides advisory services in the areas of:

• Business growth strategies

• Raising capital

• Human resource services

• Branding programs

• Market research

• Business development strategies

• Database experts

• Sales development programs

Firstbase’s team of experts comprise of Business Consultants,

Succession Planners, Valuation Experts, Branding/Design Experts and

a team of Marketing Specialists.

www.firstbase.ca

INTEGRITY • AGILITY •RESULTS 19


REACHING TARGETED BUYERS

Pavilion’s in-depth research determines the most suitable

buyers to optimize the successful sale of your business.

GOAL: Generate maximum exposure for your business in:

Sweet Spot to

Record Potential

Buyers/Partners

Products

• Local, national and international markets

• Vertical industry segments

• Strategic buyers

• Investment buyers (PEG’s and VC’s)

FINANCING THE DEAL $$$

Geography

Clients

Financial

Pavilion has relationships with leading capital financers who

can help facilitate the purchase of your business and enable

you to benefit from the highest possible cash payment as part

of the purchase price.

Other

OUR UNIQUE APPROACH PRODUCES RESULTS

1. The Project Brief

2. Exhaustive Research

230 prospective purchasers

3. Prospect Generation

25 interested parties “Dry-run”

negotiations

4. Qualification

& Bidding

5-10 exploratory meetings

5-7 Competitve bids

3 Bids worth considering

2 Alternatives maintain competition

5. Concluding the Deal

1 purchaser

“The great accomplishments of man have resulted from the

transmission of ideas and enthusiasm.“

- Thomas J.Watson

20

INTEGRITY • AGILITY •RESULTS


DOES YOUR BUSINESS MEET THE LOW RISK

CRITERIA THAT BUYERS SEEK?

There is a wide range of issues involved in selling your business. If your

business is perceived as higher risk due to contract disputes or legal

claims; then buyers will prefer to make an offer based on an asset sale.

Below is a summary checklist of what buyers / investors will seek out

during the due diligence phase:

4 A consistent trend of increasing sales and profits over many years

4 Dominant market share in its trade area

4 A diversified customer base

4 Excellent receivables management

4 Good banking credit and payables history

4 Low employee turnover

4 More than adequate working capital

4 Financial ratios compare favourably with other industry averages

4 Financial statements prepared either in Notice to Reader, Review

Engagement or Audited statements

4 Recurring revenue from established clients and sales channels

4 Business Plan and strategies for growth that are up to date


Without advice plans go wrong, but with

many advisors they succeed.

- Proverbs 15:22


4 Revenue spread across a wide range of clients

4 Low bad debt ratios

4 Human resources policies and procedures

4 No current legal claims against your business

4 Senior management in place

If your business can demonstrate under due diligence that there is little

or no risk involved; then a share sale is a higher probability. The main

benefit to a share sale is that each stakeholder is entitled to the Capital

Gains Exemption (CGE) which provides up to $900,000 tax free.

PAVILION DELIVERS

EXCEPTIONAL RESULTS

Working together to serve the

common purpose of the clients goals.

INTEGRITY • AGILITY •RESULTS 21


WHAT IS THE SILENT AUCTION PROCESS?

Due to our proactive marketing programs, we generate more

buyer enquiries than anyone in our industry. The result, increased

competition between buyers enables us to negotiate higher sales value

and improved selling price and best terms for the client.

INFORMATION AT OUR FINGERTIPS

We have access to a database of buyers from around the world

including:

• Venture Capital firms

• Private Equity Groups

• Strategic Buyers with selection by industry category, sales revenue

• Comprehensive database of most companies in USA and Canada

• International buyers including: China, Europe, Middle East, and

Australasia

The Benefits of the Silent Auction:

• Pavilion generates a wide range of buyers for each listing and

operates the silent auction process.

• Bidders are coached through the bidding to negotiate the best

price and terms.

• The result is a higher sales value and improved terms for our

client.

Pavilion comprises of a dedicated M&A specialists who have the skill

set, know-how and experience to enhance and improve the final selling

price by as much as 50% over any other firm in the USA or Canada.

WHY DOES COMPETITION FROM BUYERS

INCREASE YOUR SALE PRICE?

The purchase price for your company can vary greatly depending on

who you are selling to and what type of buyer you are looking for.

The team at Pavilion market your business under the radar and

in stealth mode, while managing the complexity of a confidential sale

process.


You only have to do a very few things

right in your life so long as you don’t do

too many things wrong.


- Warren Buffett

An expert is a man who knows some

of the worst errors that can be made

in the subject in question and knows

how to avoid them.

- Thomas Stewart



“If you know what you are talking about you have something

more valuable than gold or jewels.“

- Proverbs 20:15

22

INTEGRITY • AGILITY •RESULTS


A MYRIAD OF BUYER CATEGORIES

We have access to a database of buyers from around the world

including:

• Comprehensive database of companies in USA and Canada

• International buyers including: China, Europe, Middle East,

and Australasia

• Venture Capital firms

• Private Equity Groups

• Private Buyers

• Immigration Buyers

• Wealthy Entrepreneurs

• Strategic Buyers selected by industry category, niche and

vertical markets.

HOW DOES THE PAVILION PROCESS OBTAIN EXTRA VALUE?

Due to our unique proactive marketing programs, we generate more buyer enquiries than anyone in our industry.

More competition from buyers enables us to negotiate a higher selling price and improved terms, delivering much better value

for our clients.

MOTIVATED BUYERS

IMPROVED NEGOTIATION OUTCOME

THROUGH MOTIVATED BUYERS

FAIR MARKET VALUE RANGE

MOTIVATED SELLERS

BUYER WITH STRONG

NEGOTIATION SKILLS

SOLD VERSUS BOUGHT – WHAT’S THE DIFFERENCE?

There are numerous organizations that can sell your company. However, the majority do not have the resources needed to

achieve a best value for your years of hard work. That’s because the process they use, enables the company to be bought NOT

sold and results in leaving $$Millions in the hand of the buyer.

“Invest in truth and wisdom, discipline and good sense, and don’t part with them.”

- Proverbs 23:23

INTEGRITY • AGILITY •RESULTS 23


PAVILION FACT SHEET

OVERVIEW

Pavilion Business Services is an independent Mergers & Acquisitions (M&A)

advisory firm operating and serving Canada’s small to mid-cap market.

Pavilion provides specialized advice to management teams of publicly and

privately-owned businesses.

Pavilion’s team provides the following:

• M&A specialists

• Business consultants

• Succession / exit planning

• Valuation experts

• Mergers & Acquisitions

• Raising capital

• Marketing specialists

• Skilled and experienced negotiators

• Financial analysis specialists

• Business growth strategies

Pavilion specializations in working with companies and organizations with

typically $2 million - $500 million in annual revenue.

INTERNATIONAL BUYERS

OUR VALUES

Pavilion has access to domestic, national and international

markets. Our extensive networking partners allow us to

provide business advice on an international scale with direct

access to buyers and investors in over 120 countries. We work

with professional equity, strategic buyers and investment

firms from USA, Europe, Middle East, China and Austrasia.

North America is increasingly being regarded as the

preferred location for business investments. Established

businesses with a solid cash flow are in huge demand from

buyers around the world.

PAVILION DELIVERS

EXCEPTIONAL RESULTS

PHILOSOPHY

The Pavilion management team instinctively know that great companies are built on the principle of doing the right thing each

and every day, and treating business partners, customers, and employees honestly, fairly and with respect.

KNOWLEDGE » INTEGRITY » RESULTS

24

INTEGRITY • AGILITY •RESULTS


LIFE VALUES

DIVESTITURE » SUCCESSION » EXIT PLANNING » SELL

1.888.859.5388 | www.pavilionservices.com


TRANSITION PLANNING GUIDE


DIVESTITURE » SUCCESSION » EXIT PLANNING » SELL

1.888.859.5388 | www.pavilionservices.com

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