best practices in incentive due diligence
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Best Practices in Incentive Due Diligence. IEDC Annual Conference 2014TRANSCRIPT
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BEST PRACTICES IN INCENTIVE DUE DILIGENCE IEDC Annual Conference Fort Worth, TX October 21, 2014
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About Us • Business Development Advisors is an economic
development consulting firm • Works with leaders at the local, state and national levels to
increase business investment and job growth in their communities • Founded 1999
• Smart Incentives helps communities make sound decisions throughout the economic development incentives process • Due diligence and business case analysis for incentive projects • Processes for monitoring compliance and evaluating effectiveness • Launched 2013
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Smart Incentives 4x4 Framework
Recipient Deal
Compliance Effectiveness
Data and analysis to
enable better decision-making
Greater transparency
and accountability
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Incentives and Due Diligence • Incentives should be used to accomplish community goals
– not just win a deal. • Incentives are part of a community’s financing toolkit and should be
used and evaluated in that light • Incentives policy is one element of a business attraction strategy,
which is one element of a good economic development strategy
• Why due diligence is important • To reduce risk • To understand if an incentive deal can generate net benefits for
your community • To refine strategies and recommendations • To explain and build support for decisions
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Due Diligence on Prospective Companies
• Recipient • Background research on the applicant
• Deal • Business case analysis of the project • Cost-benefit analysis for the community
• Project benefits • Economic & fiscal impact analysis
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Recipient: Background Research • Why?
• The more you know about a company, the better deal you can create for both the business and your community
• To minimize the damage associated with problem prospects
• What you need to know • Company facts: location, year established, revenue & employees • Description of their products or services • Location of existing operations • Executive or owner background • Recent news
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Recipient (2) • What else you should know:
• Major customers • Growth projections and strategies • Recent restructuring and management changes • History of past incentives negotiations • Ownership details • Company credit rating • Financial structure
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Recipient (3) • Research resources
• Business directories (not just one) • Hoover’s – 40,000 companies • Reference USA – 14 million US businesses • LexisNexis – 43 million companies
• News aggregator and search sites • Local business journals
• SEC’s EDGAR for public companies and prospectuses • Experian, D&B for credit ratings • State corporation commissions • Social media accounts, blogs
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Deal: Business case analysis • Why?
• What could possibly go wrong? • Understanding “the pitch” versus “the reality”
• What you need to know – Seven M’s Model • Market
• Market size and growth - verify • Management
• Who leads the company • Who is in charge of the project
• Magic • Why do they think they will be successful? • What factors are critical to their success?
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Deal (2) • What you need to know (cont.)
• Model • Get specifics on their revenue model • Be clear on their sales model
• Money • Who else is financing the project? • Financial projections
• Momentum • What are the risks to the project’s execution
• Match • Why do they think your community is a good match? • What benefits do they bring to your community?
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Contact Information Ellen Harpel President 571/212.3397 [email protected] www.businessdevelopmentadvisors.com [email protected] http://www.smartincentives.org/ Twitter: @SmartIncentives
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