Download - 3 perpetuation presentation
PRESENTED BY:
w w w . M e r g e r s A n d A c q u i s i t i o n s S e m i n a r . c o m
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PRESENTED BY:
w w w . M e r g e r s A n d A c q u i s i t i o n s S e m i n a r . c o m
PRESENTED BY:
w w w . M e r g e r s A n d A c q u i s i t i o n s S e m i n a r . c o m
How are deals done Internally? PERPETUATION
• This was a very typical way to transfer equity interest in an agency from one generation to the next.
• Was very common for many years and often had the support of insurance carrier lending facilities.
• With the rise in values, it is often more challenging and subsequently more uncommon these days.
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w w w . M e r g e r s A n d A c q u i s i t i o n s S e m i n a r . c o m
Perpetuation Basics
• Successfully transferring equity from one generation to the next is very difficult for the following reasons:– It’s a Leverage Buyout and over 75% of LBOs fail– No cost savings (cross sell, systems, redundancies, etc.)
– Leadership transition
PRESENTED BY:
w w w . M e r g e r s A n d A c q u i s i t i o n s S e m i n a r . c o m
Perpetuation Reality• Abundance of examples of failed perpetuations. (Company Lending Experience)
• Different recipes for each failure recipe, but a common ingredient in most is failure to understand risks ahead of time.
• If the team isn’t feeling pressure, they are not prepared for the deal. (Kite Example)
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w w w . M e r g e r s A n d A c q u i s i t i o n s S e m i n a r . c o m
Questions to Plan• Will it be a stock deal or asset deal?
• What percentage needs to be purchased?
• Can funds be borrowed?
• What will the terms of the note be? (interest rate and duration)
• What has to happen in order to pay off the debt?
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w w w . M e r g e r s A n d A c q u i s i t i o n s S e m i n a r . c o m
Good Ideas?• Plan on spending part of existing sales/development time in
order to manage the agency.
• Give a pay raise to new owners to ease the pressure of the deal.
• Hire 3 new producers to help grow the agency.
• Upgrade office space to improve the image of the Firm.
• Plan to work harder, sell more with existing resources and be prepared to take a pay cut to make loan payments.
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w w w . M e r g e r s A n d A c q u i s i t i o n s S e m i n a r . c o m
3 Basic Scenarios• Scenario #1: Two agency principles who control 60% of the stock wish to be bought out by remaining stockholders.
• Scenario #2: Husband & Wife who own 80% of agency wish to sell to 2 sons and daughter who currently own the other 20%.
• Scenario #3: 2 non‐owner producers have been asked to purchase the 100% owner of the agency.
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w w w . M e r g e r s A n d A c q u i s i t i o n s S e m i n a r . c o m
Example Assumptions• Only 100% scenario offers the ability to do an “Asset
Purchase”, other two scenarios need to be a “Stock Purchase”.
• No price difference between stock and purchase.
• If buyers can produce 10% up front, a lending group will loan at 9.5% for 7 years.
• The agency has adequate working capital and a decent operating system when deal is completed.
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w w w . M e r g e r s A n d A c q u i s i t i o n s S e m i n a r . c o m
#1: 0% Growth
Principal Interest After Tax Cumulative CashYear EBITDA Payment Payment Amortization Cash Flow Over/(Under)
Closing (360,000) (360,000)1 1,000,000 346,797 307,800 ‐ 68,523 (291,477)2 1,000,000 379,742 274,854 ‐ 55,345 (236,132)3 1,000,000 415,818 238,779 ‐ 40,915 (195,217)4 1,000,000 455,321 199,276 ‐ 25,114 (170,103)5 1,000,000 498,576 156,021 ‐ 7,812 (162,292)6 1,000,000 545,941 108,656 ‐ (11,134) (173,426)7 1,000,000 597,805 56,791 ‐ (31,880) (205,306)
60% Purchase, 0% Growth Rate
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w w w . M e r g e r s A n d A c q u i s i t i o n s S e m i n a r . c o m
#1: 10% Growth
Principal Interest After Tax Cumulative CashYear EBITDA Payment Payment Amortization Cash Flow Over/(Under)
Closing (360,000) (360,000)1 1,000,000 346,797 307,800 ‐ 68,523 (291,477)2 1,100,000 379,742 274,854 ‐ 115,345 (176,132)3 1,210,000 415,818 238,779 ‐ 166,915 (9,217)4 1,331,000 455,321 199,276 ‐ 223,714 214,4975 1,464,100 498,576 156,021 ‐ 286,272 500,7686 1,610,510 545,941 108,656 ‐ 355,172 855,9407 1,771,561 597,805 56,791 ‐ 431,056 1,286,996
60% Purchase, 10% Growth Rate
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w w w . M e r g e r s A n d A c q u i s i t i o n s S e m i n a r . c o m
#2: 0% Growth
Principal Interest After Tax Cumulative CashYear EBITDA Payment Payment Amortization Cash Flow Over/(Under)
Closing (480,000) (480,000)1 1,000,000 462,396 410,400 ‐ (108,636) (588,636)2 1,000,000 506,323 366,472 ‐ (126,207) (714,842)3 1,000,000 554,424 318,372 ‐ (145,447) (860,289)4 1,000,000 607,094 265,701 ‐ (166,515) (1,026,804)5 1,000,000 664,768 208,027 ‐ (189,585) (1,216,389)6 1,000,000 727,921 144,875 ‐ (214,846) (1,431,235)7 1,000,000 797,074 75,722 ‐ (242,507) (1,673,742)
80% Purchase, 0% Growth Rate
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w w w . M e r g e r s A n d A c q u i s i t i o n s S e m i n a r . c o m
#2: 10% Growth
Principal Interest After Tax Cumulative CashYear EBITDA Payment Payment Amortization Cash Flow Over/(Under)
Closing (480,000) (480,000)1 1,000,000 462,396 410,400 ‐ (108,636) (588,636)2 1,100,000 506,323 366,472 ‐ (66,207) (654,842)3 1,210,000 554,424 318,372 ‐ (19,447) (674,289)4 1,331,000 607,094 265,701 ‐ 32,085 (642,204)5 1,464,100 664,768 208,027 ‐ 88,875 (553,329)6 1,610,510 727,921 144,875 ‐ 151,460 (401,869)7 1,771,561 797,074 75,722 ‐ 220,430 (181,439)
80% Purchase, 10% Growth Rate
PRESENTED BY:
w w w . M e r g e r s A n d A c q u i s i t i o n s S e m i n a r . c o m
#3: 0% Growth
Principal Interest After Tax Cumulative CashYear EBITDA Payment Payment Amortization Cash Flow Over/(Under)
Closing (600,000) (600,000)1 1,000,000 577,995 513,000 400,000 (125,795) (725,795)2 1,000,000 632,904 458,091 400,000 (147,758) (873,553)3 1,000,000 693,030 397,965 400,000 (171,809) (1,045,362)4 1,000,000 758,868 332,127 400,000 (198,144) (1,243,505)5 1,000,000 830,960 260,034 400,000 (226,981) (1,470,486)6 1,000,000 909,901 181,093 400,000 (258,557) (1,729,044)7 1,000,000 996,342 94,652 400,000 (293,134) (2,022,177)
100% Purchase, 0% Growth Rate
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w w w . M e r g e r s A n d A c q u i s i t i o n s S e m i n a r . c o m
#3: 10% Growth
Principal Interest After Tax Cumulative CashYear EBITDA Payment Payment Amortization Cash Flow Over/(Under)
Closing (600,000) (600,000)1 1,000,000 577,995 513,000 400,000 (125,795) (725,795)2 1,100,000 632,904 458,091 400,000 (87,758) (813,553)3 1,210,000 693,030 397,965 400,000 (45,809) (859,362)4 1,331,000 758,868 332,127 400,000 456 (858,905)5 1,464,100 830,960 260,034 400,000 51,479 (807,426)6 1,610,510 909,901 181,093 400,000 107,749 (699,678)7 1,771,561 996,342 94,652 400,000 169,803 (529,875)
100% Purchase, 10% Growth Rate
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w w w . M e r g e r s A n d A c q u i s i t i o n s S e m i n a r . c o m
Complications• What if buying group includes existing buyers and new buyers?
• What is interest rates aren’t fixed?
• What if all shareholders aren’t pulling their weight?
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w w w . M e r g e r s A n d A c q u i s i t i o n s S e m i n a r . c o m
How are deals done Externally? Mergers & Acquisitions
• Acrisure: Greg Williams, Chief Executive Officer
• AssuredPartners: Paul Vredenburg, EVP & Chief Acquisition Officer
• Hub International: Clark Wormer, Director of Mergers & Acquisitions
