the art of the deal today

[email protected] [email protected] www.EconomicDeveloper.com

The Art of the Deal TodayThe Art of the Deal Todayby

Don Allen Holbrook, CEcD, FM

Economic Developer. LLC.

by

Don Allen Holbrook, CEcD, FM

Economic Developer. LLC.

Lorman Educational SeminarsJuly 20, 2012 Phoenix, Arizona

Today we face Unprecedented Economic Challenges!Nothing is as it was prior to 2008. All that matters is post 2008 mindsets!

Capital Markets are FrozenCapital Markets are Frozen

Don A. Holbrook, CEcD, FM www.EconomicDeveloper.com 2

LEVERAGED DEBT is no longer chic and is now a negative if it’s too high!

LEVERAGED DEBT is no longer chic and is now a negative if it’s too high!


“Cash is king and deals are seeking a much higher equity infusion… the Golden Rule Applies… those with the gold make the rules.”

“Cash is king and deals are seeking a much higher equity infusion… the Golden Rule Applies… those with the gold make the rules.”


“It seeks the highest return in the safest conditions with the best terms of surety of principal and the best ROI.”

Capital is GlobalCapital is Global


Unlocking Investment andturning them into Deals…Unlocking Investment andturning them into Deals…

…Requires

• Innovative terms and conditions especially with the use of Claw-Backs

•Investment business case designed for success with market validations by unbiased third parties

• Increased risk has to be taken by the Public Sector Partners in due the due diligence portion and market validity.

• Combining traditional financing with new innovative tools driven by the non-banking sector… tied to performance based incentives

•RLFs, Angels, Community Venture, SEED funds, TIF/STIF/STAR new repurposed OTC delisted companies PPMs in small non-public & F&F


The rate of return that would make the present value of future cash flow + the current market price of the investment or opportunity.

Also known as Dollar-Weightefinal market value of an investment or business opportunity = the d Rate of Return or Economic Rate of Return (ERR).

Definition of IRR:Definition of IRR:


Deals are now driven by balance sheets…so models drive all incentive discussions.

Business Climate for Business InvestmentsBusiness Climate for Business Investments


Backing into CapitalizationBacking into Capitalization

• Today you have to Engineer your capitalization results… design for a Yes!

• 7-steps to the • best results…

• Today you have to Engineer your capitalization results… design for a Yes!

• 7-steps to the • best results…

No amount of incentives can offset a bad business deal.

Incentives still matter greatly.

Yes, they do make a solid deal better!


Business Climate for Business InvestmentsBusiness Climate for Business Investments

The point where the public sector and the private sector both feel the deal works, but they stretched perhaps more than they were comfortable with originally!

Deal EquilibriumDeal Equilibrium


Examples:Examples:

• Public Sector has to change their views and uses of incentives to be capital investment driven…not just job creation or enhanced tax base expectations.

• Private Sector has to be more public relations oriented towards public meetings and provide far more disclosure on deal points… agree, validate, and verify by pre-agreed transparent benchmark metrics for accountability.

•Both public and private investors need to treat each other as true investment partners in all decisions.


Every transaction in the deal will go through metamorphic processes as more of what we didn’t know becomes apparent and has to be modified and adjusted in the model to account for new variables and maintain the expected ROI/IRR to the investors.

Expect Changing Deal DynamicsExpect Changing Deal Dynamics


The key to a successful deal is a great public sector partner that is flexible and proactive at adjusting with the tempo of the deal… they maintain deal equilibrium… watch for political instability and selective memory loss… use 3 step engagement

The key to a successful deal is a great public sector partner that is flexible and proactive at adjusting with the tempo of the deal… they maintain deal equilibrium… watch for political instability and selective memory loss… use 3 step engagement


3 Steps to Engaging a Public Partner

3 Steps to Engaging a Public Partner

1.) Develop a realistic Letter of Intentions signed by both parties

2.) Preliminary Development Agreement- if you do this we will do this.

3.) Binding Final Development Agreement

1.) Develop a realistic Letter of Intentions signed by both parties

2.) Preliminary Development Agreement- if you do this we will do this.

3.) Binding Final Development Agreement

Creating a Strong & Flexible Public Private Partnership (PPP)-P3

Creating a Strong & Flexible Public Private Partnership (PPP)-P3

Requires that both sides treat each other as partners.

• Establish a set of ground rules for transparency and disclosure of key deal points

• Agree to meet regularly on telephone and in person for update meetings

• Create a project task list and project management mindset of accomplishing tasks on a regular basis and benchmark progress maintain accountability between parties.

• Always seek the input of your other partner prior to changing any variables

• Share adjustments and modification risks reasonably between both partners…the yin & yang of deal flow is driven by this philosophy… pain is a shared misery and success is a equally shared celebration of rewards.


How do I prepare my communityfor this new Mindset today?

How do I prepare my communityfor this new Mindset today?

1. Hold a series of guest lectures on these topics that build awareness and understanding of how the business climate has shifted and why.

2. Host a town hall on the opportunities and challenges ahead for economic development.

3. Do a SWOT Analysis and Benchmark assessment of your strategic situation.

4. Create a Community Report Card on these issues and do Public Relations.

5. Pick the highest and most probable catalyst projects to undertake that lift the most boats for your local economy and make them your space race locally, for the future sustainability and vitality of your local economy!

6. Know your communities competitive score on key opportunities from an Investor driven model and be prepared to support your claims of being an opportunity for them to make a profitable investment with credible due diligence by unbiased third party experts.


• Workforce (availability, access and cost versus work ethics, skill levels)

• Physical infrastructure (water, sewer, electric, telephony, roads, rails, air links)

• Educational Institutions (quality levels, attainment, research and creative outcomes)

• Availability of Local Capital (angel, seed, venture, traditional, public incentives, etc)

• Competitive Business Climate (taxes, cost of services, labor, available sites -shovel ready, and facilities etc.)

• Diverse Culturally Astute Community (open minded and sensitive to other cultures)

• Quality of Life Amenities (Performing and Visual Arts, festivals, main street projects, facades, signage, green spaces, lakes, bike ways, trails, parks, recreational opportunities) The intangible benefits that enhance the locales sizzle effect!

Understand a World Class Inventory of Assetsfor your Local Economy

Understand a World Class Inventory of Assetsfor your Local Economy


Structure the Public Risk according to the size of their reward.

Understand the risks and calculate the economic impact of positive change versus the cost of status quo including further economic decline.

Putting the Deal Together Today!Putting the Deal Together Today!


Deals are still Measured bythe Following:

Deals are still Measured bythe Following:

1. Job created (number, quality of jobs and payrolls)

2. Amount of capital invested in facilities and machinery & equipment

3. Diversification of the current economy

4. Achieving goals within the Community’s vision for their future

5. The perceived quality of the client coming into the community (brand value)… what will their bragging rights be worth to the politicos?


Creative Economic Development ToolsCreative Economic Development Tools

1. Forgivable Loans for early phase development costs such as due diligence

2. Reimbursement of site analysis, improvements and FFE design costs

3. Creative Tax Abatement / TIF strategies that lower operating costs & reward investments

4. Shared facility financing such (build to suit lease back purchase option) etc.

5. Workforce recruitment cost abatement and relocation incentives

6. Advanced infrastructure cost reimbursement

7. Site Acquisition, site improvements and investment solicitation process

8. Foreign Trade Zone status development if applicable9. Special incentives specific to the deal sometimes includes special legislation Economic zones taylored to the needs of the client private company


Reasons Deals FailReasons Deals Fail

• 1.) One or both parties withheld critical 1.) One or both parties withheld critical information pertinent to the deal.information pertinent to the deal.

• 2.) There is dishonest disclosure of the 2.) There is dishonest disclosure of the opportunities and/or challengesopportunities and/or challenges

• 3.) There is not a collaborative shared 3.) There is not a collaborative shared burden of making the deal work.burden of making the deal work.

• 4.) Failure to adapt to new information 4.) Failure to adapt to new information and mitigate the circumstances that and mitigate the circumstances that present themselves in a timely basispresent themselves in a timely basis

• 1.) One or both parties withheld critical 1.) One or both parties withheld critical information pertinent to the deal.information pertinent to the deal.

• 2.) There is dishonest disclosure of the 2.) There is dishonest disclosure of the opportunities and/or challengesopportunities and/or challenges

• 3.) There is not a collaborative shared 3.) There is not a collaborative shared burden of making the deal work.burden of making the deal work.

• 4.) Failure to adapt to new information 4.) Failure to adapt to new information and mitigate the circumstances that and mitigate the circumstances that present themselves in a timely basispresent themselves in a timely basis

Reasons Deals Succeed!Reasons Deals Succeed!

• Both Parties work as a collaborative team to

solve problems and share in rewards while agreeing upon predetermined levels of acceptable risk… reduction of statutorily compliant corruption aka Plausible Denial by politicians

• Both Parties work as a collaborative team to

solve problems and share in rewards while agreeing upon predetermined levels of acceptable risk… reduction of statutorily compliant corruption aka Plausible Denial by politicians

Winner’s Take RisksWinner’s Take Risks• In the end there will be winner and losers.

• What separates them is the winners understand that they have to step out and take risks and make key investment decisions to control and garner early opportunities and build a competitive sustainable space for continued investments

• There is no fair and equitable way to offset competitive advantages other than innovation and the mindset of the required knowledge to meet the market expectations

• In the end there will be winner and losers.

• What separates them is the winners understand that they have to step out and take risks and make key investment decisions to control and garner early opportunities and build a competitive sustainable space for continued investments

• There is no fair and equitable way to offset competitive advantages other than innovation and the mindset of the required knowledge to meet the market expectations

I hope you will read my books!I hope you will read my books!

Released 2007

Released 2008


Please join my FREE Economic Development Intelligence Report client list on my website!

Check out my blog site:www.economicdeveloper.wordpress.com

Please join my FREE Economic Development Intelligence Report client list on my website!

Check out my blog site:www.economicdeveloper.wordpress.com


www.EconomicDeveloper.comwww.EconomicDeveloper.com


Thank You!

Veritas vos Liberabit

“The Truth will Set You Free!”

Please Feel Free to Contact me

(928) 706-4440

[email protected]

www.EconomicDeveloper.com

Please Feel Free to Contact me

(928) 706-4440

[email protected]

www.EconomicDeveloper.com


the art of the deal today

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bad business deal

public sector partners

private sector

business climate

business opportunity

deal equilibriumdon

solid deal

deal points