Maximizing Enterprise Value San Diego A&D Forum Its Never too - - PowerPoint PPT Presentation

Maximizing Enterprise Value

It’s Never too Soon to Start!

San Diego A&D Forum January, 2017

Larry O’Toole – CEO Integrated Polymer Solutions

(formerly Sanders Industries Holdings, Inc.)

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Ask Yourself…..

….can you point to who owns building your sales and is there a plan? ….who owns delivering my product and is there a plan? ….who owns the quality of your financial controls and is there a plan? ….who owns driving your Enterprise Value and IS THERE A PLAN?

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What is Enterprise Value

• Economic measure reflecting the market value of a business. It is a sum of

claims of all claimants: creditors (secured and unsecured) and equity holders. Trailing Twelve Months (TTM) EBITDA X Multiple - Debt

• By driving revenues and profits, I am maximizing EV
• When it’s time to sell…it’s time to focus on EV
• The “multiple” is whatever the market will give me

Scenario

• Year after year, business owner

& employees work hard to drive revenues and profits

• Key business decisions get

made – generally with near term impact in mind

– Facilities/equipment – People – Systems – Customers – market segments – Customer/Supplier contracts

• Triggering event for owner that

sets wheels in motion to entertain a sale…..

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Don’t Fall Into This Trap!

Outcome

• Engage a professional
• Inquisition begins
• Owner surprised by buyer findings

and expectations – offended by valuation

• “Event” manages the owner…not

them managing the event!

• Decision time….stop the sale or

accept buyer’s value. “Wish I could turn back the clock. This isn’t what I was expecting!!”

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Successful Scenario Sanders Industries

Timeline 5 - 6 Years 3 years

High buyer interest Buyers impressed w/readiness Attractive multiples Met Sellers End in Mind!! 2 Successful events

Planning steps – advisors gathered – EV target versus date New team, new planning, new direction

• Training/aligned team with EV target
• Identified and worked the key drivers of value
• Gave priority to what buyers would expect…and excite them

Monitored market & timing Initiated two separate events 2.5 years

Having an end in mind EV target!!!

• Created a tangible target…not a nebulous one
• Created alignment between leadership team and owner
• Made investment decisions much easier

– Would a buyer see value….would investment help seller or only the buyer

• Provided framework for priority setting and focused oversight
• Gave advisors a target to shoot at…drove healthy dialog around break up value

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What Created Value – Impacting Multiple

METALS

Starting Point 2012 End Result 2013 Industry Mix A&D 25% Ind’l 75% A&D 30% Ind’l 70% Sole Source % 25% 25% Trackable Platform Content 10% 10% EV Multiple 5.2x

POLYMERS

Starting Point 2012 End Result 2014 Industry Mix A&D 70% Ind’l 30% A&D 70% Ind’l 30% Sole Source % 30% 45% Trackable Platform Content 40% 50% EV Multiple 9.3x

• Financials – integrity of…and upward trends
• Exciting Opportunity Pipeline reflecting strong growth runway
• Platforms/Programs that are early to mid stage vs maturing
• Customer contracts & agreements that are “clean”
• Stickiness – meaningful sole source content
• Pricing – ability to show some level of pricing control
• Continuous Improvement Pipeline and link to P&L
• Capacity and healthy equipment – obvious signs of investment
• Ability to support a successful Voice of the Customer
• Team that could transfer to new owner

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What Created Value

Pre-Planning Allowed for Positive Impact on Multiple

EV Enablers Description

Status

Comments Regarding Current Status Financials/Reporting Performance Trends. Integrity of. Sales Pipeline Tracking tool and trending Platforms Tracked content, growth platforms Customer Contracts NDA’s, PIA”s, LTA’s, All Contracts Vendor Contracts Sole source reliance Stickiness Customer confidence in our value Pricing Management Policy, ownership & control of Industry Mix A&D primary market mix Intellectual Property Company developed/controlled CI Pipeline Healthy cost out pipeline discipline Capacity/Equipment Available capacity. Health of equip and customer expectation of Team/organization Structure of and right people IT/systems ERP/MRP/CRM tools in place Mission/Vision/Value Consistent across the organization Value Proposition Identified & articulated by product Acquisitions Enabler to EV

Example of EV Progress Tool

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Key Questions To Think About NOW

Who will see AND PAY value for my business?

Will our “go to market” strategy align with buyers? Will they see value in the market segments we serve? Will our Brand deliver any value? Are customer and vendor contracts ready for scrutiny? What personnel will a buyer require? Ease of assimilation What level of IT systems will be expected? What “special sauce” do we

• ffer? Do we price it effectively?

What should we fix versus leave as upside to the buyer?

Am I clear on “what good looks like” at the end?

Do we have a Mission, Vision & Values? Is our data ready for scrutiny? What are exit multiples in the general market? How do I achieve the upper end? Will our culture attract or detract a buyer?

Issue How to Avoid Seller/buyer not aligned on valuation Get early guidance. Monitor the market. Know what “fair” looks like. Seller changes deal elements Know what good looks like well in advance. Don’t change the rules in the 4th quarter Articulate early expectations for brand, people, facility. Cash at close vs earn out Determine acceptance to the concept in advance. Deliver positive financial trends so buyer has confidence in your projections Deal “fatigue” Be ready with resources, data, clarity of process – and agreed upon timelines Deal experts versus generalists Personality conflicts Select a proven, trusted deal negotiator Bad contracts or agreements Customer – change of control, restrictive LTA’s Employee – off market wages and/or perks

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Avoiding Why Deals Go South

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Recommended Success Formula

Desired Outcomes Desired Guidance

• Business and personal planning

Desired Value

• What will good look like…EV target

+

Desired Timing

• Readiness of owner and business

+

Desired Actions

• Right people, right plan, right focus

+

• Start early – define what good looks like – EV target
• Get external help –- advisors
• Link key team members to the end game
• Identify EV drivers – track progress
• Identify who will see value in your business
• Place yourself in the buyers mindset…excite them
• Manage the process…don’t let it manage you!

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Takeaways

Maximizing Enterprise Value

It’s Never too Soon to Start!

Thank You! Larry O’Toole Larry.OToole@IPSintl.com

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