Realizing Maximum Business Value November 17 th , 2017
Agenda nda The Realizing Transition Our Value- Intro Succession Premium Options Add Challenge Value Page 1 Page 1
Your ur Present esenter ers Pa Paris Ad Aden Geoff f Benne nett tt Partner Pa er Pa Partner er paris. s.ade aden@ n@val alit itascapital ascapital.com om geoff. f.ben enne nett@ tt@val alita tascap capit ital al.com com Page 2 Page 2
Valitas itas Team am Expe peri rien ence ce M&A Experience with Leading Global Firms ▪ Our team has completed some of the largest, most complex M&A transactions in Canadian history • Almost 200 transactions • Worth in excess of $180 billion Transacti saction on Types es Transacti saction on Size e Breakdo kdown wn 16 16 24 24 Less than $25 million 65 65 74 74 Corporate Sale $25 million to $250 million 53 53 Acquisition $250 million to $1 billion Financing $1 billion or more 105 Not Disclosed 24 24 27 27 Page 3 Page 3
Our r Key Di Differentiat rentiator ors s Value Creation & Exit Timing Expertise Rigorous Bespoke Execution Solutions Page 4 Page 4
Our r Value ues We re respect ect our r client nts s and re recogn gnize ize the legacy cy they have e built. t. 1 We conduct duct oursel elves es with courage rage and integr grit ity in everyt ythin ing g we do. 2 We take e pri ride in our r problem em-solvi solving ng cre reativ tivit ity y and pra racti tical cal insights. ghts. 3 We set et the industr stry stand ndar ard for prot otecti cting ng client ent confide identi ntiality ality. 4 We collab abor orat ate e to deliver er the best st results ts for our client nts. s. 5 We attract act, devel elop op and ret etain n the best st talen ent. t. 6 Ours is a relati tionship nship busi sine ness ss, built ilt on trust. t. 7 Page 5 Page 5
Unprece Un precede dent nted ed Liqui uidity dity Dr Driving ing M&A Activi vity US$2 Trillion in Corporate US$2 Trillion in Private Cash Balances Equity Purchasing Power Annual Canadian Deal Count Public 2,957 Private 2,875 2,774 10-Year High 2,694 2,666 263 2,465 356 2,430 268 2,391 2,372 273 2,248 236 279 248 318 304 2,694 2,519 2,506 2,393 2,229 2,151 2,143 2,054 1,944 LTM 2,163 10-Year Low 1,944 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Capital IQ as of October 18 th , 2017 Page 6 Page 6
Busin iness ss Owner ners s Are Aging ng ▪ Half of business owners plan to transition ownership in the next 10 years (1) % of Canadian Population Aged 65+ 22% 17% 14% 2007 2017 2027E (1) CIBC Page 7 Page 7
Busin iness ss Owner ners s Are Aging ng (continued) Baby Boomers Represent Vast Majority of Canadian Business Ownership Canadian Businesses 1,100,000 Baby Boomer Owned 880,000 65+ Baby Boomer Business Owners (1,2) 684,000 440,000 196,000 0 2010 2015 2020 2025 Sources: Geneva Canada Inc., Government of Canada Page 8 Page 8
None of us are Getting out of Here Alive… Page 9 Page 9
Impact of Owner’s Death 2 Years Later Survival Rates (20%) 4 Years Later Revenue (60%) Sources: Business News Daily, Forbes Page 10 Page 10
Busin inesses sses Are Mortal tal Too 100 75 Company Failure Rates Survival Rate (%) 50 15% after 50% after 75% after 1 Year 5 Years 15 Years 25 0 0 5 10 15 20 Number of Years The Dow has changed its component firms 53 times over its 128 year history Sources: Achieving Longevity Page 11 Page 11
The e Succession ccession Challe llenge nge Owners Are Unprepared Leadership Ownership Transition Transition 15% Yes, formal plan made with advisors 8% Owners Aged 60+ 8% All Owners Yes, formal plan made on my own 3% 29% Yes, but informal 45% 29% No, but plan to create one 33% 20% No, and don't plan to create one 10% Source: Newswire Page 12 Page 12
Ha Haphazar phazard Leade adership ship Trans ansition ition Have You Done Any Planning? Yes, all senior executives 16% Yes, most senior executives 18% Yes, small number of senior executives 21% No plan in place 43% Start thinking about the future leaders of your business! Source: PwC Page 13 Page 13
Stagge aggeri ring ng Inter ergene generat rationa ional l Failur lure Rates es Businesses passed on to descendants 65% 65% Survives second generation 30% 30% Survives third generation 12% 12% Management and Ownership 38% Transition to Descendants Ownership Only 27% Sell 22% Other 13% Source: Newswire Page 14 Page 14
Some Advice… When planning for family business generational transition identify every conceivable problem that might arise. Do that early and ongoing Don't wait until one or more of those problems bites you in the wrong place, leaving you to conclude that you and others have spent ten or more years in what turns out to be frustrating generational transition failure Ian Campbell, Business Transition & Valuation expert, quoting the best generational business transition advice he’s ever received Page 15 Page 15
Your ur Exit it Options tions Orderly Transition To Descendants Hold Leave To Estate Management Exit Options (No Backing) Management (With Backing) Third Party Sale Sale To Financial Buyer (Management Roll) Sale To Strategic Buyer Page 16 Page 16
Owne nersh ship ip Trans ansiti ition n Options tions Family y Member MBOs Privat ate Equ quity ty Stra rateg egic ▪ Reduce third party ▪ Limited due ▪ Fast-moving and ▪ “Strategic involvement diligence sophisticated valuations” ▪ Maintain control ▪ Rewards ▪ Discreet ▪ Often realize Pros management synergies ▪ Potential family ▪ Management ▪ Management ▪ Often slow and conflict usually lacks equity “roll” unsophisticated capital ▪ May lack ▪ “Gaming” the ▪ Risk of leaks leadership talent ▪ IOUs vs. cash process Cons ▪ Failed purchase can affect morale Page 17 Page 17
Value ue Creation eation Road ad Map Assessment & Plan Value Acceleration Well-Timed Exit Growth Opportunities Acquisitions Page 18 Page 18
Posit sitioning ioning Your ur Compan any y for r Premium emium Value lue Fina nanci ncial Chara ract cteristi eristics cs ▪ Recurring revenue ▪ Growth ▪ High margins ▪ High ROI ▪ Opportunity-rich, capital constrained Indus ustr try y Charact cterist ristics cs Comp mpeti etitive Charact cterist ristics cs ▪ Recession resistant (non-cyclical) ▪ Strong competitive position – “moat” ▪ Many acquisitive, synergistic buyers ▪ Why do you win? • Global sales force ▪ Structural strategic advantages • Complementary channels, products ▪ Unique know-how, engineering or IP Page 19 Page 19
Aged ed Owne ners s Slow w Do Down n Value lue Creation eation Shift In Owner’s Focus 66% Focus on innovation 57% 38% 46% Focus on international growth 33% Aged 25-39 13% Aged 40-59 41% Aged 60+ Volume of exports 30% 13% 61% Number of products and services 52% 35% 61% Number of employees 48% 25% Don’t slow down before your exit, speed up for premium value (1) Newswire Page 20 Page 20
A Pr Proven en Proce cess ss for r Realiz alizin ing g Value ue nd Stage Bids Pre-Launch unch Preparati ration Mark rketi eting/1 ng/1 st Round nd Bids ds 2 nd ds ▪ Buyer’s List ▪ Distribute teasers/CIMs ▪ Distribute second round process letters ▪ Prepare CIM ▪ Deliver process letters ▪ Provide definitive ▪ Teasers/NDA ▪ Evaluate EOIs documents 8 to 12 Months nd Stage Preparat 2 nd aration Purchase hase Due Diligenc ence Negoti otiati tion ▪ Prepare data room ▪ Data room access ▪ Negotiate transaction agreements ▪ Prepare management ▪ Management presentations presentations ▪ Execute agreement Page 21 Page 21
Island and He Heari ring ng Case se Study udy The Situation ▪ Wanted to sell immediately ▪ Delayed the process by 12 months instead ▪ Acquired smaller clinics to unleash value Result ult EBITDA: increased 150%+ Valuation: > 2.5x higher Pre-str strat ategi gic readi dine ness ss Created a Valuation: pipeline of 18 8-10x EBITDA Closed 10 additional Approached Acquisitions targets 37 Targets Page 22 Page 22
Island and He Heari ring ng Case se Study udy (continued) The Result 18 months later… the business sold for more than 2.5 x initial valuation including an earn-out, 98% of which was paid within 3 years of closing… Valuation Multiple Expansion Growth Base Value Beginning 18 Months Later Page 23 Page 23
Valitas itas Core re Servi vices ces Value Creation, Rigourous Execution, Bespoke Solutions ▪ Industry-leading advisory services: Sellsid side e M&A Advisor isory Buysi side de M&A Ad Advisor isory Strategic egic Readines iness and Debt t and Equ quit ity Exit t Posit itioning ioning Financi ncing ng Ad Advisor isory Page 24 Page 24
Valitas itas Targ rget t Mark rket Situational Specialists Target Deal Size ($ millions) Sale $15+ Debt t Finan anci cing ng $10+ Equity quity Raise se $5+ Compa panie ies s Industr ustry 2-5 Years s Agnostic ostic From Sale Page 25 Page 25
Q&A Page 26 Page 26
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