Published on March 18, 2014
Welcome to Today’s Webinar:
Questions Ground Rules • Attendees are in listen-only mode • This webinar is being recorded for future on-demand playback • Your participation represents acknowledgement that we are recording • Tweet questions & comments to: #WMBOs Windows Mac Tablet
Presenters Bruce Fischer, MBA, CMC Chairman - WelchGroup Consulting email@example.com www.w-group.com ca.linkedin.com/in/bfischer Twitter: @welchgroup Mike Blattman, MBA Manager, Subordinate Financing - BDC Michael.Blattman@bdc.ca www.bdc.ca ca.linkedin.com/pub/mike-blattman/15/153/141 Twitter: @BDC_News Jim McConnery, CPA, CA, TEP Partner - Welch LLP firstname.lastname@example.org www.welchllp.com www.linkedin.com/pub/jim-mcconnery/24/761/4886 Twitter: @welchllp
• Due diligence on business being acquired • Process for a successful MBO • Tax planning • Types of financing What we will cover today
• Assume you know nothing about the business • Do a full DD even if you “think” you know everything about it • Treat the business like a NEW investment, would you buy this business as a 3rd party? – Be even more critical than an outsider would be • Ensure the business strategy / business plan can be executed without the previous owners • Recognize the previous owner(s) knowledge and advice/guidance value in early stages of transition – use it Due Diligence
• Undertake a full SWOT on the business taking into account the NEW management team • Management thinks that as they were involved in the business, they know everything that will affect them - NOT • Management feels as if they are already “running” the business without being at the helm – think again • Is the current business direction the same as what the new team would be taking? If not – what are the implications? Implications / Pitfalls
• Understand deal parameters & implications they may have on the operations (e.g. cash flow) • Who & where is the “control” going to reside with • Decision making? By whom, votes? • Is there a BoD – what is role of previous owner • How is this MBO being financed? Internally (earn out), VTB, externally and what are the implications • New S/H agreement to reflect new ownership Process for a Successful MBO
• Seller should address tax planning proactively – Ideal to evaluate sale implications 2 years in advance of sale • Seller will generally have a bias to do a share deal – Access to $800,000 lifetime capital gains exemption (CGE) – May have multiple access to CGE based on family trust planning – Buyer may be willing to get paid over time to defer gain recognition • Consider merits of an asset deal • Plan for real estate if applicable • Address post-sale employment of vendor Tax Planning - Vendor
• Nature of deal will influence the tax planning for the buyers • Consider mechanism so that OpCo funds / profits can assist with funding purchase price • Address deductibility of interest expense, i.e. where is interest expense incurred • Tax effective structure for buyers • Address shareholder agreement terms for buyers Tax Planning – Buyer Group
• Tax due diligence should be completed by buyers • Address tax planning for business income on a post-acquisition basis • Address shareholder agreement terms for buyers • Is insurance required – Key man – Fund buyout terms • Tax minimization for business owners and families – Merits of holding companies and family trusts • Ensure all buyers have up to date wills • Equity or stock options for key employees Tax Planning
BDC Subordinate Financing Speaker: Mike Blattman, MBA
• Traditional Bank loans • Alternative Financing • Vendor Financing • Management/New shareholder equity Financing Options
Debt Financing Subordinate Financing Equity Monthly payments Flexible Flexible or none None Securities Priority rank Subordinate rank No security Return Fixed (Interest) Fixed and variable (Interest and participation) Variable (participation) Risk Low Medium-high High Involvement in management None Minimal Management rights and board of directors Financing Comparison
Return Risk Products offered by BDC Subordinate Financing BDC Subordinate Financing
- 100,000 200,000 300,000 400,000 500,000 600,000 Year 1 Year 2 Year 3 Year 4 Year 5 Cashsweeps and royalties Principal Interest+ royalty - 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 Year 1 Year 2 Year 3 Year 4 Year 5 Fixed principal and interest Principal Interest Structuring Flexibility
• Postponement • Earn-out • Balloon Payment • Intercreditor Agreements • Subordination • Vendor take-back (VTB) • Valuations • Guarantee • Goodwill • Debt servicing • Cash Flow Banking Terminology
1. It’s never too early to begin discussing opportunities with your business and financial professionals 2. There is no cookie cutter solution 3. Likely multiple parties will be involved in any transaction. Three Things to Remember
Q & A Bruce Fischer, MBA, CMC Chairman - WelchGroup Consulting email@example.com www.w-group.com ca.linkedin.com/in/bfischer Twitter: @welchgroup Mike Blattman, MBA Manager, Subordinate Financing - BDC Michael.Blattman@bdc.ca www.bdc.ca ca.linkedin.com/pub/mike-blattman/15/153/141 Twitter: @BDC_News Jim McConnery, CPA, CA, TEP Partner - Welch LLP firstname.lastname@example.org www.welchllp.com www.linkedin.com/pub/jim-mcconnery/24/761/4886 Twitter: @welchllp
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