Mergers

1
Mergers AcquisitionsStrategies for Todays
Economy
Philip W. Reitz
May 25, 2000
Financial Executives Institute Annual
Leadership Conference
William Blair Company Limited Liability Company
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Presentation Overview

• Is This a Good Time to Sell Your Business?
• Recent MA Activity
• Implications From Internet Explosion
• How to Sell Your Business

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Who Is Phil Reitz?

• BA in Economics from Northwestern
• MBA from Stanford Arjay Miller Scholar
• Six Years with First Boston in 1980s
• Principal in William Blair Co.s MA Group
  Specializing in Middle Market, Sell-Side
  Advisories
• 17 Years of Investment Banking Experience

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• Is This a Good Time To Sell Your Business?

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Is This a Good Time To Sell Your Business?
YES!
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Best Indication Is High Volume
Is This a Good Time To Sell Your Business?
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Drivers for High Volume
Is This a Good Time To Sell Your Business?

• Stock Market Health
• Cost and Availability of Debt
• Motivated Buyers
• Both Corporate and Investment Funds

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Stock Market Health Historical P/E Ratios
Is This a Good Time To Sell Your Business?
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Consistently High Premiums
Is This a Good Time To Sell Your Business?
10
Interest Rates Still Historically Low
Is This a Good Time To Sell Your Business?
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Motivated Corporate Buyers
Is This a Good Time To Sell Your Business?

1999 vs.

1Q 2000 vs.

1998

1Q 1999

Real GDP Growth

4.1


5.0

Corporate Profit Growth

8.8


N/A


Average SP 500 Promised EPS Growth

18.0



1) Corporations Are Feeling Good About Economy
and
Current Business Prospects

2) Corporation Must Buy
To Keep Up With Promised Growth



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Motivated Financial Buyers
Is This a Good Time To Sell Your Business?
Add Debt Huge Buying Power Huge
Motivation to Do Deals
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Scorecard
Is This a Good Time To Sell Your Business?
1 to 10 Scale

• Stock Market
• Debt Market
• Motivated Buyers
• Corporate
• Financial

8 5 7 9
29 of 40
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• Recent MA Activity

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High MA Volume
Recent MA Activity

Number of

Overall Deal
Transactions

Volume





1Q 2000

2,488


495.7 Billion



Best Ever Quarter For Each Statistic


Source MergerStat
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MA Volume by Size of Deal
Recent MA Activity
Lots of Big Deals






1 Billion

70 Mega
-
Deals

399.3 Billion


Best Ever Quarter For Each Statistic



Lots of Medium Sized Deals





25
-
250 Million Deals

351 Deals

33.1 Billion


Best Ever Quarter For Each Statistic


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Driving Trends
Recent MA Activity

• More European Activity Up 89 from 1998 to 1999
• More Internet Activity 70 of 1Q 2000 MA
  Announced Deal Were Internet-related Vs. 25 in
  1Q 1999

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• Implications From Internet Explosion

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Historical Perspective
Implications From Internet Explosion
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Traditional Valuation Techniques Do Not Fit
Internet
Implications From Internet Explosion
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Internet Valuation Techniques
Implications From Internet Explosion
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Biggest Lesson On Internet MA
Implications From Internet Explosion
When You Are Buying Potential, Make Sure You Get
the People Who Will Turn Potential Into Reality

• Tactics
• Decide Who Stays and Who Goes Quickly
• Establish Stay Bonuses and Option Plan Deep Into
  Organization
• Consider Non-standard Compensation
• Day Care
• Sabbaticals
• Dress Code

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Other Lessons for Internet MA
Implications From Internet Explosion

• Auction Process Takes Too Long
• Internet Speed is Faster than Five Months
• Must Always Be on the Make for a Partner
• Must Sell Concept of Deal
• Stocks Trade on Potential Not Here Now
• Deals Can Change the Perception of That Concept

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• How to Sell Your Business

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How to Sell Your Business
Step One Hire an Investment Banker
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Three Big Issues
How to Sell Your Business
Valuation
Potential Buyers
Sale Process
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Valuation
How to Sell Your Business

• Numerous Techniques
• Comparable Public Company Multiples, Comparable
  Acquisition Multiples, Discounted Cash Flow,
  Theoretical Leveraged Buyout, Buyer Accretion,
  Value of Goodwill, Discounted Future Stock Price,
  etc., etc.
• Correct Value
• Surround Value with Analysis
• Result of Auction
• Application of Judgment

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Decide How Valuation Will Be Used
How to Sell Your Business

• In true auction, preliminary valuation is wasted
  effort
• Constructive Uses for Valuation
• Asking Price Focuses Discussion but Limits
  Upside
• Walk-away Price Needed in Negotiated Deal

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Potential Buyers
How to Sell Your Business
Financial Buyers with Portfolio Company
Corporate Buyers
FinancialBuyers
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Potential Buyers
How to Sell Your Business
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Potential Buyers Who Pays More?
How to Sell Your Business
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Alternative Marketing Approaches
How to Sell Your Business
Closed Negotiation
Open Auction
Targeted Solicitation
Evaluate interested parties and existing offers
Method
Solicit offers from any interested parties
Explore short list of most-likely buyers
No new disclosure
Disclosure ofIntent to Sell
Press release
Limited disclosure
Parties able to complete transaction on favorable
terms
Pre-screening
Very little
Strategic and financial fit
Three or fewer
Number of Potential Buyers
Typically fifteen or more
Five to ten
10 weeks or less
ApproximateTime Required
Four months or more
Three to four months
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Process Timeframe
How to Sell Your Business
Twenty Weeks
Formal Marketing Effort
Final Bids and Negotiation
Buyer Due Diligence
Prepare Confidential Memorandum
Plan Strategy and Conduct Due Diligence
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QA