logging in or signing up Its Lonely at the TOP Zweigwhite Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINT lite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: (To copy code, click on the text box) Embed: URL: Thumbnail: WordPress Embed Customize Embed The presentation is successfully added In Your Favorites. Views: 199 Category: Business & Fin.. License: All Rights Reserved Like it (0) Dislike it (0) Added: April 06, 2010 This Presentation is Public Favorites: 0 Presentation Description Exit Strategy Alternatives for Sole Owners and Partners : ZweigWhite’s Financial Advisory Services Group provides a diverse range of corporate finance, valuation, ownership transition planning, incentive compensation, and merger & acquisition services for engineering, architecture, and environmental consulting firms, from niche organizations to ENR 500 and publicly-traded firms Comments Posting comment... Premium member Presentation Transcript Slide 1: managing the business of design & construction It’s Lonely at the Top Exit Strategy Alternatives for Sole Owners and Partners Presented by: Steve Gido, CFA and Michael O’Brien, ASA ZweigWhite Financial Advisory Services ZweigWhite Financial Advisory Services : ZweigWhite Financial Advisory Services ZweigWhite’s Financial Advisory Services Group provides a diverse range of corporate finance, valuation, ownership transition planning, incentive compensation, and merger & acquisition services for engineering, architecture, and environmental consulting firms, from niche organizations to ENR 500 and publicly-traded firms. Valuation & Ownership Planning Services - Business valuations and appraisals – for internal transfer purposes, M&A transactions, ESOPs, stock incentive programs, formula design, buy/sell agreements, litigation support, estate planning, etc. - Comprehensive internal ownership and exit strategy planning, alternatives and analysis - Fairness and solvency opinions - ESOP consulting and assessment - Incentive compensation implementation, assessment, and benchmarking Merger & Acquisition Advisory Services - Firm acquisition searches, outsourced corporate development, and buyside representation - Firm merger/sale services and sellside representation - Asset divestitures and spin-offs - Negotiation, deal structure, and due diligence assistance - Strategic integration planning, support, and consulting - Market and industry research Visit us at www.zweigwhite.com Learning Objectives : Learning Objectives The ownership transition challenges and landscape facing AEC and environmental consulting owners and partners today that are seeking to retire Discussion of various internal transition alternatives (direct buy-sell, ESOPs, recapitalizations) and the pros/cons of each The importance of a thorough firm valuation to manage expectations and minimize surprises Should you sell your firm to a larger A/E firm? Getting your firm “transaction ready” and comparing the external sale vs. the internal transition route How owners and partners can get going now. What are the steps to move towards a positive succession plan? Visit us at www.zweigwhite.com Internal Ownership Transition : Internal Ownership Transition Shifting Demographics Visit us at www.zweigwhite.com Internal Ownership Transition : Internal Ownership Transition Options for getting shares into hands of your employees Direct Stock Purchase Employee Stock Purchase Plan (ESPP) Employee Stock Ownership Plan (ESOP) Leveraged Recapitalization Stock Bonus Programs Synthetic Equity Plan (Conversion) Stock Options Merger and Acquisition Visit us at www.zweigwhite.com Internal Ownership Transition : Internal Ownership Transition Direct Stock Purchase Plan Planned direct sales to key individuals Non-dilutive Sales of shares from treasury Dilute ownership (not value) Takes longer to reduce major shareholders’ interest Be mindful of IRC Section 302 Formalized sales of shares over time Communicates long-term opportunity for expanded ownership Visit us at www.zweigwhite.com Internal Ownership Transition : Internal Ownership Transition Employee Stock Purchase Plan 423 Plans Direct purchase of shares Discounted up to 15% Discriminatory Dilutive Visit us at www.zweigwhite.com Internal Ownership Transition : Internal Ownership Transition Employee Stock Ownership Plan (ESOP) Qualified retirement savings plan under IRC 401a Beneficial owners of the sponsoring stock Similar to mutual funds Not shareholders of the company! Offers tax advantages to sellers, employees, and company 1042 Rollover Tax deductible Principal Deferred tax to beneficiaries Non-discriminatory Great tool for managing stock redemptions Visit us at www.zweigwhite.com Internal Ownership Transition : Internal Ownership Transition Employee Stock Ownership Plan (ESOP) ESOP is governed by trustees Department of Labor governs the administration of ESOPs Implementation and administration of ESOP will require services of an experienced benefits consultant Stock must be valued annually for ESOP purposes by a qualified independent appraiser More firms opting for S-ESOP Visit us at www.zweigwhite.com Internal Ownership Transition : Internal Ownership Transition Employee Stock Ownership Plan (ESOP) Visit us at www.zweigwhite.com Internal Ownership Transition : Internal Ownership Transition Leveraged Recapitalization Stock redemption Special dividends Bank note versus shareholder note Mitigate bankruptcy risk Easier to fund Not much less risk than being a shareholder Excess cash? Sole owner versus large shareholder IRC Section 302 Visit us at www.zweigwhite.com Internal Ownership Transition : Internal Ownership Transition Stock Bonus Programs Tax deductible expense with no cash outlay Sales of shares from treasury Dilute ownership (not value) Did they “Buy” it? Psychology of buying shares versus “Given” shares Ownership starter? Visit us at www.zweigwhite.com Internal Ownership Transition : Internal Ownership Transition Synthetic Equity Programs Phantom Stock Receive “Units” representing value equal to appreciated increase in equity Stock Appreciation Rights Right to monetary equivalent Great tool for providing upside without giving up ownership Less favorable tax consequence Discriminatory IRC Section 409a Visit us at www.zweigwhite.com Internal Ownership Transition : Internal Ownership Transition Stock Options Contract for a right to purchase shares Five to seven years of vesting Great recruiting/retention tool Ownership is not transferred (until exercised) Long-term objective Be aware of taxes Visit us at www.zweigwhite.com Internal Ownership Transition : Internal Ownership Transition Fair Market Value Balances the supply/demand between sellers and buyers Creates transparency on how value is determined (independence) Create shareholder value accountability for management Mitigates against value manipulation Visit us at www.zweigwhite.com M&A Environment : M&A Environment Despite global recession and uneven design climate, cautious but resilient M&A and industry consolidation activity is continuing in 2009 Some buyers are pulling back the reigns on M&A and expansion goals; others see “value play” opportunities given more realistic valuations More sellers emerging with challenging design and economic climate and reality of favorable capital gains tax treatment expiring in 2010 Prior “Seller’s Market” of higher valuations shifting to “Buyer’s Market” given economic landscape and supply/demand imbalance – buyers are being choosier in terms of criteria, valuations, and strategic intent Internal ownership transition plans becoming more difficult to accomplish Long-term, U.S. market will continue to be attractive to Canadian, Australian, and European buyers, spurring more cross-border deals Have witnessed sizable deals that are changing competitive landscape, but seeing more “niche” tuck-in deals given current conditions Current M&A Climate Visit us at www.zweigwhite.com M&A Environment : M&A Environment Geographic regions: Southeast and Southwest U.S.; metropolitan U.S. cities Services: civil, environmental, geotechnical, structural Markets: federal, healthcare, mining, energy/oil & gas, power/utilities, state/municipal, water resources, water/wastewater, natural resources, infrastructure, green building (MEP), and transportation Size: 15-150 employees, $2-$20M net revenue Developed client base Technical staff with broad project management and marketing expertise Desired Criteria by Buyers Visit us at www.zweigwhite.com M&A Environment : M&A Environment Facilitate ownership transition / maximize shareholder return Expand firm’s resources (managerial, marketing, financial, personnel) Increase opportunities for staff Provide impetus for growth Manage growth Provide new services to existing client base Provide existing services to new client base “Fire sale” or distressed situation for survivability 43% of ZweigWhite’s 2009 Merger & Acquisition Survey of A/E/P and Environmental Firms respondents indicated considering a firm sale, an all-time high Sale Rationale Visit us at www.zweigwhite.com Sell Down or Sell Out? : Sell Down or Sell Out? Key Differences between an Internal Transition and External Sale: Visit us at www.zweigwhite.com What does a typical AEC deal look like? : What does a typical AEC deal look like? Most are asset purchases rather than stock purchases Transactions are often mix of cash, buyer’s stock, & installment notes Example - $2.2M Valuation $750k cash at closing $250k stock at closing $1.2M in three annual installments of $400k each (w/interest) Earnouts, or pay for performance clauses, remain popular to close manageable valuation gaps, but can be a barrier to integration Employment agreements and compatible salary/incentive compensation structures are key Visit us at www.zweigwhite.com Are You “Transaction Ready”? : Are You “Transaction Ready”? Personal Can you make the switch from owner/entrepreneur to employee? Realize possible loss of control, flexibility, lifestyle, benefits, title, role, etc. Age, family, health concerns, 2nd tier capability/leadership all factors Many owners share they work harder during and after the sale than before it! Organizational How is your financial history and trends? Growing? Profitable? How’s backlog? Do you have organized financial, legal, personnel, and operational records? Are there any pending liability issues (personnel issues, pending lawsuits, software licensing deficiencies, etc.) How would you break the news to employees and clients? Reactions? Be able to articulate your firm’s capabilities and strategic rationale to a buyer! Visit us at www.zweigwhite.com Getting Going – Typical Firm Sale Process : Getting Going – Typical Firm Sale Process Unsolicited Inquiry Local/Regional Competitor or Unknown “Knock on the Door” One on one discussion – is buyer right cultural match? Are you getting best price/terms? Is synergy potential there? Active Representative Process Identify buyer universe Contact CEOs/Presidents at selected firms Distribute confidentiality agreements and sale memorandum Arrange introductory meetings for management teams Assist with valuation range, deal structure, and employment issues Work with legal and accounting teams Negotiation until deal closure Visit us at www.zweigwhite.com Getting Going – Typical Firm Sale Process : Getting Going – Typical Firm Sale Process Illustrative Sale Process Visit us at www.zweigwhite.com Getting Going - Firm Sale Process : Getting Going - Firm Sale Process Shareholder Objectives Maximize valuation Evaluate relative merits of different forms of consideration Preference for cash and /or equity from strong, growing AEC firms Consideration of earnouts to bridge valuation gaps Salary, bonus, and perquisites to management and staff Evaluation of tax strategies to maximize transaction proceeds Make progress on a timely basis to maximize senior management’s options Preserve confidentiality to minimize disruptions Orderly transition and integration of employee and client base Visit us at www.zweigwhite.com Getting Going - Firm Sale Process : Getting Going - Firm Sale Process Key Transaction Considerations Timing issues Transaction structure Appropriate buyer universe Strategic / cultural fit and similar vision and design philosophy Valuation Opportunity to access new client/market base Geographic and service diversity Cost savings and synergy potential Ongoing senior management participation Disclosure and confidentiality Visit us at www.zweigwhite.com Closing Thoughts : Closing Thoughts Understand your motivation to sell and ask peers that have gone through it Understand the buyer’s motivation to acquire you Be aware that AEC transactions are “holistic” and integration of two disparate firms can be powerful, yet disruptive Realize things will be different – most employees and clients don’t like unexpected change! Know that you don’t have to sell (or buy) but realize your competition isn't standing still Visit us at www.zweigwhite.com Dedicated Exit Strategy Seminars & Events : Dedicated Exit Strategy Seminars & Events Merger & Acquisition Essentials for A/E/P and Environmental Consulting Firms October 28, Las Vegas, NV Valuation & Ownership Transition for A/E/P and Environmental Consulting Firms October 28, Las Vegas, NV December 2, West Palm Beach, FL 2009 AEC Mergers & Acquisitions Summit – December 3-4 – Ritz Carlton, West Palm Beach, FL www.zweigwhite.com/events Visit us at www.zweigwhite.com Questions : Questions ? Visit us at www.zweigwhite.com Contact Information : Contact Information Steve Gido, CFA Michael O’Brien, ASA (202) 965-4809 (202) 965-4807 sgido@zweigwhite.com mobrien@zweigwhite.com Visit us at www.zweigwhite.com You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.
Its Lonely at the TOP Zweigwhite Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINT lite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: (To copy code, click on the text box) Embed: URL: Thumbnail: WordPress Embed Customize Embed The presentation is successfully added In Your Favorites. Views: 199 Category: Business & Fin.. License: All Rights Reserved Like it (0) Dislike it (0) Added: April 06, 2010 This Presentation is Public Favorites: 0 Presentation Description Exit Strategy Alternatives for Sole Owners and Partners : ZweigWhite’s Financial Advisory Services Group provides a diverse range of corporate finance, valuation, ownership transition planning, incentive compensation, and merger & acquisition services for engineering, architecture, and environmental consulting firms, from niche organizations to ENR 500 and publicly-traded firms Comments Posting comment... Premium member Presentation Transcript Slide 1: managing the business of design & construction It’s Lonely at the Top Exit Strategy Alternatives for Sole Owners and Partners Presented by: Steve Gido, CFA and Michael O’Brien, ASA ZweigWhite Financial Advisory Services ZweigWhite Financial Advisory Services : ZweigWhite Financial Advisory Services ZweigWhite’s Financial Advisory Services Group provides a diverse range of corporate finance, valuation, ownership transition planning, incentive compensation, and merger & acquisition services for engineering, architecture, and environmental consulting firms, from niche organizations to ENR 500 and publicly-traded firms. Valuation & Ownership Planning Services - Business valuations and appraisals – for internal transfer purposes, M&A transactions, ESOPs, stock incentive programs, formula design, buy/sell agreements, litigation support, estate planning, etc. - Comprehensive internal ownership and exit strategy planning, alternatives and analysis - Fairness and solvency opinions - ESOP consulting and assessment - Incentive compensation implementation, assessment, and benchmarking Merger & Acquisition Advisory Services - Firm acquisition searches, outsourced corporate development, and buyside representation - Firm merger/sale services and sellside representation - Asset divestitures and spin-offs - Negotiation, deal structure, and due diligence assistance - Strategic integration planning, support, and consulting - Market and industry research Visit us at www.zweigwhite.com Learning Objectives : Learning Objectives The ownership transition challenges and landscape facing AEC and environmental consulting owners and partners today that are seeking to retire Discussion of various internal transition alternatives (direct buy-sell, ESOPs, recapitalizations) and the pros/cons of each The importance of a thorough firm valuation to manage expectations and minimize surprises Should you sell your firm to a larger A/E firm? Getting your firm “transaction ready” and comparing the external sale vs. the internal transition route How owners and partners can get going now. What are the steps to move towards a positive succession plan? Visit us at www.zweigwhite.com Internal Ownership Transition : Internal Ownership Transition Shifting Demographics Visit us at www.zweigwhite.com Internal Ownership Transition : Internal Ownership Transition Options for getting shares into hands of your employees Direct Stock Purchase Employee Stock Purchase Plan (ESPP) Employee Stock Ownership Plan (ESOP) Leveraged Recapitalization Stock Bonus Programs Synthetic Equity Plan (Conversion) Stock Options Merger and Acquisition Visit us at www.zweigwhite.com Internal Ownership Transition : Internal Ownership Transition Direct Stock Purchase Plan Planned direct sales to key individuals Non-dilutive Sales of shares from treasury Dilute ownership (not value) Takes longer to reduce major shareholders’ interest Be mindful of IRC Section 302 Formalized sales of shares over time Communicates long-term opportunity for expanded ownership Visit us at www.zweigwhite.com Internal Ownership Transition : Internal Ownership Transition Employee Stock Purchase Plan 423 Plans Direct purchase of shares Discounted up to 15% Discriminatory Dilutive Visit us at www.zweigwhite.com Internal Ownership Transition : Internal Ownership Transition Employee Stock Ownership Plan (ESOP) Qualified retirement savings plan under IRC 401a Beneficial owners of the sponsoring stock Similar to mutual funds Not shareholders of the company! Offers tax advantages to sellers, employees, and company 1042 Rollover Tax deductible Principal Deferred tax to beneficiaries Non-discriminatory Great tool for managing stock redemptions Visit us at www.zweigwhite.com Internal Ownership Transition : Internal Ownership Transition Employee Stock Ownership Plan (ESOP) ESOP is governed by trustees Department of Labor governs the administration of ESOPs Implementation and administration of ESOP will require services of an experienced benefits consultant Stock must be valued annually for ESOP purposes by a qualified independent appraiser More firms opting for S-ESOP Visit us at www.zweigwhite.com Internal Ownership Transition : Internal Ownership Transition Employee Stock Ownership Plan (ESOP) Visit us at www.zweigwhite.com Internal Ownership Transition : Internal Ownership Transition Leveraged Recapitalization Stock redemption Special dividends Bank note versus shareholder note Mitigate bankruptcy risk Easier to fund Not much less risk than being a shareholder Excess cash? Sole owner versus large shareholder IRC Section 302 Visit us at www.zweigwhite.com Internal Ownership Transition : Internal Ownership Transition Stock Bonus Programs Tax deductible expense with no cash outlay Sales of shares from treasury Dilute ownership (not value) Did they “Buy” it? Psychology of buying shares versus “Given” shares Ownership starter? Visit us at www.zweigwhite.com Internal Ownership Transition : Internal Ownership Transition Synthetic Equity Programs Phantom Stock Receive “Units” representing value equal to appreciated increase in equity Stock Appreciation Rights Right to monetary equivalent Great tool for providing upside without giving up ownership Less favorable tax consequence Discriminatory IRC Section 409a Visit us at www.zweigwhite.com Internal Ownership Transition : Internal Ownership Transition Stock Options Contract for a right to purchase shares Five to seven years of vesting Great recruiting/retention tool Ownership is not transferred (until exercised) Long-term objective Be aware of taxes Visit us at www.zweigwhite.com Internal Ownership Transition : Internal Ownership Transition Fair Market Value Balances the supply/demand between sellers and buyers Creates transparency on how value is determined (independence) Create shareholder value accountability for management Mitigates against value manipulation Visit us at www.zweigwhite.com M&A Environment : M&A Environment Despite global recession and uneven design climate, cautious but resilient M&A and industry consolidation activity is continuing in 2009 Some buyers are pulling back the reigns on M&A and expansion goals; others see “value play” opportunities given more realistic valuations More sellers emerging with challenging design and economic climate and reality of favorable capital gains tax treatment expiring in 2010 Prior “Seller’s Market” of higher valuations shifting to “Buyer’s Market” given economic landscape and supply/demand imbalance – buyers are being choosier in terms of criteria, valuations, and strategic intent Internal ownership transition plans becoming more difficult to accomplish Long-term, U.S. market will continue to be attractive to Canadian, Australian, and European buyers, spurring more cross-border deals Have witnessed sizable deals that are changing competitive landscape, but seeing more “niche” tuck-in deals given current conditions Current M&A Climate Visit us at www.zweigwhite.com M&A Environment : M&A Environment Geographic regions: Southeast and Southwest U.S.; metropolitan U.S. cities Services: civil, environmental, geotechnical, structural Markets: federal, healthcare, mining, energy/oil & gas, power/utilities, state/municipal, water resources, water/wastewater, natural resources, infrastructure, green building (MEP), and transportation Size: 15-150 employees, $2-$20M net revenue Developed client base Technical staff with broad project management and marketing expertise Desired Criteria by Buyers Visit us at www.zweigwhite.com M&A Environment : M&A Environment Facilitate ownership transition / maximize shareholder return Expand firm’s resources (managerial, marketing, financial, personnel) Increase opportunities for staff Provide impetus for growth Manage growth Provide new services to existing client base Provide existing services to new client base “Fire sale” or distressed situation for survivability 43% of ZweigWhite’s 2009 Merger & Acquisition Survey of A/E/P and Environmental Firms respondents indicated considering a firm sale, an all-time high Sale Rationale Visit us at www.zweigwhite.com Sell Down or Sell Out? : Sell Down or Sell Out? Key Differences between an Internal Transition and External Sale: Visit us at www.zweigwhite.com What does a typical AEC deal look like? : What does a typical AEC deal look like? Most are asset purchases rather than stock purchases Transactions are often mix of cash, buyer’s stock, & installment notes Example - $2.2M Valuation $750k cash at closing $250k stock at closing $1.2M in three annual installments of $400k each (w/interest) Earnouts, or pay for performance clauses, remain popular to close manageable valuation gaps, but can be a barrier to integration Employment agreements and compatible salary/incentive compensation structures are key Visit us at www.zweigwhite.com Are You “Transaction Ready”? : Are You “Transaction Ready”? Personal Can you make the switch from owner/entrepreneur to employee? Realize possible loss of control, flexibility, lifestyle, benefits, title, role, etc. Age, family, health concerns, 2nd tier capability/leadership all factors Many owners share they work harder during and after the sale than before it! Organizational How is your financial history and trends? Growing? Profitable? How’s backlog? Do you have organized financial, legal, personnel, and operational records? Are there any pending liability issues (personnel issues, pending lawsuits, software licensing deficiencies, etc.) How would you break the news to employees and clients? Reactions? Be able to articulate your firm’s capabilities and strategic rationale to a buyer! Visit us at www.zweigwhite.com Getting Going – Typical Firm Sale Process : Getting Going – Typical Firm Sale Process Unsolicited Inquiry Local/Regional Competitor or Unknown “Knock on the Door” One on one discussion – is buyer right cultural match? Are you getting best price/terms? Is synergy potential there? Active Representative Process Identify buyer universe Contact CEOs/Presidents at selected firms Distribute confidentiality agreements and sale memorandum Arrange introductory meetings for management teams Assist with valuation range, deal structure, and employment issues Work with legal and accounting teams Negotiation until deal closure Visit us at www.zweigwhite.com Getting Going – Typical Firm Sale Process : Getting Going – Typical Firm Sale Process Illustrative Sale Process Visit us at www.zweigwhite.com Getting Going - Firm Sale Process : Getting Going - Firm Sale Process Shareholder Objectives Maximize valuation Evaluate relative merits of different forms of consideration Preference for cash and /or equity from strong, growing AEC firms Consideration of earnouts to bridge valuation gaps Salary, bonus, and perquisites to management and staff Evaluation of tax strategies to maximize transaction proceeds Make progress on a timely basis to maximize senior management’s options Preserve confidentiality to minimize disruptions Orderly transition and integration of employee and client base Visit us at www.zweigwhite.com Getting Going - Firm Sale Process : Getting Going - Firm Sale Process Key Transaction Considerations Timing issues Transaction structure Appropriate buyer universe Strategic / cultural fit and similar vision and design philosophy Valuation Opportunity to access new client/market base Geographic and service diversity Cost savings and synergy potential Ongoing senior management participation Disclosure and confidentiality Visit us at www.zweigwhite.com Closing Thoughts : Closing Thoughts Understand your motivation to sell and ask peers that have gone through it Understand the buyer’s motivation to acquire you Be aware that AEC transactions are “holistic” and integration of two disparate firms can be powerful, yet disruptive Realize things will be different – most employees and clients don’t like unexpected change! Know that you don’t have to sell (or buy) but realize your competition isn't standing still Visit us at www.zweigwhite.com Dedicated Exit Strategy Seminars & Events : Dedicated Exit Strategy Seminars & Events Merger & Acquisition Essentials for A/E/P and Environmental Consulting Firms October 28, Las Vegas, NV Valuation & Ownership Transition for A/E/P and Environmental Consulting Firms October 28, Las Vegas, NV December 2, West Palm Beach, FL 2009 AEC Mergers & Acquisitions Summit – December 3-4 – Ritz Carlton, West Palm Beach, FL www.zweigwhite.com/events Visit us at www.zweigwhite.com Questions : Questions ? Visit us at www.zweigwhite.com Contact Information : Contact Information Steve Gido, CFA Michael O’Brien, ASA (202) 965-4809 (202) 965-4807 sgido@zweigwhite.com mobrien@zweigwhite.com Visit us at www.zweigwhite.com