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Bare Metal V7 (No Notes)
- 1. Optimizing Value BareMetal Data World 2008 Conference Denver, CO October 17, 2008
- 2. Presentation Outline Tactical View: What now? Financial Operational Customers Strategic View: Selling your business Valuation Instructive transactions Lessons learned and transaction myths
- 3. Jim Howard Waterfront Capital, Inc. Director – WCI since December 2006 20+ years IT Services/Technology Background Deep ITO/BPO experience Claremont McKenna College – 1977 WCI has been representing information management businesses since 1996 WCI principals have been involved in over 170 successful industry transactions
- 4. Current Economic Conditions Broad international economic downturn Volatile investment climate Uncertain markets Credit/debt extremely expensive Where’s the bottom?
- 5. Near-Term Economic Conditions Potential for a prolonged downturn Credit market conditions are a key valuation driver Further erosion of credit possible Potential new market paradigms and valuations
- 6. WCI’s Viewpoint IM companies are very recession resistant Private equity firms committed to the space and are currently still acquiring Increasing selectivity by institutional buyers Market will likely retreat from high multiples As always, focus on building value More important than ever to understand what you are selling and to whom you are selling
- 7. Important Considerations Growth – buyers want growing businesses Good Real estate – make good decisions Contracts – protect your customer relationships Obtain good counsel when you decide to sell
- 8. Financial Management Conserve Cash Focus on A/R – manage DSO’s Consider deferring capital expenditures Examine your key supplier relationships, especially your banker Forecast & budget Stay flexible
- 9. Operational Management Recognize service slow downs before they impact the bottom line - review and optimize staffing Watch for changes in special projects & services Match labor to tomorrow’s operations, not yesterday’s Examine your business processes; re-engineer Identify & manage your key variable cost drivers
- 10. Customer Management Sharpen your market focus – value vs. price Determine critical markets, tailor offerings Solidify customer relationships Create a client-centric culture Aggressively sell to grow faster than the market & increase cash flow Evaluate your pricing within the context of market, not solely costs
- 11. Planning Ahead Many factors go into deciding to sell, beyond just the “economy” If currently considering an exit, consider moving very quickly Leverage experienced industry professionals – undertake a valuation Build your team - Institutional buyers are sophisticated
- 12. M&A History 500+ industry transactions with valuations distributed along a bell curve:
- 13. Proforma Adjusted EBITDA Multiples Transaction multiples are evaluated by Purchasers in the following manner: (Purchase Price) + (Integration Costs) (Buyer’s Pro Forma EBITDA)
- 14. Proforma Multiples (Purchase Price) + (Integration Costs) (Buyer’s Pro Forma EBITDA) Purchase Price factors: Cost of capital Anticipated growth rates Anticipated stability of cash flows Forward operating leverage Integration Cost factors: Transaction costs “ Fixing Costs” Buyer’s EBITDA factors: Synergies Management requirements
- 15. History: Three Interesting Transactions Proforma adjusted EBITDA multiples believed to be at least 10X EBITDA: First American Records Management (1999) Pierce-Leahy (2000) Archives One (2007)
- 16. Transaction Similarities: External Factors Multiple bidders: Use of intermediaries Capital markets impact valuations Search for a scalable model: Private equity modus operandi
- 17. Transaction Similarities: Internal Factors Scale, scale, scale: Companies were large enough to be meaningful to the acquirer(s) Acquisitions provided instant market presence Accretive to earnings through known synergies Professional management: Long-term focus on structure and process Clean businesses with solid contracts Focus on measurement and metrics More strategy, less emotion: C onstantly sought business improvement Outside board members sharpened management focus and drove management forward
- 18. Know Your Buyer New buyers in the marketplace: BRM , ISCC, Access, Retrievex, LA Records Private equity has recognized the opportunity for value creation in our industry Research bidders ability to perform, track record and appetite Effect : Raises your purchase price multiple by negotiating and transacting with highest and best-priced buyer
- 19. Seek Scale Larger companies command higher multiples: Represent a platform for potential buyers Possess infrastructure for growth Attract institutional buyers Grow faster, take “wallet share” from your customers and business from your competitors Effect : Raises your purchase price multiple
- 20. Optimize Capital Structure Most smaller RIMS companies are “equity heavy” Growth is often capital-constrained Real estate and leasing are excellent sources of lower cost, growth capital Effect : Raises your purchase price and reduces your “fixing costs”
- 21. Transactions: “Top 10 Mistakes” Procrastinating and hanging on to get ‘that last little bit’ Unrealistic expectations Sole-sourcing to other than highest price bidder Thinking that buyers ignore positive and negative synergies Letting a relationship get in the way of the best deal Not seeking the counsel of a skilled agent, and a practiced attorney Ignorance of the sale process & not getting your house in order Failing to understand and apply valuation metrics in your business Indiscretion Letting ego or emotions drive, rather than focusing on the bigger prize
- 22. Five Transaction Myths “ It’s all about you!” “ Heard the one about your buddy who got 4x revenues for his business?!” (i.e. Touting irrelevant acquisition metrics) “ We did x million in EBITDA last year…what am I worth?” (Actual vs. Proforma, Trailing vs. Run rate) “ Don’t sell when capacity utilization is low.” “ It’s worth more if I am not part of the deal.”
- 23. Strategic Management - Execution Focus on growth and long-term strategy Utilize solid contracts Understand your real estate and ‘get it right’ Create organizational structure and self-sufficiency Measure and use operating and financial metrics Effect : Increases purchase price multiple, lowers fixing costs and increases the buyers’ EBITDA
- 24. Jim Howard, Waterfront Capital, Inc. 261 Monarch Lane Austin, TX 78737 ph: 512.514.0091 [email_address] [email_address] [email_address]