How to Buy a Small Business
- 1. Friday, October 21, 2011 Topic: How to buy a Private Business Presented by: Tom Smith Managing Director Focused Solutions Group and GPSEG NJN Co-Chair Focused Solutions Group – fsgnj.com 1 Management and Technical Services for Manufacturers
- 2. Who is Focused Solutions Group? • NJ-based S-Corp. established 1998 • Provides operational support for Manufacturers/Distributors • “virtual” with Tom Smith as Project Manager • Associates on board for large projects or needing other expertise • Complimentary Business Interview (in No NJ) • All Industries • Areas of Expertise GENERAL MANAGEMENT / PLANNING FINANCIAL SYSTEMS ENGINEERING / DESIGN PROJECT MANAGEMENT PROCESS DESIGN / CONTROL SYSTEM MANUFACTURING / PRODUCTIVITY PRODUCT DEVELOPMENT CUSTOMER SERVICE ENVIRONMENTAL MANAGEMENT QUALITY SYSTEM Focused Solutions Group – fsgnj.com 2 Management and Technical Services for Manufacturers
- 3. Tom Smith’s personal transactions • LBO – Tom and a partner acquired 51% of CSM, a NASDAQ build-to-print steel fabricator in 1988 and turned it into a engineered capital equipment company. This was also a turnaround situation with a Union Boilermakers employee base. Tom (COO) exited profitably in 1998 after selling his interest to his partner (CEO). • FRANCHISE – He and his wife acquired a Decorating Den Interiors franchise in 1995. Cheryl still operates this successful business, is one of the Northern NJ region’s top sellers, and serves as President on their Leadership Council. • ANGEL – In 1998, Tom acquired a non-controlling and non-employee private placement interest in WaterChef, a NASDAQ water treating products company. He helped them improve productivity, develop a new (patented) product and exited profitably after the Rule 144 restrictions were lifted. • ACQUISITION – In 2003, after Tom left a CFO position, he acquired a $2M private company manufacturing industrial staples that is the subject of this presentation. Focused Solutions Group – fsgnj.com 3 Management and Technical Services for Manufacturers
- 4. Today’s Agenda • Targeting acquisitions • RefUSA, Industry, radius , EBITDA, other criteria • Company size - # not $, • Networking • Get Targets to connect with you! • Compelling letter, “not a Broker” • Visit them • Sign NDA • Obtain detailed financial information and review it • Negotiate a Letter of Intent • Negotiate terms details • Get agreement from service providers (lawyers, accountants) • Proceed with the deal! • Due diligence • Establish a vision • Create a Business Plan • Financing if needed • Close! Focused Solutions Group – fsgnj.com 4 Management and Technical Services for Manufacturers
- 5. Targeting Acquisitions • Decide on Criteria • Resources to spend or leverage (Have/Need) • recast EBITDA = Annual need x 1.5 (How big?) • Leverage = Resources x 2-3 • Company size, by # not $ (Productivity ratio) • Broad Industry or SIC/NAICS code • Geography – Radius search, State, National, etc • Let your network know your criteria • Brokers, Lawyers, Accountants, other Service Providers • Network! Focused Solutions Group – fsgnj.com 5 Management and Technical Services for Manufacturers
- 6. Get Targets to Connect with You • Compelling Letter • I am not a Broker • Say what you are trying to do • Visit Them • Especially if local (definitely if a deal) • Helps to make personal connection with owner • Helps you to see early where you might add value • Sign NDA (most cases) • Obtain Detailed Financials and review • Do your own recasting, rec with books and returns Focused Solutions Group – fsgnj.com 6 Management and Technical Services for Manufacturers
- 7. Get Targets to Connect with You Are you interested in selling your business? I am interested in acquiring a manufacturing or distribution business, or a business that services such companies. I am not a broker or dealer. I am an engineer and manufacturing business manager interested in maintaining a presence in New Jersey. I want to treat your customers, vendors, and employees at least as well as you would treat them, if not better. Buying as opposed to starting a business appeals to me since I have been quite proficient at improving businesses from a base level. My preferred approach is to have existing customers and an existing reputation to build upon. If you are interested in discussing this opportunity further, you can reach me at xxx-xxx-xxxx or via email at x@x.com. Very truly yours, Focused Solutions Group – fsgnj.com 7 Management and Technical Services for Manufacturers
- 8. Negotiate a Letter of Intent • Outline of Terms • Pricing (kicker? low or high?) • Asset Purchase? • Personal Guarantees • Non-compete • Contingent on financing and DD • Pricing • Kicker? Low or high? • Seller Financing • Outside Financing • Timing of payments • Inventory, transitional notes that may affect pricing • Service Providers • Contract reviews - attorneys • Financials - accountants • Advisors – insurance, personal, etc Focused Solutions Group – fsgnj.com 8 Management and Technical Services for Manufacturers
- 9. Proceed with the Deal! • Due Diligence (see Outline) • Caveat Emptor – Reagan • Longest part of the process • Establish a Vision • Improvements to existing • New products, customers, and markets • Path to growth • Create a Business Plan • Analyze Market forces (SWOT) • Financials – Historic and Projections • ROI, ROE, newco EBITDA, etc. • Arrange for financing if needed • Shop around! • Close! Focused Solutions Group – fsgnj.com 9 Management and Technical Services for Manufacturers
- 10. Due Diligence Summary • Documentation • Business Review • The Company’s market • Marketing and Sales • Finance • Legal • Administration and Management • Workforce • Other Focused Solutions Group – fsgnj.com 10 Management and Technical Services for Manufacturers
- 11. Thank you! A few excellent NJ resources • www.njtma.com NJ Tooling & Manufacturing Association • www.njbia.org NJ Business & Industry Association • www.njmep.org NJ Manufacturing Extension Program • www.nj.gov/njbusiness NJ Business Action Center Contact me at tom@fsgnj.com or 908-612-9952 Focused Solutions Group – fsgnj.com 11 Management and Technical Services for Manufacturers