KENNETH MARKS – MIDDLE MARKET M & A. HANDBOOK FOR INVEST

MIDDLE MARKET M & A: HANDBOOK FOR INVESTMENT BANKING AND BUSINESS CONSULTING

• Provides a holistic overview and guide on mergers, acquisitions, divestitures and strategic transactions of companies with revenues from $5 million to $500 million
• Encompasses current market trends, activities, and strategies covering pre, during, and post transaction
• Addresses the processes and core subject areas required to successfully navigate and close deals in the private capital market
• Includes content on engagement and practice management for those involved in the M&A business

The practical guide and reference is an excellent primer for those trying to get a license from the Financial Industry Regulatory Authority.

TABLE OF CONTENTS

Preface xv

Acknowledgments xix.

PART ONE THE MIDDLE MARKET 1

CHAPTER 1 PRIVATE CAPITAL MARKETS 1

Markets 4 were segmented.

Why are markets different?

Capital providers

Managers and owners have differing views of risk.

Buyers 11

Market activity 14

CHAPTER 2 VALUATION PERSPECTIVES FOR THE PRIVATE MARKETS 17

Private business valuations can be seen through different standards.

The market value is 21.

The fair market value is 22.

The fair value is 22.

Incremental business value.

The investment value is 23.

The owner value is 23.

There is a Collateral Value 23.

The book value is 24.

There are different versions of value.

A Range Concept 25 is a valuation.

There are value world and deals.

An alternative approach to valuation.

CHAPTER 3 CORPORATE DEVELOPMENT 27

Why Acquire?

The Dismal. D. s 29

There are alternatives 30.

The process of acquisition

The Filter and thePipeline.

The Target 33 is approaching.

There is a balance between a deep dive and locking in the deal.

The lower-middle market has deals.

There is a valuation from a strategic perspective.

The transaction was structuring.

The Bid 38

Diligence 38

Integration 41.

Case Study #142.

Strategic Rationale 42.

There are 43 challenges.

Transaction 44 was made.

Lessons learned.

Case study number 44.

There are practical tips and what causes deals to fail.

What should we buy?

Why are we doing this?

There is an alignment of interests.

Allocate enough resources.

If it goes wrong, it will go wrong.

CHAPTER 4 A GLOBAL PERSPECTIVE 51

Global M&A 52 has some advantages.

There are challenges to global M&A.

Negotiations and the importance of cultural heritage.

The due diligence was strategic.

Are the odds in your favor?

Think integration from the beginning.

There are acquisitions that build value.

1. Set Clear Expectations and Invest in High-Quality, Two-Way Communication 63
2. Acknowledge Cultural Differences but Simultaneously Create a Common Corporate Culture with a Single Goal: Achieving High Performance 64
3. Move to a Cross-Border Operating Model 65

The acquisition process and the legal environment.

The conduct of business and the legal environment.

Taxation 68.

Labor 68

The FCPA deals with foreign corrupt practices.

Success factors are 70.

PART TWO THE M&A PRACTICE AND PROCESSES 71

CHAPTER 5 PRACTICE MANAGEMENT 73

Primary M&A Advisors.

The practice of marketing M&A.

Networking 76

There is marketing and advertising.

Pretransaction consulting

Valuation Services 77

Other consulting services

becoming an expert

Understanding the private business owner

Client acceptance

Initial financial analysis

There are value discussions.

Process discussions

Confidentiality 83

The client engagement was 84.

The parties are identified.

There is a scope of service.

There are limitations and disclosures.

Fees 86

Double Lehman Formula 87.

There are two things that are terminated and tail 88.

There are Licensure Issues in the M&A Business.

CHAPTER 6 SELL-SIDE REPRESENTATION AND PROCESS 91

Selling process overview

Data Collection 92 is the first step.

The second step is industry research and identifying buyer types.

The Marketing Book 95 is the third step.

The fourth step is the marketing process.

Negotiating price and terms is the fifth step.

Structuring the Transaction 106 is the sixth step.

The 7th step is receiving letters of intent or term sheets.

The 8th step is due diligence.

The ninth step is the definitive agreements.

There is a closing process.

CHAPTER 7 BUY-SIDE REPRESENTATION AND PROCESS 117

Strategy 118.

Fees and engagement

The filter has a number.

Financing 120.

The quality of earnings is 120.

Coordination 122.

Integration 122.

CHAPTER 8 MERGERS 123

Initial analysis of both entities.

There is a strategic rationale.

Valuation modeling 125.

Understand cost, operational and cultural differences.

The Integration Plan 127 needs to be developed.

There is a deal structure and a negotiation.

Diligence 128

Legal process and closing.

The postclosing integration was 130.

CHAPTER 9 PROFESSIONAL STANDARDS AND ETHICS 131

The M&A advisor has a role in the economy.

A whole new way.

The Middle Market Standard is 134.

Professional and ethical standards.

There is competence and professionalism.

There are 135 best practices.

The ethics are based on behavioral boundaries.

The country specific (customs) is 136.

PART THREE M&A TECHNICAL DISCUSSIONS 137

CHAPTER 10 FINANCIAL ANALYSIS 139

There is financial reporting motivation.

EBITDA 140

Balance sheet analysis 142

Working Capital 142.

Normalization 148

CHAPTER 11 DEAL STRUCTURE AND LEGAL DOCUMENTATION 151

There is an attorney’s role.

There are preliminary legal documents.

There is a confidentiality agreement.

A letter of intent.

The deal has a structure.

Stock Sale/Merger 155

There is an asset purchase.

There is an election in a stock sale.

Purchase price is 160

Employment and consulting agreements.

Diligence 161.

There are acquisition agreements.

Representations and warrants.

There are qualifications for representation and warrants.

Indemnification 163.

Earned 164.

There are 165 parameters.

There are benefits of earning.

Shortcomings of earning money.

Regulatory compliance number 166.

CHAPTER 12 TAX STRUCTURE AND STRATEGY 168

Tax Fundamentals 168

The transaction tax basics are 172.

Assets Transactions 172

There were 174 stock transactions.

There is a stock versus asset sale example.

Negotiations are based on structure.

There is an asset transaction.

There are 185 buyer tax issues.

There is a tax glossary and reference.

CHAPTER 13 TAX PROVISIONS USED IN M&A 193

The sales are in installments.

There is a risk of forfeiture.

There are assets that qualify for treatment.

Planning opportunity 195.

Section 1031 exchanges are like-kind.

There are third-party exchanges.

M&A 196 is a partnership.

The doctrine of the general partnership.

There is a partnership versus S Corporation.

The partnership gain tracking rules are 200.

There is a purchase price allocation for partnership buyers.

Corporate M&A issues.

Corporations have contributions to them.

There are mergers and reorganizations.

Net operating loss limits

Section 338 206 deals with stock/Asset Sale Election.

S Corporation has issues.

There is a tax glossary and reference.

CHAPTER 14 REGULATION AND COMPLIANCE 215

The Securities Act of 1933 protects investors.

There are exemptions under the 33 Act.

Private placement exemptions are commonly used.

The Securities Exchange Act was passed in 1934.

There are requirements and rules.

Williams Act 220.

There are antitrust issues and laws in the deal.

The Hart-Scott-Rodino Act was enacted.

Specific industries 222

Exon-Florio 222.

Regulatory issues and laws may be encountered in the deal.

Laws relating to bulk sales

There is a WARN Act.

The Investment Banker has a perspective.

SEC Provisions for Broker-Dealers

The Investment Advisers Act and Investment Company Act were enacted in 1940.

There are provisions for broker-dealers.

The company has a perspective.

There is a process of issuing and selling securities.

There are Blue-Sky Laws in the state.

There are considerations for public companies.

CHAPTER 15 FINANCING SOURCES AND STRUCTURES 231

Perspective 231.

Buyouts 232.

There is a buyout deal structure.

The valuation gap can be bridged.

Recapitalization 237.

Acquisitions 237

Financing primer

There is a capital structure.

There are factors that affect the capital structure.

There are sources and types of funding.

Debt 247

Private Equity 249.

Personal guarantees are 251.

CHAPTER 16 DUE DILIGENCE 255

There is a traditional due diligence.

Financial Matters 257

GAAP Compliance 258.

There is a tax impact and compliance.

There are compensation and benefits.

Legal 263

Information technology.

The Diligence Team is made up of people.

There is a due diligence process.

Public versus private.

The impact of globalization

Who Relies on Due Diligence?

The quality of earnings.

There are financial statement audits.

CHAPTER 17 MARKET VALUATION 271

There are reasons for the appraisal.

Determine the value of the world.

The benefit stream is calculated.

Synergies 279.

Determine private return expectations.

Specific investor return

The industry-specific return is 284.

General investor returns

General acquisition selling multiples

The value is derive.

There is a global perspective.

Business owners have alogue.

There is an appendix.

There are transaction examples.

There is a transaction valuation.

There are tools, models, resources, and templates.

Glossary 301.

Notes 337

About the authors

347 is about the contributors and reviewers.

Index 361

AUTHOR INFORMATION

Kenneth H. Marks. CM&AA is a Managing Partner of High Rock Partners, Inc. Strategies, capital structure, and M&A transactions are covered in the Handbook of Financing Growth. The book is called (Wiley). He has been involved in many emerging growth and middle market businesses.

Robert Lee. CM&AA is the Managing Director of Robertson & Foley. Over 100 articles on private finance topics have been published by him. He is an author. Private capital markets. The book is called (Wiley).

Christian W. Bales. He is the President and CEO of the firm and is in charge of several sectors of the business. Over 200 middle market M&A sales transactions have been done by him.

The man is Michael R. Neal. The Alliance of Merger & Acquisition Advisors is a Chicago-based professional trade association featuring a resource and development center serving more than 600 independent accountants, attorneys, and business advisors. He is a recognized speaker on valuation, growth, and sales of middle market companies.

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