The good bad_and_ugly ppt_final

Heavy Duty Mergers &

Acquisitions

Presented By Tom MarxCEO - Marx Group Advisors

© Marx Group Advisors – Northwood University: Heavy Duty Leadership: July 11, 2012

When was your last Mergers & Acquisitions

round-up…


Heavy Duty Mergers & Acquisitions Outlook


What we’ll talk about today• Industry perspective – The Good, The Bad

and The Ugly• Why consolidation is happening• Mechanics of M&A • When are you really a buyer vs. seller• What needs to happen after the sale• The future of the industry with fewer players


Distribution perspective• Number of locations a distributor’s company

operates is steadily increasing• 45% of distributors are concerned about increasing

consolidation• 79% see key employee succession planning as

important operational issue • 70% of all small and midsized businesses don’t sell

after they are put on the market


Supplier perspective• Organic growth at 5-7% doesn’t satisfy many appetites• Acquisition often more cost effective and faster than

organic growth• Cash is not readily available -- but interest rates

are low• Economic jitters cause delays and conservative

thinking• Bolt-ons challenged to get past due diligence


Installer perspective• If their business model does not include parts

distribution, fewer places to turn to except transfer within or sale to local owner operator

• Costs of keeping up with technology and OE dealers will continue to be a major challenge

• Financing more challenging—earn outs are prevalent• Scared off by process and costs


View from the mountaintop• Multiples are all over the place -- reality is

case-by-case• Baby boomers wanting out and no succession

plan in place• Trend is to grow or die a slow and painful death• Failure to complete deals is very real • Confusion about whether to buy or sell


View from the mountaintop• Owners are tired after a decade of consolidations,

business cycles, banking hassles – and the Great Recession

• Younger lions are hungry to grow • Strong companies want to eliminate low-cost

competitors • PE firms and others have lots of cash• Auto and now heavy duty have caught investors’ eyes


M & A options – typical deal structures

ACQUISITIONS


JOINT VENTURESMERGERS

GOING PUBLICOR

PRIVATE

DIVESTITURES &ASSET SALES

10

Mergers & Acquisitions

• Combination of two (or more) companies in a stock or asset exchange transaction

• Not mutually exclusive• Not limited to public companies


Merger• Company ‘A’ or ‘B’ often

loses its identity • Or both companies become

Company ‘C’

Acquisition• Company ‘B’ purchases stock

or assets of Company ‘A’• Company ‘A’ is gone

A

BC A B

Mergers & Acquisitions


Joint ventures and alliances

Independent entity created between parties for a specific undertaking – usually jointly owned by the parties contributing: • Intellectual property • Capital and assets• Marketing and sales


Going private

Acquisition of the equity of a publicly traded corporation by an independent privately held entity


Going public

The process of selling the equity of a company that was privately owned to new investors for the first time, otherwise known as an Initial Public Offering (IPO).


Divestitures and asset sales

Approaches to corporate restructuring • Eliminate underperforming assets • Capitalize on stronger performing assets • Prepare for exit from a business


Buyer or seller?

Often sellers see themselves as buyers• Lack of reality about strengths and weaknesses• Unwillingness to let go• Unwilling to face ‘retirement’• Concern about how much is ‘enough’ in today’s

post- dot.com and post-recession world


What are the typical steps in buying/selling process:

STEPS IN SELLING:• Pre-Deal Preparation-Valuation• Confidentiality Agreements• Identify Buyers• Letter of Intent• Due Diligence• Definitive Agreement• Close• Post Close Execution

STEPS IN BUYING:• Evaluation of Transactional

Assumptions/Marketplace Assessment

• Financing/equity partners• Target Selection• Letter of Intent• Due Diligence• Definitive Agreement• Close and Integration


Do it right from the beginning• Clean up balance sheet & P&L• Get rid of obsolete assets and inventory• Perform realistic valuation• Create informative offering package• Conduct laser-focused prospect search• Negotiate the deal as objectivity as possible• Patience to arrive at a comprehensive Letter of

Intent (LOI) – Which often saves a lot of time and cost on the back end


Do it right from the very beginning• Due diligence will reveal every wart• Asset Sales Agreement has many landmines• Closing almost never occurs when anticipated or

planned• Integration is easier once you’ve done it a few

times• Get all skeletons out of the closet• Full disclosure of all positives and negatives


Valuation

• Valuation is a science—and an art• Numbers often don’t tell the entire story• Gap between buyer and seller perspectives• Different levels of valuation• Both parties have to get real about opportunity

value or cost—or the deal will fail


Cashing in does not always mean selling out

If you want to stay on, there are options:• Employee • Consultant • Run the business for a defined period of time • Grow the business with someone else’s investment


Other forms/considerations of deferred compensation

• Company buys back stock – resells to management • Payout over time – 5 to 10 years • Secured by life insurance for principal • Avoid bank borrowing – hopefully, financed by

company cash flow


When the process gets ugly• When there are LONG delays in response• When every conversation results in a new detail• When every paragraph of the LOI ends with “BUT”• When the legal bills are double and triple what

were originally estimated• When post-close integration isn’t well planned• Misrepresentations



An Ugly Ride: Company X

• Hidden intention of partners• Investor rebellion• Capital call forced short window• Disrespected manager

25

Goal: sell company or license technology


An Ugly Ride: Company X

RESULT• 9 month project• Every buyer found flaws in product and declined• Company ran out of capital and could not fix

product flaws

26

Goal: sell company or license technology

Sales process – biggest challenges

• Maintaining confidentiality -- internally and externally

• Keeping your eye on your business so sales and profits are not eroded

• Getting the transaction done as quickly as practical


Tales about self-brokered sale

“I did not know what my business was really

worth”

“I spent so much time on this that my business suffered and at the end the sales price was

reduced”

“This was a very painful and expensive process. I ended up in countless meetings and spent a LOT of money on legal and accounting fees”

“I would never sell my own

home without an agent and

shouldn’t have sold my business

without an advisor”


The future of the industry with fewer players

• Learn the lessons…some say heavy duty is 5-10 years behind traditional aftermarket

• Balance of power shifting from suppliers > distribution • Decreased margins at suppliers• National chains stronger competitors to independents• Those with cash have major advantages• Every segment has a gorilla


Mergers & Acquisitions consultants with experience in the Automotive, Heavy Duty, Commercial Vehicle,

Performance, Motorsports and Specialty Aftermarkets

Consulting Services

Brokerage: Buy-Sell-Merge

Equity and Debt Financing


Marx Group Advisors

30

David Barbeau-Used to own distribution company, former head of Delphi’s global aftermarket division

Chip Carlson / OHIO – former General Director of Corteco de Mexico

Jack Creamer / ARIZONA –Former Director of Member Services for AWDA

John Nodson / NEW YORK –Currently: our VP of Research. Former Director of Marketing at Standard Motor Products

Howard Kesten / NEW YORK –Executive Recruiter

Lou Merz / FLORIDA –Former President of Borg Warner, former Chairman of AAIA, former President of Automotive Sales Council

Our Advisory Board

San Rafael- Headquarters

Boston-Headquarters


Marx Group AdvisorsTOM MARX, CEO• Business growth &

marketing focus• 25+ years industry

experience

PAUL COOPERSTEIN, President• Venture capitalist &

investment banker• Business lawyer &

mediation specialist

DAVE BARBEAU, Executive Vice President• Parts distributor &

aftermarket executive• Management consultant

CHRISTINE LEMAy, Business Development Manager• Sales executive• Project Manager


JOHN NODSON, Vice President• Research and Analyst• Technology and marketing


Subscribe to our monthly enewsletter today!

33

http://tinyurl.com/7upr9sw

TOM MARX415.453.0844 ext. 106

[email protected]

Paul Cooperstein617.328.7333

[email protected]

www.marxgroupadvisors.com

BOSTONBOSTON SAN RAFAELSAN

RAFAEL HOUSTONHOUSTON DETROITDETROIT NEW YORKNEW YORK FLORIDAFLORIDA PHOENIXPHOENIX

Marx Group Advisors are located nationwide:


THANK YOU