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Grabbing Your Share of the Private Equity Bonanza
© 2008 LG Management Corporation
April 24, 20082008 CEBI Executive Summit
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Harry D. Loyle, CFE7086 Corporate WayDayton, OH 45459-4294Phone: 937-291-1900 ext. 255Email: [email protected]
“Empowering the American Dream”
Current Portfolio Includes . . .
Venture Capital Investment in a new or developing company
Buy-out Acquisition usually with control
Special Situation Unique opportunity . . . distressed, macro
change Merchant Banking
April 24, 20082008 CEBI Executive Summit
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. . . a broad term that encompasses a range of strategies for investing in companies whose stock is not traded on public stock exchanges.
Deal Flow Approaching $200B per QT Appearance of Higher Transaction Values Limited Transparency and Public Information Tax Treatment: Debt – Capital Gains – Public Concern with Wealth Distribution Disparity
April 24, 20082008 CEBI Executive Summit
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Exit Strategies Partial Sale, Complete Sale, Recapitalization
Carried Interest Percentage of transaction profits (80/20
split) Management Fees Charged to . . .
Minority Investors (typically 1.5% to 2.0%) Portfolio Company (shared with Minority
Investors) Transaction Fees
April 24, 20082008 CEBI Executive Summit
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VALUATION - QUANTITATIVE EVALUATION - QUALITATIVE
Book Value Liquidation or Net Asset
Value Comparable
Companies Earnings Multiple
Discounted Cash Flow Precedent
Transactions or Replacement Value
People VALUES “Warren Buffet” Business
Model Understanding Professional Management Clean, Straightforward
Structure and Governance Other Investors VISION and Business
Opportunities
April 24, 20082008 CEBI Executive Summit
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Net Profit (NOI) EBITDA: Earnings
Before Interest Taxes Depreciation and Amortization
Post-Debt Cash Flow
W-2 Income Standard of Living
(SOL) Owner Distributions
or Withdrawals ∆ Equity: Change in
Equity Over Time
April 24, 20082008 CEBI Executive Summit
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CASH for Equity Sale (±80%) Opportunity for “Second Bite of the
Apple” (±20%) Potential for Continued Employment Potential Equity for Management Team
April 24, 20082008 CEBI Executive Summit
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Decision on Consulting Representation Prepare Confidential Investment Memorandum Research, Select and Submit to PE Firm Options Receive Preliminary Indication of Interest Meet and Review Detailed Information Receive Letter of Intent (LOI: price, structure, etc.) Due Diligence: Legal, Accounting, IT, Customers,
etc. Review and Negotiate Definitive Acquisition
Agreement (APA) PE to Arrange Debt Financing (Your Obligations?) Completion of Due Diligence and Credit
Agreement(s) Negotiate Any Management Employment
Agreements Exercise Definitive Agreements Settlement . . . Back to Operations!
April 24, 20082008 CEBI Executive Summit
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Clear Exit Goal: Buy – Fix – Grow – Sell With a 3 to 5 Year Horizon Driving Change is
Paramount EVERYONE Knows You’re On a Sprint Compensation is Clearly Tied to the Goal Often Managers have “Skin in the Game” Back a Superb Management Team and Liberate
Them The Board is “On Board” and Focused and Involved Private versus Public Reduces QT Whipsaws and
the Reporting and Stock Market Attention Required The Objective is Clear . . . CASH
April 24, 20082008 CEBI Executive Summit
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POTENTIAL ADVANTAGES POTENTIAL DISADVANTAGES
CASH Marketplace Valuations “Professional” Buyers Potential for Continued
Management Involvement Management Team Equity Additional Resources:
Money, People, Knowledge, etc.
Additional Opportunity to Sell
It’s NOT your company anymore . . . “Yes Boss”
“Professional” Buyers Extensive Due Diligence Financing Contingency Management
Accountability Relatively Short Term
Focus Transactional Focus
April 24, 20082008 CEBI Executive Summit
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People VALUES Industry Experience Situational Experience Typical Size of Portfolio Companies Management Style: Active versus
Passive Planned or Discussed Exit Strategy Capital Structure: Debt versus Equity % Willingness for Additional Cash
Injection
April 24, 20082008 CEBI Executive Summit
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1. Lending / Financial Investments Creative Non-bank Lending with Security Interest Coupled with Participation and/or Equity
Kicker 2. Operating Partnerships (OP)
Marriage of Strengths . . . Management & Operations
50% Financial and 50% Equity Investment 3. Acquisitions / Active Management
Active OR Competent in Daily Management 100% Financial and Minimum of 80% Equity
Plus . . . Company Consulting and Personal Coaching
April 24, 20082008 CEBI Executive Summit
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Portfolio Company Transaction Options:
Make the PEOPLE Decisions First Portfolio Composition and Balancing
ROI: Internal Rate of Return Objective of 25% to 35% Transaction Exposure of 5% to 10% of Portfolio Bias Toward Operating Partnerships
Company and Concept Search Criteria Existing Management and Structure Considerations Understandable Product and Business Model Our Ability to Add Value through the Transaction Management or Operations Upside (with Discount)
Financial Turnaround Relationship Challenges: Vendors, Franchisees, Associates,
etc. Organizational Improvements: HR, etc.
Synergy with Existing Companies or Brands Overhead Reduction Real Estate Complementary Business: Consumer or Company / Brand
April 24, 20082008 CEBI Executive Summit
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April 24, 20082008 CEBI Executive Summit
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In 2001 Moto Photo was Hit by “The Perfect Storm” . . .1. Photography Industry Revolution2. Macro Economics3. Cumulative Poor Company Financials
General Vendors Critical Vendors
Kodak Agfa & Trebla
Board of Directors Senior Management Company Associates Franchisees Area Developers Master Licensee
(CAN) Building Partnership
FUJI Photo Film USA Bank(s) Retail Consumers Trade Competition Retail Landlords Personal
Family Business Partners
Post-Transaction City and County Business Community
April 24, 20082008 CEBI Executive Summit
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Equity (LG Management Corporation at 75%) Area Developer Participation Equity (6 entities
at 25%) Personal Loan to Facilitate an AD Participant
Critical A/P Vendor into Debt Assumption KODAK – Discounted for Non-secured Creditors Agfa & Trebla – Face Value
Mezzanine Financing (LG Management Corporation)
Fifth Third Bank Financing Working Capital – 2 Different Term(s) Loans Building Mortgage Financing
Montgomery County ED/GE Grant Vendor Trade Payables
April 24, 20082008 CEBI Executive Summit
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April 24, 20082008 CEBI Executive Summit
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The good news is that you do not have to wait for a PE firm to swoop into your organization. By using private-equity strategies you can improve your results and become more successful, starting right now!
Show Me The
Money!