How to Buy a Small Private Business (key steps). This presentation was given to a number of high level execs considering putting in their own money to acquire a 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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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Management and Technical Services for Manufacturers