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Best practices in incentive due diligence

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Best Practices in Incentive Due Diligence. IEDC Annual Conference 2014

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Best practices in incentive due diligence

  1. 1. BEST PRACTICES IN INCENTIVE DUE DILIGENCE IEDC Annual Conference Fort Worth, TX October 21, 2014
  2. 2. About Us • Business Development Advisors is an economic development consulting firm • Works with leaders at the local, state and national levels to 2 increase business investment and job growth in their communities • Founded 1999 • Smart Incentives helps communities make sound decisions throughout the economic development incentives process • Due diligence and business case analysis for incentive projects • Processes for monitoring compliance and evaluating effectiveness • Launched 2013
  3. 3. Smart Incentives 4x4 Framework Recipient Deal Compliance Effectiveness Data and analysis to enable better decision-making 3 Greater transparency and accountability
  4. 4. Incentives and Due Diligence • Incentives should be used to accomplish community goals – not just win a deal. • Incentives are part of a community’s financing toolkit and should be used and evaluated in that light • Incentives policy is one element of a business attraction strategy, which is one element of a good economic development strategy • Why due diligence is important • To reduce risk • To understand if an incentive deal can generate net benefits for your community • To refine strategies and recommendations • To explain and build support for decisions 4
  5. 5. Due Diligence on Prospective Companies • Recipient • Background research on the applicant • Deal • Business case analysis of the project • Cost-benefit analysis for the community • Project benefits • Economic & fiscal impact analysis 5
  6. 6. 6 Recipient: Background Research • Why? • The more you know about a company, the better deal you can create for both the business and your community • To minimize the damage associated with problem prospects • What you need to know • Company facts: location, year established, revenue & employees • Description of their products or services • Location of existing operations • Executive or owner background • Recent news
  7. 7. Recipient (2) • What else you should know: • Major customers • Growth projections and strategies • Recent restructuring and management changes • History of past incentives negotiations • Ownership details • Company credit rating • Financial structure 7
  8. 8. Recipient (3) • Research resources • Business directories (not just one) • Hoover’s – 40,000 companies • Reference USA – 14 million US businesses • LexisNexis – 43 million companies • News aggregator and search sites • Local business journals • SEC’s EDGAR for public companies and prospectuses • Experian, D&B for credit ratings • State corporation commissions • Social media accounts, blogs 8
  9. 9. Deal: Business case analysis • Why? • What could possibly go wrong? • Understanding “the pitch” versus “the reality” • What you need to know – Seven M’s Model • Market • Market size and growth - verify • Management • Who leads the company • Who is in charge of the project • Magic • Why do they think they will be successful? • What factors are critical to their success? 9
  10. 10. Deal (2) • What you need to know (cont.) • Model • Get specifics on their revenue model • Be clear on their sales model • Money • Who else is financing the project? • Financial projections • Momentum • What are the risks to the project’s execution • Match • Why do they think your community is a good match? • What benefits do they bring to your community? 10
  11. 11. Contact Information Ellen Harpel President 571/212.3397 eharpel@businessdevelopmentadvisors.com www.businessdevelopmentadvisors.com ellen@smartincentives.org http://www.smartincentives.org/ Twitter: @SmartIncentives 11