Docstoc

Case Study: The Net Sheet

Document Sample
Case Study: The Net Sheet Powered By Docstoc
					           Case Study: The Net Sheet
        Our firm starts every deal with an internal document called a Net Sheet. This is a worksheet we develop for
our client prior to going to market (see “Exhibit “ A” and “Exhibit B”). The Net Sheet demonstrates how we believe
the market will perceive the value of our client’s company (potential purchase price), how they will receive the
money (deal structure), and what they will receive after fees, taxes and any debts they may have to pay as part of the
transaction. In short, the Net Sheet tells what the seller will take home when the deal is finalized.


         When we deliver the initial Net Sheet, typically prior to going to market, we advise our client to take it to
their tax and financial advisors to ensure Wyatt Matas & Associates’ estimates of the taxes are correct and that their
advisor believes the net number they will receive will meet the lifestyle the seller has planned. This is especially
important if the owners are at retirement age, as almost 60% of our clients are. We constantly update and share the
Net Sheet with the client throughout the sales process as the negotiations mature. The original Net Sheet is often
fairly close to or lower than the final net number, as we try to be conservative until we get real feedback from the
market. However, there are sometimes surprises when you get into the market that we do not foresee.
         Wyatt Matas & Associates had been advising a retiring husband and wife team on the best time to exit their
healthcare company. Wyatt Matas and Associates had been an informal advisor of the couple for several years,
often speaking once or twice a month about strategic issues the company was facing. Timing of going to market was
extremely important for them, as the net proceeds from the sale would be a significant part of their retirement plan.
Due to the interest we were starting to hear from strategic buyers, we updated our full valuation, generated the
original Net Sheet (See “Exhibit A ”) and told our clients to see their tax and financial advisors about verifying the
numbers. That day they responded, “We’d like to see a higher number, but it’s close enough.” We felt we had been
a little conservative with the valuation based on the company’s market position, so we went to market with
confidence we could obtain a better price than the original Net Sheet stated.

        Just before we hit the market with our client, we had been researching a particular strategic position and
suggested that we switch to a different set of buyers. Our research was right, and demand for our client’s particular
type of company ballooned to multiples that were unheard of in the past two years. The larger companies we were
targeting had clear strategic initiatives to diversify their healthcare businesses through acquisitions, and our client’s
niche made them the perfect target. A bidding war ensued. Once the best possible deal for our client was achieved,
we sent over two Net Sheets. (Exhibit “B” includes one of those final Net Sheets.)

        We had the right positioning strategy for the company to achieve the best price. I called the client to tell
where the offers had come in and sent over the letter of intent, and he informed me that he wanted to check with
his advisor prior to signing. Several hours later, he informed me that he was not going to go through with the sale
due to his net-out number.

        Unbeknownst to us, the clients never knew what they needed from a net standpoint because they never
spoke with their financial advisor. They have since told us that they had cancelled several appointments with their
financial advisor during the sales process because it simply wasn’t a priority. They now realized that their
considerable personal debt that was going to make any deal difficult to accomplish.


             1776 I Street NW, 9th Floor • Washington, D.C. 20006 • 202-661-4691 • www.wyattmatas.com
                                               Mergers & Acquisitions
                                                                                        CASE STUDY: THE NET SHEET

        I called the buyers and told them that the premiums being offered were not going to be enough, and we
were taking the company off the market until we could figure out how to raise the EBITDA. Wyatt Matas &
Associates is still involved in the company by assisting them with their value enhancing strategies. While we will
eventually take them back to market, it is always harder to sell a company if it has already been to market. These
particular buyers are not likely to offer the same multiples a second time around. Our clients now realize the value
of the Net Sheet and importance of the input from all of their advisors.

       Every deal is different, and the Net Sheet is just one-way Wyatt Matas & Associates helps keep the client
informed of the various moving parts of a transactions. Most of the time…it works.




            1776 I Street NW , 9th Floor o Washington, D.C. 20006 o 202-661-4691 o www.wyattmatas.com
                                               Mergers & Acquisiti
                                                                                                         CASE STUDY: THE NET SHEET



"EXHIBIT A"
PRE-MARKET POTENTIAL VALU ATION, DEAL STRUCTURE

SELLER:                                                        Wyatt Matas & Associates' Client
POTENTIAL BUYER:                                               Unknown

LAST CLOSING PERIOD:                                            Trailing 12 Months June 30, 2009

VALUATION                                                                                                     Chip Measells:
PURCHASE PRICE                                                                         20,037,250            Original multiplier was
                                                                                                             derived from triangulated
Net A/R and Cash                                                                        2,708,333            valuation method using
Gross Purchase Price                                            $                     22,745,583             DCF , market comparable
                                                                                                             and market experience.

Adjusted EBITDA                                                                        3,205,960
Valuation Multiplier                                                                        6.25


DEAL STRUCTURE (1)                                                         % of Deal                           Value
Cash at Closing                                                                               70%               14,026,075
Note/Hold-Back                                                                                30%                6,011,175
Equity                                                                                         0%                      -
Total                                                                                        100% $             20,037,250




NET PROCEEDS FROM ACQUISITION
Acquisition Price                                                                                                20,037,250
Net A/R and Cash                                                                                                  2,708,333
Debt (2)                                                                                                          8,907,625
Transaction fees (3)                                                                                                682,367
Taxes (4)                                                                                                         4,954,310
Net Gain From Acquistion                                                                                 $        8,201,281


1) Assumes cash, if any, will be pulled prior to closing and A/R be paid as received post-transaction.
2) Long-term debt as of June 30th , 2009
3) Transaction fees include all advisory fees including IB, accounting and legal                                         3.00%
4) 20.00% of Acquisition Price and 40.00% of Cash and A/R                                                                  20%           40%




              1776 I Street NW , 9th Floor o Washington, D.C. 20006 o 202-661-4691 o www.wyattmatas.com
                                                 Mergers & Acquisiti
                                                                                                         CASE STUDY: THE NET SHEET



"EXHIBIT B"
ACTU AL OFFER--VALU ATION, DEAL STRUCTURE

SELLER:                                                                   Wyatt Matas & Associates' Client
POTENTIAL BUYER:                                                          Public Traded Buyer

LAST CLOSING PERIOD:                                                       Trailing 12 Months September 30, 2009

VALUATION
PURCHASE PRICE                                                                          27,255,804
Net A/R and Cash                                                                         2,626,806
Gross Purchase Price                                                       $           29,882,610

Adjusted EBITDA                                                                         3,150,960
Valuation Multiplier                                                                         8.65


DEAL STRUCTURE (1)                                                               % of Deal                   Value
Cash at Closing                                                                                90%           24,530,224
120-Day Hold-Back                                                                              10%            2,725,580
Equity                                                                                          0%                  -
Total                                                                                         100% $         27,255,804




NET PROCEEDS FROM ACQUISITION
Acquisition Price                                                                                            27,255,804
Net A/R and Cash                                                                                              2,626,806
Debt (2)                                                                                                      8,884,052
Transaction fees (3)                                                                                            896,478
Taxes (4)                                                                                                     6,322,588
Net Gain From Acquistion                                                                                 $   13,779,492

1) Assumes cash, if any, will be pulled prior to closing and A/R be paid as received post-transaction.
2) Long-term debt as of September 30, 2009
3) Transaction fees include all advisory fees including IB, accounting and legal                                  3.00%
4) 20.00% of Acquisition Price and 40.00% of Cash and A/R                                                           20%      40%




                             To receive our research electronically, please email
                                         research@wyattmatas.com



              1776 I Street NW , 9th Floor o Washington, D.C. 20006 o 202-661-4691 o www.wyattmatas.com
                                                 Mergers & Acquisiti