Giving Your Business ESP SM Chris Andersen President 425 Market St., #2200 San Francisco, CA

What is Business ESP SM Exit Strategy Plan 2

Business ESP SM Essentials 1. Determine When and Why to Sell. 2. Understand Valuation Drivers for Your Industry. 3. Prepare the Business for Sale. 4. Know Who Can Buy Your Company. 3

1. Why to Sell Burnout Approached by Buyer Diversify Wealth Other Venture Reached Limit of Resources Retire Death, Divorce or Disability 4

2. Valuation Drivers Buyers Competing for Your Company Differentiated Products or Services Outlook for Your Industry Transaction Structure Type of Buyer Strength of Your Business (Financial & Operational) 5

Example: Little Things Make a Difference 6 Company A Business Services Revenue at $10.3M, +3%/yr. $1.25M EBITDA $950K assets (poor controls) Loyal employees Limited management team Company B Business Services Revenue at $9.7M, +12%/yr. $1.5M EBITDA $400K assets (good controls) Loyal employees Good management team Valued at 4.0x EBITDA, or $5.0M Valued at 5.5x EBITDA, or $8.25M Company B Worth 65% more, or $3.25 million.

7 3. Prepare, Prepare, Prepare Tell a Credible Story that Holds Up Through Due Diligence. 1. Makes the Process Easier 2. Leads to a Higher Price 3. Time the Market for Your Industry

8 Tell the Story Good Growth Prospects Strong Key Performance Indicators - Industry Proven Trends & Profitability Good Management Team Repeat Customers w/ Low Concentration High Employee Retention

Prepare for Diligence Well-maintained Financial Records & Controls  Including Inventory or Materials Strength of External and Internal Agreements Documented Policies and Processes Mitigate Litigation or Environmental Issues Compliance – Regulatory, Accounting, etc. No Negative Surprises. 9

10 Build a Team Advisors Merger & Acquisition (M&A) Advisors Transaction Attorneys Tax Planning Accountants Financial Advisors Facilitate Meetings to Communicate Your Goals with Entire Team

11 4. Types of Business Buyers Financial Acquirer – Private Equity Group (Complete or Partial Sale) – High Net Worth Individual Strategic Acquirer – Competitor – Company in Complimentary Industry

12 What Strategic Buyers Want Sell All of Co. Innovation (New Products, Services or IP) Looking for Synergies Customers Grow Revenue or Cash Flow Geographical Expansion Expect a New Culture

13 What Financial Buyers Want Sell All or Part of Co. Returns on Invested Capital (20+% irr) Strong Company with Growth Opportunities Continuity/Succession for Management Culture Often Preserved

… And in Conclusion 1. Determine When You Want to Sell 2. Understand the Drivers (and Detractors) of Value 3. Prepare Your Business For Sale 4. Position Your Company to Appeal to the Right Buyer