1. 1 GREENFIELD VS ACQUISITION Presented To The CIM Capstone Students at Middle Tennessee State University by William B. Allen Allen & Associates

2. 2 WHY DO IT? l EXPAND YOUR MARKET l COMPLIMENT YOUR MARKET l CONSOLIDATE THE MARKET l MAKE MORE MONEY l INFLATE EGOS l REVENGE (GET EVEN WITH THE BASTARDS) l SOUND BUSINESS DECISION

3. 3 TYPES OF DECISIONS l MANAGEMENT (WHY) l FINANCIAL (MONEY) l MANAGEMENT (GOOD BUSINESS)

4. 4 ESSENTIAL STEPS l MARKET RESEARCH STUDY l ECONOMIC FEASIBILTY ANALYSIS l ANALYSIS OF MARKET & MONEY

5. 5 MARKET STUDYY l SIZE l TRENDS l PLAYERS l CAPACITY l DEMAND VS SUPPLY l OPPORTUNITIES l FORECAST l PROFITABILITY

6. 6 PLAYERS l STRATEGIES l STRENGTHS l WEAKNESSES l MANAGEMENT

7. 7 READY MIX MARKET l YARDS (PRODUCTION & SP LAST 5 YRS-NEXT 10) l PLANTS (NUMBER &CONDITION) l TRUCKS (NUMBER & CONDITION) l LABOR (WAGE RATES/UNION/NON UNION) l RAW MATERIALS (AVAILABILITY/COST )

8. 8 AGGREGATES l TYPE l QUALITY l TONS & SP (LAST 5 YRS-NEXT 10YRS) l PLANTS l CAPACITY l RESERVES

9. 9 CEMENT l NUMBER OF SUPPLIERS l COST l AVAILABILITY

10. 10 SOURCES OF INFORMATION l PCA/CEMENT COMPANIES l ADMIX COMPANIES l CHAMBER OF COMMERCE l POWER COMPANIES l EDUCATIONAL INSTITUTIONS l INTERNET l PLAYERS

11. 11 GO - NO - GO DECISION BASED ON MARKET

12. 12 ECONOMIC FEASIBILTY GREENFIELD COSTS l LAND l PERMITING l EQUIPMENT l CONSTRUCTION l PERSONNEL l STARTUP l LOSSES

13. 13 GREENFIELD VS ACQUISITION Presented To The CIM Capstone Students at Middle Tennessee State University by William B. Allen Allen & Associates

14. 14 GREENFIELD VS ACQUISITION Presented To The CIM Capstone Students at Middle Tennessee State University by William B. Allen Allen & Associates

15. 15 WHY DO IT? l EXPAND YOUR MARKET l COMPLIMENT YOUR MARKET l CONSOLIDATE THE MARKET l MAKE MORE MONEY l INFLATE EGOS l REVENGE (GET EVEN WITH THE BASTARDS) l SOUND BUSINESS DECISION

16. 16 TYPES OF DECISIONS l MANAGEMENT (WHY) l FINANCIAL (MONEY) l MANAGEMENT (GOOD BUSINESS)

17. 17 ESSENTIAL STEPS l MARKET RESEARCH STUDY l ECONOMIC FEASIBILTY ANALYSIS l ANALYSIS OF MARKET & MONEY

18. 18 MARKET STUDYY l SIZE l TRENDS l PLAYERS l CAPACITY l DEMAND VS SUPPLY l OPPORTUNITIES l FORECAST l PROFITABILITY

19. 19 PLAYERS l STRATEGIES l STRENGTHS l WEAKNESSES l MANAGEMENT

20. 20 READY MIX MARKET l YARDS (PRODUCTION & SP LAST 5 YRS-NEXT 10) l PLANTS (NUMBER &CONDITION) l TRUCKS (NUMBER & CONDITION) l LABOR (WAGE RATES/UNION/NON UNION) l RAW MATERIALS (AVAILABILITY/COST )

21. 21 AGGREGATES l TYPE l QUALITY l TONS & SP (LAST 5 YRS-NEXT 10YRS) l PLANTS l CAPACITY l RESERVES

22. 22 CEMENT l NUMBER OF SUPPLIERS l COST l AVAILABILITY

23. 23 SOURCES OF INFORMATION l PCA/CEMENT COMPANIES l ADMIX COMPANIES l CHAMBER OF COMMERCE l POWER COMPANIES l EDUCATIONAL INSTITUTIONS l INTERNET l PLAYERS

24. 24 GO - NO - GO DECISION BASED ON MARKET

25. 25 ECONOMIC FEASIBILTY GREENFIELD COSTS l LAND l PERMITING l EQUIPMENT l CONSTRUCTION l PERSONNEL l STARTUP l LOSSES

26. 26 WHY DO IT? l EXPAND YOUR MARKET l COMPLIMENT YOUR MARKET l CONSOLIDATE THE MARKET l MAKE MORE MONEY l INFLATE EGOS l REVENGE (GET EVEN WITH THE BASTARDS) l SOUND BUSINESS DECISION

27. 27 TYPES OF DECISIONS l MANAGEMENT (WHY) l FINANCIAL (MONEY) l MANAGEMENT (GOOD BUSINESS)

28. 28 ESSENTIAL STEPS l MARKET RESEARCH STUDY l ECONOMIC FEASIBILTY ANALYSIS l ANALYSIS OF MARKET & MONEY

29. 29 MARKET STUDYY l SIZE l TRENDS l PLAYERS l CAPACITY l DEMAND VS SUPPLY l OPPORTUNITIES l FORECAST l PROFITABILITY

30. 30 PLAYERS l STRATEGIES l STRENGTHS l WEAKNESSES l MANAGEMENT

31. 31 READY MIX MARKET l YARDS (PRODUCTION & SP LAST 5 YRS-NEXT 10) l PLANTS (NUMBER &CONDITION) l TRUCKS (NUMBER & CONDITION) l LABOR (WAGE RATES/UNION/NON UNION) l RAW MATERIALS (AVAILABILITY/COST )

32. 32 AGGREGATES l TYPE l QUALITY l TONS & SP (LAST 5 YRS-NEXT 10YRS) l PLANTS l CAPACITY l RESERVES

33. 33 CEMENT l NUMBER OF SUPPLIERS l COST l AVAILABILITY

34. 34 SOURCES OF INFORMATION l PCA/CEMENT COMPANIES l ADMIX COMPANIES l CHAMBER OF COMMERCE l POWER COMPANIES l EDUCATIONAL INSTITUTIONS l INTERNET l PLAYERS

35. 35 GO - NO - GO DECISION BASED ON MARKET

36. 36 ECONOMIC FEASIBILTY GREENFIELD COSTS l LAND l PERMITING l EQUIPMENT l CONSTRUCTION l PERSONNEL l STARTUP l LOSSES

37. 37 ECONOMIC FEASIBILTY ACQUSITION COSTS l PURCHASE l PROFESSIONAL FEES l EQUIPMENT CHANGE/UPDATE l PERSONNEL CHANGES l SYSTEMS CHANGES/UPDATE l SYNERGIES

38. 38 DETERMINE THE VALUE OF EACH METHOD l CASH FLOWS GENERATED l NPV OF CASH FLOWS

39. 39 VALUE l THE TRUE VALUE OF ANY COMPANY IS THE NET PRESENT VALUE (NPV) OF THE FUTURE CASH FLOWS GENERATED BY THE COMPANY’S ASSETS

40. 40 SOME BASIC ANALITICAL METHODS USED l METHODS PAYBACK INTERNAL RATE OF RETURN (IRR) PROFITABILITY INDEX NET PRESENT VALUE (NPV)

41. 41 PAYBACK l -Co+ C1 + C2 + C3 + C4 = 0 l -10,000 + 5,000 +5,000 =0 l Payback = 2 years l Weaknesses: Time value of money Future cash flows past payback

42. 42 DICOUNTED CASH FLOW RATE OF RETURN OR INTERNAL RATE OF RETURN (DCFRR OR IRR ) l DISCOUNT RATE THAT MAKES NPV = 0 IS THE IRR

43. 43 PROFITABILITY INDEX (BENEFIT-COST RATIO) l Profitability Index = PV ÷ (-Co) l If index is greater than 1 project is acceptable

44. 44 NPV-(DISCOUNTED FREE CASH FLOW) METHOD l LOOKS AT BUSINESS AS A POOL OF UNENCUMBERED ASSETS l SEPARATES THE FINANCING DECISION OF ASSETS FROM THEIR INTRINSIC VALUE l DISCOUNTED PRESENT VALUE OF CASH FLOWS EARNED BY THOSE ASSETS

45. 45 FREE CASH FLOW l FREE CASH FLOWS CONSIST OF EBIAT PLUS l DEPRECIATION & DEPLETION & ITC PLUS l TERMINAL VALUE OF THE ASSETS LESS l CAPITAL EXPENDITURES AND l CHANGES IN WORKING CAPITAL

46. 46 SCHEDULES REQUIRED l REVENUE FORECAST l EQUIPMENT DEMAND l CAPITAL EXPENDITURES l DEPRECIATION l EQUIPMENT SOLD l RAW MATERIAL COST/PIT COSTS l PLANT & DELIVERY VARIABLE COSTS l FIXED COSTS l PROFORMA INCOME STATEMENT l WORKING CAPITAL l TERMINAL VALUE

47. 47 CONTRIBUTION & PROFIT SUMMARY REQUIRED INFO: l SALES & YARDS l VARIABLE COSTS l MARGIN l FIXED COSTS l PROFIT l EBITDA

48. 48 SUMMARY l DO YOUR HOME WORK l TOUCH ALL THE BASES MARKET ECONOMICS l ANALYZE MARKET & ECONOMICS

49. 49 SUGGESTED READINGS l VALUING A BUSINESS by Shannon P. Pratt l REVIEWING A BUSINESS APPRAISAL REPORT by Shannon P. Pratt l BUSINESS VALUATION HANDBOOK by Desmond & Kelly l HOW TO PRICE A BUSINESS by Raymond C. Miles l PRINCIPLES OF CORPORATE FINANCE by Richard A. Brealey & Stewart C. Myers l THE ART OF M&A by Reed & Lane and Edson l VALUATION “Measuring & Managing the Value of Companies” by Copeland, Koller & Murrin