1. Mergers & Acquisitions: An Overview of the Process

2. M&A South Florida Region Presentation Slide 2 In this Session … 1)Introduction 2)The Basics of M&A 3)How to Identify Candidates 4)How to Structure a No Money Down Deal 5)How to Avoid Pitfalls 6)Conclusion Mergers & Acquisitions

3. M&A South Florida Region Presentation Slide 3 The Formation of a Solid Foundation Introduction

4. M&A South Florida Region Presentation Slide 4 Traditional M&A for Real Estate Companies Typically real estate companies sell for 3.5x trailing 12m. earnings + working capital. Example: KW Owner Profit=$200k, Current Assets-Current Liabilities=$50,000. Valuation: $700k + $50k = $750,000. Includes non-compete agreements. Traditional M&A

5. M&A South Florida Region Presentation Slide 5 Traditional M&A Typical deal was a combination of up-front cash and payments over time. Example: $300,000 cash + $450,000 paid over 4 years in $112,500 annual installments. If company earned $200,000, you would pay yourself back in 4 years.

6. M&A South Florida Region Presentation Slide 6 The New Reality But there is a NEW Reality Now …

7. M&A South Florida Region Presentation Slide 7 The New Reality: Subprime Mess

8. M&A South Florida Region Presentation Slide 8 The New Reality: Lots of Foreclosures

9. M&A South Florida Region Presentation Slide 9 The New Reality: FL Market Very Stagnant

10. M&A South Florida Region Presentation Slide 10 The Current Reality: Most target companies are losing money. Most target companies are short on cash. Your merger partner may be the KW office near you! There is strength in more numbers! How are the Targets? Power Session 1

11. M&A South Florida Region Presentation Slide 11 Importance of Cash The New Paradigm Shift: CASH IS KING! You must preserve your cash and liquidity! The Company With Cash WINS!

12. M&A South Florida Region Presentation Slide 12 Why Is Cash King? Can you survive 2008 losing $50k for the next 2 years? Most real estate companies CANNOT; they burned $50k+ last year in hopes of a turnaround. The company with the ability to “ride out the storm” will be standing in the end. It will gain market share, gain agent count, and gain in reputation. When the market turns around, your company will be dominant for years to come! Importance of Cash Power Session 1

13. M&A South Florida Region Presentation Slide 13 Target Profiles Looking for Target Companies: Mom & Pops are out of cash. Their owners need to sell real estate & are burned out. Many franchises are not renewing. They no longer see value in the franchise and fees. High desk fee model companies are in trouble.

14. M&A South Florida Region Presentation Slide 14 Target Profiles Identify The Target’s Needs Residual Income & Revenue Office Management & Target’s Own Time Cash Cushion & Preservation Lower Overhead For Their Sales Dropping Expensive Leases

15. M&A South Florida Region Presentation Slide 15 Relevant to Real Estate How Can You Structure a Deal that Preserves YOUR Cash, Builds The Future for BOTH, and is a Win-Win? Primary Tools: Company Dollar, Caps & Splits Secondary Tools: Stock & Profit Sharing

16. M&A South Florida Region Presentation Slide 16 No Money Down Deal Primary Tool: Company Dollar & Cap Example: KW Company Dollar is $20,000. Target Co has 10 agents, 5 cappers, 5 ½ cappers. Target Receives Co. $ OVER $10,000 for the next 2 years, KW Gets First $10,000. Target is paid $100,000 over 2 years. Had you split it evenly without the minimum cap, Target would have received $150,000. Note: This is a Win-Win!

17. M&A South Florida Region Presentation Slide 17 No Money Down Deal Primary Tool: Splits Target Company’s Agents All on 60/40 now. KW places all agents on 70/30, with 10% going to Target Principal for 2 years and agents all on 60/40. They won’t accept 60/40? They do now!

18. M&A South Florida Region Presentation Slide 18 No Money Down Deal Secondary Tool: Stock Value Your Company & Value Their Company Based on OUR Model! Do NOT look at their GCI or Company’s Sales! Look at their agents and caps under our system! Target had 5 cappers & 5 ½ cappers. Target had total Co $ of $200,000 with expenses of $240,000. KW will have $150,000 in Co $, not $200k! Issue stock according to projected Co $, not past 12 months returns.

19. M&A South Florida Region Presentation Slide 19 Stock Issuance: Only for ASSETS and certain liabilities! Do NOT buy their stock. If you do, you buy all their liabilities! Biggest liability is typically the lease. This is also biggest cost savings if not personally guaranteed! If you must, create a holding company for their stock and your stock.

20. M&A South Florida Region Presentation Slide 20 Marketing to Targets How to Market To the Masses: M&A Letters. Two approaches: 1. Better together than against. 2. The assertive Stockdale Paradox letter. A wake up call to everyone; it is not changing anytime soon. Note: InnovativeInk in Lakeland provided personal letters to 1300 Targets, signed blue ink. Herb Hamic @ (863) 688-7900.

21. M&A South Florida Region Presentation Slide 21 Mergers & Acquisitions

22. M&A South Florida Region Presentation Slide 22 M&A Session Aha’s What were your aha’s about M&A? Putting It All Together

23. M&A South Florida Region Presentation Slide 23 Thank You for Being Here!