S-20 JANUARY 19-25, 2015 CORPORATE GROWTH & M&A Advertisement M&A TRANSACTIONS Expertise Pays Off For more than 80 years, we have helped middle As deals rev up, be aware of risks BY JIM HILL As deal activity picks up significantly, auction processes become much more costly as it relates to enterprise value. Given the abundance of funds with both strategic and financial buyers, and the lack of expense of debt with unregulated lenders willing to loan as much as six times EBITDA for an acquisition, buyers and sellers face many risks: 3 4 5 Perform background checks on all managers and owners. During diligence, attack highest risks (regulatory and legislative) first. + Risk assessment/risk mitigation Spend as much time as you can with management and get to know their reputation in the industry. If you have a “proprietary deal,” make sure someone is pushing to get the seller to sell. Without an ibanker pushing, it is risky. BUYER RISKS If engaged in an auction process, you must show significant expenditures on diligence, industry knowledge, etc. or you will never advance to the second round. If you have a financing contingency, you need to produce significant commitment letters for the equity (if you are not a committed fund) and mezzanine and senior debt. 6 1 Cleveland | 216.363.0100 Canton | 330.966.9400 Delaware | 740.362.9031 Elyria | 440.323.3200 Business Advisors and Certified Public Accountants SELLER RISKS Do your own quality of earnings check (preferably an audited one) so your financials and EBITDA do not get picked apart. maloneynovotny.com 2 1 TMA Ohio Chapter announces 2014 award winners! We congratulate Lee D. Powar, partner at Hahn Loeser & Parks LLP, winner of the 2014 Lifetime Achievement Award. We congratulate the winners of the 2014 Turnaround of the Year Award (from left to right) Scott Opincar (Outgoing Chapter President), Sally Barton (Incoming TMA Chapter President), Terry Humphrey, Bob Cohen and Jerry Norton. We thank Lee for his leadership and the contributions that he has made both in the turnaround industry and in our community. We are proud of the achievements of these members and celebrate their specific accomplishments with this year’s awards. Thank you for your contributions to the Turnaround Management Association. Crain’s Cleveland Business Custom Publishing