Sierra Pacific Partners | LinkedIn (original) (raw)

Investment Banking

Sacramento, California 871 followers

SMB Sales + M&A The Right Way. We make deals happen | Business Brokers + M&A Advisors

Discover all 5 employees

About us

Sierra Pacific Partners is a boutique investment bank offering mergers and acquisitions and other advisory services. Securities are offered through Finalis Securities LLC Member FINRA / SIPC. Sierra Pacific Partners and Finalis Securities LLC are separate, unaffiliated entities.

Industry

Investment Banking

Company size

2-10 employees

Headquarters

Sacramento, California

Type

Privately Held

Locations

Employees at Sierra Pacific Partners

Updates

🎯 𝐌&𝐀 𝐃𝐞𝐚𝐥 𝐏𝐨𝐢𝐧𝐭𝐬 | 𝘋𝘦𝘢𝘭 𝘧𝘪𝘯𝘢𝘯𝘤𝘪𝘯𝘨 Without financing -whether it's equity or debt - deals don’t happen. So, how much cash is your buyer bringing to the table ❓ 📣 Before going to market, it’s crucial for sellers to understand buyers’ financing structure and financial position. Undercapitalized buyers may rely heavily on seller financing and earnouts—not just to reduce risk, but because it’s the only way they can make the deal work. Sellers should identify this early on, before investing significant time and resources or going under LOI with buyers who may not align with typical deal structures. According to GF Data, for deals ranging from 10Mto10M to 10Mto250M: 1️⃣ Senior Debt made up 30-40% of financing in each deal. Sellers should remember that any payments owed to them through seller financing or other arrangements will be subordinated to senior debt. 2️⃣ Junior/Mezzanine Debt accounted for 7-16% of the capital stack. Again, seller payments are subordinate here too. 3️⃣ Buyer equity injections comprised roughly 34-43% of the capital stack. 4️⃣ Seller Rollover Equity made up 11.5-15% of the capital stack. 🔑 Key Takeaway: If your buyer can’t bring at least 30% equity to the table, expect deferred or contingent payments. In some cases, it might be smarter to accept a lower offer with more purchase-price certainty.
🎯 𝐌&𝐀 𝐃𝐞𝐚𝐥 𝐏𝐨𝐢𝐧𝐭𝐬 | 𝘞𝘩𝘢𝘵 𝘪𝘴 𝘙𝘦𝘱𝘳𝘦𝘴𝘦𝘯𝘵𝘢𝘵𝘪𝘰𝘯 & 𝘞𝘢𝘳𝘳𝘢𝘯𝘵𝘺 𝘐𝘯𝘴𝘶𝘳𝘢𝘯𝘤𝘦 (𝘙𝘞𝘐)? In M&A transactions, Representation and Warranty Insurance (RWI) helps protect buyers from losses due to breaches of a seller's representations and warranties outlined in the purchase agreement. It plays a critical role in most deals by addressing concerns from both sides and smoothing out negotiations: 👉 RWI covers financial losses related to inaccuracies in financial statements, undisclosed liabilities, compliance issues, and other material misstatements. While most policies are buy-side, costs can be negotiated between parties. 👉 RWI often helps reduce lengthy negotiations over reps and warranties and indemnification provisions, while also reducing the need for escrows and holdbacks. It offers buyers better risk protection, while providing sellers peace of mind, especially if they remain involved post-closing or hold rollover equity. 𝐇𝐞𝐫𝐞 𝐚𝐫𝐞 𝐬𝐨𝐦𝐞 𝐤𝐞𝐲 𝐜𝐨𝐬𝐭 𝐜𝐨𝐧𝐬𝐢𝐝𝐞𝐫𝐚𝐭𝐢𝐨𝐧𝐬: 🔽 1️⃣ Underwriting: 25k−25k - 25k−50k 2️⃣ Premiums: 2% - 4% of the coverage limit 3️⃣ Retention (Deductible): 1% - 3% of transaction value 📣 If your transaction isn't large enough for conventional RWI as discussed above, that doesn't mean there isn't a solution for your transaction. Sell-side coverage exists for deals from ≈ $1-15M. If that's your use case, reach out to Patrick Stroth to learn more. 📍 𝐁𝐎𝐓𝐓𝐎𝐌 𝐋𝐈𝐍𝐄 : RWI is becoming increasingly common, present in nearly half of middle market transactions. 📈
🎙️ Last week, Scott had the pleasure of joining Jon Stoddard for a broad discussion on deal making. We touched on 👇 ▶️ Deal origination for advisors ▶️ How advisors work with sellers and gauge their commitment to completing a transaction ▶️ LMM deal processes ▶️ Differences between the SMB space and the LMM Check it out below 📽️https://lnkd.in/gW-y-MAx
Inside The Mind of a Top Investment Banking Deal Maker

https://www.youtube.com/

🎯 𝐌&𝐀 𝐃𝐞𝐚𝐥 𝐏𝐨𝐢𝐧𝐭𝐬 | 𝘛𝘳𝘢𝘥𝘪𝘯𝘨 𝘗𝘭𝘢𝘤𝘦𝘴 - 𝘛𝘩𝘦 𝘶𝘯𝘪𝘲𝘶𝘦 𝘥𝘺𝘯𝘢𝘮𝘪𝘤𝘴 𝘰𝘧 𝘮𝘢𝘯𝘢𝘨𝘦𝘮𝘦𝘯𝘵 𝘣𝘶𝘺𝘰𝘶𝘵𝘴 (𝘔𝘉𝘖𝘴) In a typical M&A transaction, the buyer is concerned about informational blind spots - financial, operational, and legal aspects of the target that its management and owners have much greater visibility into than the buyer, even after due diligence. ⏪ A management buyout (MBO) reverses this conventional information asymmetry: In an MBO, the management buyers typically know much more about the target and its prospects than its passive owner-investors. After all, the buyer group runs the day-to-day operations of the business. ❓ 𝘞𝘩𝘢𝘵 𝘥𝘰𝘦𝘴 𝘵𝘩𝘢𝘵 𝘮𝘦𝘢𝘯 𝘧𝘰𝘳 𝘥𝘦𝘢𝘭 𝘥𝘺𝘯𝘢𝘮𝘪𝘤𝘴? 👉 Typically, the need for buy-side diligence will be much lower, as the buyer group is already intimately familiar with the company; in fact, more so than the seller. 👉 Similarly, buyers should not expect the seller to make extensive representations about the business. Often, only the most fundamental reps are appropriate (eg, share ownership absent liens and transfer restrictions). It doesn't make sense to require the seller to perform extensive self-diligence, where, unlike the benefits to a buyer, that diligence effort will not also aid post-closing operations and integration. 👉 On the other hand, the seller faces a risk that management knows something the seller does not that could positively impact valuation (for example, a key customer contract is being finalized, FDA approval is about to be obtained for a product, prior earnings have been understated, etc.) OR that management has already arranged to flip the company to another buyer at a higher price after buying it from the current owners (😱). 👉 Because of those risks, sellers often ask for: ▶️ More extensive buyer reps, including a "reverse" 10b-5 and full-disclosure rep that management isn't aware of any material undisclosed positive information. ▶️ Participation in any future sale within a specified time period post-closing. 📍 The bottom line is that MBOs involve what is close to complete role reversal between buyer and seller and, as a consequence, demand very different risk allocation. Because buyer risk is so reduced, MBOs can be very efficient transactions, making management an attractive buyer type.
🎯 𝐌&𝐀 𝐃𝐞𝐚𝐥 𝐏𝐨𝐢𝐧𝐭𝐬 | 𝘞𝘩𝘢𝘵'𝘴 𝘢 𝘘𝘶𝘢𝘭𝘪𝘵𝘺 𝘰𝘧 𝘌𝘢𝘳𝘯𝘪𝘯𝘨𝘴 (𝘘𝘰𝘌) 𝘙𝘦𝘱𝘰𝘳𝘵? A key component of financial due diligence (sometimes called FDD), a quality of earnings (QoE) report is a key component of the M&A diligence process, offering an in-depth analysis of a company’s earnings sustainability and accuracy. 𝐇𝐞𝐫𝐞'𝐬 𝐰𝐡𝐚𝐭 𝐚 𝐐𝐨𝐄 𝐜𝐨𝐯𝐞𝐫𝐬: 🔽 1️⃣ Revenue & Profitability 2️⃣ Expenses & Cash Flow 3️⃣ Working Capital & Balance Sheet 4️⃣ Normalization Adjustments (ie, addbacks) ▶️ It may also involve converting non-GAAP financials to GAAP or modified GAAP standards. 🔑 𝐖𝐡𝐲 𝐢𝐬 𝐚 𝐐𝐨𝐄 𝐜𝐫𝐮𝐜𝐢𝐚𝐥? The QoE often determines the adjusted EBITDA, a key figure used to apply the earnings multiple and set the transaction purchase price. 📈 Tip for Sellers: To stay ahead, we highly recommend sellers perform their own QoE before entering the process to identify potential issues early. 💪
🎙️✨ Scott recently joined Robert Plank on his podcast, 𝘔𝘢𝘳𝘬𝘦𝘵𝘦𝘳 𝘰𝘧 𝘵𝘩𝘦 𝘋𝘢𝘺, for a wide-ranging discussion on M&A and business succession topics, including 👇 ✅ the importance of 𝐬𝐭𝐞𝐚𝐝𝐲 𝐩𝐫𝐨𝐟𝐢𝐭𝐚𝐛𝐢𝐥𝐢𝐭𝐲 ✅ minimizing 𝐨𝐰𝐧𝐞𝐫 𝐝𝐞𝐩𝐞𝐧𝐝𝐞𝐧𝐜𝐞 ✅ the need for 𝐜𝐥𝐞𝐚𝐧 𝐟𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥𝐬 🔑 One of the significant points discussed was the importance of 𝘱𝘳𝘦𝘱𝘢𝘳𝘢𝘵𝘪𝘰𝘯. 𝐋𝐢𝐬𝐭𝐞𝐧 𝐭𝐨 𝐭𝐡𝐞 𝐟𝐮𝐥𝐥 𝐞𝐩𝐢𝐬𝐨𝐝𝐞 𝐡𝐞𝐫𝐞: https://lnkd.in/gUxZDJ5Y𝐖𝐚𝐭𝐜𝐡 𝐭𝐡𝐞 𝐞𝐩𝐢𝐬𝐨𝐝𝐞 𝐡𝐞𝐫𝐞:https://lnkd.in/geTQ8zk7Feel free to reach out if you have any questions or would like to discuss the exciting possibilities and challenges within the M&A space. Let's make your business journey a success! 🌟#MandA #BusinessSales #Entrepreneurship #BusinessGrowth #PodcastGuest #SierraPacificPartners
🎯 M&A Deal Points | Navigating Unsolicited Offers Many founders are surprised to learn that once they take on outside investors, selling the company isn’t entirely their decision. So, what are the key rules to follow ❓ ⚖️ Delaware law provides a framework when responding to an unsolicited M&A offer, with the board’s responsibilities guided by two key duties: 1️⃣ Duty of Care Directors must make informed decisions, meaning they need to thoroughly review any offer and rely on expert advice (from bankers, legal counsel, etc.). 2️⃣ Duty of Loyalty Directors must act in good faith, prioritizing the company and its shareholders over personal interests. In some cases, it’s essential for conflicted board members to step aside or form a special committee of independent directors. 🛡️ Business Judgment Rule As long as decisions are informed, made in good faith, and believed to be in the company’s best interest, courts generally won’t second-guess the board’s choices. 💄 Revlon Duties If the company is up for sale, the board must actively seek to maximize shareholder value—this can include running an auction process to secure the best deal. ⚔️ Unocal Test If the board takes defensive measures against an offer, it must prove the offer posed a threat to the company’s future and that the response was reasonable. 📍 Bottom Line: Boards have considerable freedom when evaluating offers, as long as they follow the correct process. To do that, keep your corporate attorney in the loop, and give Sierra Pacific Partners a call if you decide to run an M&A process 🤝
🎯 M&A Deal Points | What comes out of the purchase price in an M&A transaction? Sellers should be aware that they typically won't receive the full purchase price at closing. So, what deductions come off the top before the remaining balance is paid out? 🔽 1️⃣ Debt: Whether assumed or paid off, most deals are structured on a debt-free basis, so debt will come off of the top-line price. 2️⃣ Debt-Like Items: This includes deferred revenue, pension liabilities, and other obligations. Be mindful that debt-like items should either be part of the working capital calculation or paid off at closing—not both. 3️⃣ Working Capital Adjustments: Any shortfall between estimated and target working capital may reduce the payout. 4️⃣ Transaction Expenses: Fees for attorneys, investment bankers, and other advisors often come out of the closing proceeds. 5️⃣ Earnouts & Rolled Equity: Future payments tied to performance metrics and the value of any rollover equity. 6️⃣ Escrows & Holdbacks: Funds withheld to cover potential post-closing claims or liabilities. For sellers, it's crucial to have a clear understanding of what you'll actually receive as net proceeds at closing and what may be deducted or deferred💰
🎯 M&A Deal Points | The LOI Evaluating Letters of Intent (LOIs) is a pivotal moment in any sell-side M&A transaction. But how should a seller choose a bidder, especially when most will seek exclusivity? Here are some crucial factors to consider 🔽 1️⃣ Deal Structure Understand the proposed deal structure (asset purchase, stock purchase, merger, etc.) and its tax, legal, and operational impacts. 2️⃣ Purchase Price & Payment Terms There's more to it than the top-line purchase price. Earnouts, seller notes, rollover equity, and working capital expectations are all important and determine the degree to which sale proceeds actually end up in the owners' pockets. Sometimes, a lower price with higher certainty of payment is more favorable than a higher, less certain one. 3️⃣ Exclusivity Buyers typically request exclusivity for due diligence and negotiation. Sellers should evaluate the exclusivity period and any extension mechanisms to ensure flexibility if the deal doesn’t move forward. 4️⃣ Timeline & Milestones A clear timeline with key milestones (due diligence, agreement signing, closing) sets expectations and keeps the transaction on track. 5️⃣ Closing Conditions Look for minimal "outs" for the buyer. Conditions related to regulatory approvals, due diligence, and financing should be carefully scrutinized. 6️⃣ Financing Determine if there is a financing condition and evaluate the likelihood of the buyer securing the necessary funds. 7️⃣ Ability to Close Assess the buyer’s overall ability to close, including its capacity to complete due diligence, negotiate agreements, secure financing, and finalize the deal. 8️⃣ Legacy & Culture Consider if the buyer will honor the seller's legacy and if their culture aligns well with that of the seller. 9️⃣ Employee Security Will the buyer retain the seller's employees and treatment them fairly? 📌 When evaluating bids, creating a bid matrix that summarizes each bidder’s position on these criteria. Assigning weighted scores can be helpful. Remember, though, that evaluating LOIs and selecting a bidder is often more of a qualitative art than a quantitative science 🎨
🎯 M&A Deal Points | What is working capital and how does it work in M&A transactions? Under generally accepted accounting principles or GAAP, working capital is defined as the difference between a company's current assets and current liabilities 🔽 1️⃣ It represents the short-term liquidity available to a business and is a measure of its ability to cover its short-term obligations. 2️⃣ The purchase price of a business includes its operating assets, and one of those is a normalized working capital as agreed between buyer and seller, often known as the working capital target or the peg. 3️⃣ The peg is usually based on an average of historical working capital levels over a specified period. Note that seasonality, cyclically, growth, and industry can effect working capital levels. {Health companies in certain industries, like SaaS, actually may typically have negative working capital.} 4️⃣ The peg is designed to ensure that the buyer receives adequate working capital to operate the business and that the seller does not manipulate working capital levels, such as by accelerating receivable collections, delaying payables, and other actions that cost the buyer post-closing. 5️⃣ Working capital is often handled in transactions through a purchase price adjustment: 👉 Just before closing, working capital will be estimated as of the closing, and the purchase price at closing will be adjusted upwards for excess working capital over the target amount or downwards for deficient working capital under the peg. 👉 After closing, there will be a reconciliation process to establish the actual working capital at closing and final purchase price. 6️⃣ Note that working capital is often a source of disputes post-closing, and that the calculation may or may not include cash (most often, cash is excluded) and the definition under the purchase agreement will often vary from GAAP, sometimes significantly. 7️⃣ While getting a bit in the weeds, it's always important to make sure that the working capital calculation doesn't double count debt / debt-like items to be paid off at closing. After all, if it's paid off, it should count against working capital. BOTTOM LINE: Working capital analysis and the treatment of debt-like items at closing are often interrelated, so it’s important to have a clear understanding of how each works in a transaction.

Join now to see what you are missing

Join now

Sierra Pacific Partners | LinkedIn (original) (raw)

Investment Banking

Sacramento, California 871 followers

SMB Sales + M&A The Right Way. We make deals happen | Business Brokers + M&A Advisors

About us

Locations

Employees at Sierra Pacific Partners

Updates

https://www.youtube.com/

Join now to see what you are missing

Similar pages