1. Who is ClearRidge Capital?

We are a team of M&A, Restructuring and Corporate Finance professionals primarily serving Oklahoma and the surrounding States. Our offices are located on the first floor of the historic Philtower building in downtown Tulsa.  Our directors and professionals are:

Bruce Jones
Managing Director

Matthew Bristow
Managing Director

Connie Tommerup, CPA, CFE
Manager

Patrick Graham
Senior Associate

2. What does ClearRidge Capital do?

Transaction Services:

a)    Advise on raising and replacing debt and equity capital - capital for expansion, capital for acquisitions and replace existing debt.

b)    Buy companies - strategize, identify, structure, negotiate, conduct due diligence and manage the entire acquisition process and contracts.

c)    Sell companies - maximize value from the sale of a company: deal book and sale prospectus, marketing, negotiation and manage the entire sale process and contracts.

Advisory Services:

a)    Restructuring - operational, financial and strategic restructuring, out of court reorganization plans.

b)    Corporate Finance - review, restructure and improve financial monitoring, reporting and processes. Initiate or review budget process, scenario analysis, project analysis and financial statement reviews.

c)    Bankruptcy - court-appointed experts to negotiate with creditors, lenders and suppliers; provide interim management; develop and implement a restructuring and reorganization plan.

d)    Turnarounds - coach and quarterback. Maximize value for stakeholders with solutions to turn the company around from a short-term crisis and distress to out-performing competitors and long-term success.

e)    Due Diligence - extremely thorough due diligence to predict and avoid failure of a proposed merger, joint venture or acquisition.

3. What does the name ClearRidge stand for?

CLEAR - RIDGE.  We love the outdoors, we love the mountains and we want our clients to share the feeling of being on top of a mountain with a great view of what lays ahead.

Our goal is to lead everyone through to the end of a project, to have successfully tackled every obstacle along the way and get everyone a clear view of the future.

When we start work on a project, we dive in deep, turn over every stone, identify obstacles we have to overcome and plan a detailed process of how to get to the finish line.

It is never easy to get to the top of the mountain and there are always unforeseen problems in the climb, but we love the challenge of turning every situation into an opportunity and leading us to the top.

If you get to a Clear Ridge = you get a successful outcome.

4. Who are ClearRidge Advisors?

ClearRidge Advisors and ClearRidge Capital are two divisions of ClearRidge. Most of our transaction work is led through our Capital division and our advisory work is led through our Advisors division.

Importantly for you, we are one team.  We use the two brand names to market to different client groups. A client who hires us as ClearRidge Advisors gets exactly the same team, service and structure as one who hires us as ClearRidge Capital.

5. What do I get if I hire ClearRidge?

• You get our full team working for you. We work together on every project.
  
• You get bench strength. We have a deep bench and we each have unique skills that we bring to every project.
  
• You get competitive spirit. We love a challenge and we love to overcome great obstacles to get a deal done.

6. What makes ClearRidge different?

  a) Our professionals have up to 30 years professional experience in our service areas. 
  b) We have walked in your shoes. We have owned, operated and managed midsize companies, through the good times and the bad.
  c) Our fee structure is unique. We align our fee structure with your goals, so that if you need us to achieve a certain goal, our compensation will reflect us delivering that goal.
  d) We are responsive 7 days a week. We are always on call, always available on our cell phones in the evening and on weekends.  Challenging projects create stress and you need to be able to get answers whenever you have a question.
  e) We expect every project to throw us curveballs. We are ready to respond, we are accustomed to uncertainty and we know how to defend your best interests in a challenging environment.
  f) We can work quickly. Deadlines can come unexpectedly. In a challenging environment, the best way to maximize value can be to get to the finish line as quickly as possible. If timing is critical, we can divert all our bench strength to one project and get the deal done ahead of time.

7. What industries do you focus on?

Manufacturing, Distribution & Logistics, Construction, Automotive, Aerospace and Aviation, Oil & Gas, HVAC, Chemical, Agriculture, Plastics, Coatings, Industrial Services, Retail, Food & Beverage, Financial Services, Real Estate, Technology

Mergers & Acquisitions FAQs

1. What are the 4 types of buyers?

a) Strategic Buyers – Strategic buyers get the name, because they typically have a strategic reason for buying your company.  This is in contrast to financial buyers who are looking for return on investment. They may have an interest in expanding geographically, increasing their range of products or services, leveraging your brand name and reputation, accessing a new client base, expanding along their supply chain or for any other strategic reason. They may or may not be a competitor, but will typically have operations in your industry or a closely related industry.

Despite the recent economic downturn, many U.S. corporations are holding record cash reserves and until the first quarter of 2008, more cash at US corporations was being used for strategic investment through acquisitions than anything else.

The most important factor in determining a strategic buyer’s interest in your business is how your company would fit with their strategic growth plans for their business.

b) Financial Buyers/Private Equity Groups (PEG) - PEGs are investment groups, which are often run by former business executives or investment bankers. Many successful PEGs have industry specialists on their advisory board who have ownership and operating experience in a particular industry. Typically, the Limited Partners who provide PEGs with investment capital limit the investment parameters to companies with strong growth prospects, more than $5 million in annual profits and operating margins above 10%.

PEGs are typically looking to acquire your company and keep the existing management structure in place, or as they often call it “partnering with management”.  They will provide capital for growth and board-level support. Their typical plan could be to buy your company, build a portfolio of companies in your sector and plan to sell the combined group of companies or take it public in 5 to 8 years.

c) International Buyers – Cross-border acquisitions can deliver the highest sale price, but can also carry higher risks and lower chance of closing the deal.  For international deals, we would recommend seeking professional help from a firm with international experience. ClearRidge and its directors have completed M&A projects in over 15 countries across 5 continents. ClearRidge also has close relationships with European investment banking boutiques who we partner with on international deals.

The volume of cross-border acquisitions is growing ever higher and there are many compelling reasons to consider foreign buyers in your search.

d) High Net Worth Individuals – The wealth of individuals who buy and sell companies ranges from millions to billions, so it is certainly worth considering wealthy individuals in your buyer search. While many individual buyers will become owner-operators, there are others who will employ a similar strategy to that of a private equity group. These buyers tend to focus exclusively on industries where they have management experience.

2. What is a typical buyer looking for?

• Growing income stream
• High operating margins
• Steady and consistent revenue growth
• Industry dynamics which could fuel further growth
• Strong pipeline of new business
• Growth opportunities, both vertical and horizontal, for your business
• Tenured and talented workforce
• Strong infrastructure
• Positive press, accreditation and good reputation
• Synergies with their existing business
• Competitive advantage and differentiation of products or services

While buyers never expect to acquire a perfect, clean business, the more of the above that apply to your company, the more buyers will be interested in your company and the higher prices they will be prepared to pay.

Acquirers of Distressed Companies

In the case of a distressed sale, buyers are looking for opportunities to acquire a company for a significantly reduced price, in return for the ability to complete the acquisition quickly without eroding further value. In distressed acquisitions, the ability to make quick decisions is critical.

Distressed M&A activity could result from:

   1. Larger strategic buyers picking up struggling smaller market participants

   2. Out-of-court settlements and pre-bankruptcy sales

   3. Sale of non-core assets to streamline operations

   4. Over-extended companies reducing leverage and realizing cash

   5. Mergers of troubled companies

   6. Forced sale through bankruptcy

In the Thomson Reuters' 2009 study, there were 210 deals in 2008 that sold or merged operations of bankrupt companies. That is up 55% from the 140 deals in 2007.

According to a Debtwire survey of hedge fund managers and trading desks, distressed asset sales are expected to rise 91% in 2009.

When a bankruptcy does occur, it may be from a pre-negotiated settlement between secured lenders and stakeholders to sell assets through Section 363 protection.

3. How do you keep the M&A process confidential?

• First, do not tell anyone that you are thinking about selling. Resist the temptation to call a couple of competitors and see if they’d be interested. If anyone asks if you are selling, respond in a casual manner that of course, everything is for sale for the right price.
• Plan and prepare for a sale well in advance and keep it a secret for as long as possible.
• Employees may get distracted from their job and become concerned about their future, family can put pressure on you to make quick decisions. Customers, vendors and competitors can be lose with their tongue and cause lasting damage to the value of your company if you decided not to sell your company before the deal is done.
• Ensure that anyone who you talk to signs a non-disclosure agreement (“NDA”). We can provide you with an industry standard NDA if you need one.
• If in doubt, don’t talk about selling your company with anyone other than your must trusted advisors.
• You want to maintain confidentiality and negotiating strength throughout the sale process, so the longer you can keep it quiet, the better.

4. What timeline is reasonable for a sale?

• 6 months to 15 months is reasonable. Shorter and longer are possible, but will rarely generate the highest price
• For a distressed business sale, we have completed the sale of a company in 2 weeks before, but such a quick sale inevitably reduces the sale price.
• The early part of the process and talking to buyers can be done in weeks, but it is better to take your time.  You should spend time carefully planning the process and preparing your company. More haste early on = a lower sale price, longer to complete the sale and often leads to unnecessary complications later in the process.
• Once the ball is rolling, stay in control and wherever possible stick to your deadlines. Invariably, the process will be stalled for one reason or another, but in most cases, the quicker the sale process, the higher the sale price.
• You should spend twice as long planning and preparing as you should negotiating with buyers, assisting in due diligence and closing the deal.

5. What is EBITDA?

EBITDA stands for Earnings Before Interest, Tax, Depreciation and Amortization.

EBITDA differs from operating cash flow by excluding payments for taxes and interest as well as changes in working capital.  It also excludes cash requirements for replacing capital assets.

Buyers like to look at EBITDA, because it:

• Highlights the potential cash flow of your company, which would be used to pay down the debt that the buyer used to finance the acquisition
• Evaluates your company’s ability to earn a profit
• Estimates the earning power of your company, while separately factoring in the projected capital expenditures needed to maintain those operations
• Approximates your company's earnings potential as if the company had no debt. This shows a true valuation, ignoring the company’s current capital structure.

6. How will a buyer use EBITDA to value my company?

• A buyer may offer you a sale price based on a multiple of your EBITDA.
• Unfortunately, as there is no standard accounting principle for EBITDA, you may then spend weeks negotiating the calculation of your EBITDA.
• EBITDA is a useful reference tool that buyers will use to gauge a fair market value for your company from any comparable business sale data.
• The EBITDA valuation multiple changes from industry to industry and changes depending on the state of your business.
• In most cases, the larger the company, the higher the EBITDA multiple. You will notice that many public companies trade at P/E ratios of 20x or more.  This kind of multiple rarely happens for midsize private companies, because they tend to carry more risk, be more vulnerable to management and other changes, and have more erratic revenue and earnings streams.

7. When should I start planning for a sale?

Most owners of privately-held midsize companies run their business to maximize growth and minimize their tax liabilities.  In order to generate the highest sale price, you need to change your focus in advance of your intention to sell.

Ideally, you should start planning up to two years in advance of your intention to sell.  This allows time for changes to take effect. Any preparation is better than none, and even if you are in a hurry to sell, don’t rush to talk to buyers until you have prepared a complete due diligence and data room and prepared professional offering documents. It also helps to have prepared answers and data to respond promptly to any questions a buyer could ask.

8. What should I do to prepare for a sale?

Change your focus from running the business for you, to running the business to appeal to as broad a range of buyer types as possible. Increased numbers of interest buyers = a higher sale price.

a) Clean up your financial statements – reduce discretionary expenditure, reduce personal expenses going through the business, remove non-operating assets from the balance sheet, get professional advice on improving your accounting and if there is time, get your financial statements audited by an accredited and independent auditor.

b) Maximize the bottom line – this is the time to drive sales growth and increase margins. Don’t take on costly new and unproven advertising or marketing initiatives, but do focus on direct sales strategies to increase your sales growth.

c) Promote senior managers – Reduce your company’s dependence on you and other key employees who will be leaving the business after the acquisition.  Identify key individuals who can take some of your responsibilities and train them to take over day-to-day management roles from you.  Ideally, you could promote a new President or CEO in advance of the sale (if the President will step down after the acquisition) and move to a position of Owner/ Chairman, with reduced day-to-day management responsibilities.  Additionally, you should clearly document all of your processes, responsibilities and strategies.  Make the transition process easier for new buyers.

d) Reduce dependence on key clients – Grow the business by diversifying your product offerings and where possible bring on new clients. When it comes time to sell, it adds value if you have low customer concentration.

e) Infrastructure improvements – Clean up your inventory, equipment and systems.  The cleaner and simpler the business appears to a buyer, the more confident they will feel about paying a higher price.

f) Improve marketing materials – Buyers prefer looking at a professional website and marketing materials.  It may cost a few thousand dollars to update, but it adds significant value and will give a great return on investment.

9. What should I look out for in deal terms and deal structure?

You can achieve a higher transaction value by being more flexible on deal terms. However, you must consider the risks involved in accepting flexible terms from a buyer. It is normal for a buyer to request that you take a portion of the sale price through seller-financing or earn out. The buyer may also offer a higher price if you retain partial ownership in the business. In either of these cases, you should only consider this if you have researched and have confidence in the ability of the buyer to deliver on their business plan post acquisition.

Talk is cheap.  It is up to you or your advisors to look into a buyer’s background, track record and experience. And never let the buyer work in the business before the deal is complete.

The structure and terms of the deal will have a significant impact on tax liabilities.  Stock sale or asset sale makes a significant difference.

In determining the right buyer, you should consider not only the tax liabilities, but also the ongoing liabilities of an asset sale versus a stock sale.

10. What are the costs and terms of hiring an intermediary?

Typically, you pay an M&A intermediary when they successfully sell your company, or when they complete your target acquisition.  The rates are fairly standard across the industry. The following is a useful guide:

• $100 million transaction = 1% to 1.5% as a success fee.
• $50 million transaction = 2% to 3% as a success fee.
• $20 million transaction = 4% to 6% success fee.
• $10 million transaction = 5% to 7% success fee.

The percentage will also depend on the complexity of the transaction, the industry and the predicted level of restructuring and preparation required before going to market.

A proportion of the success fee may be due in monthly installments during the preparation process.  You can typically choose between paying a flat deposit fee each month or an hourly fee. These fees will typically be netted from the success fee on completing the deal.

11. What are the benefits of hiring an intermediary?

• Broader range of buyers.  A leading M&A firm should have established relationships with thousands of buyers who focus on your industry and business profile. You are more likely to get a higher sale price if there is competition between buyers and a broad range of purchase offers for you to choose from.

• Confidentiality. A leading M&A firm will work the deal in complete confidentiality. They will never list your company for sale and will be discreet in all their marketing efforts. They can make anonymous approaches to any buyer prospects without revealing your identity.

• Timely transaction. As most business owners learn at their own expense, the first part of the project is quick and easy. Pick up the phone, call a few buyer prospects and start the ball rolling. That’s what we call Ready, Fire, Aim. 
  
  Contacting the buyers should be one of the last steps in the process. Spend time planning and preparing up front and the process will end up being quicker and smoother. If you have not prepared responses and data to answer every question a buyer could ask you, the process will be stalled and you risk seeming unprofessional.
  
  Buyers will also try and stall negotiations to reduce your expectations and reduce their offer. You need to keep the process moving and keep everyone to a strict timeline.

• Higher price, better terms. If you’ve sold hundreds of companies before, you know the best tactics to use to negotiate a higher price and you also know what terms are worth fighting for. If you’ve worked with seasoned buyers before, you can anticipate their next move and ensure that you’re a step ahead.

• Experience on both sides of the table. A leading M&A firm will have directors who have been on both sides of the table many times before.

12. What are the different ways I can sell my company?

• Immediate exit
• Staggered exit
• Recapitalization and remain in the business
• Recapitalization and transition to new management
• All cash sale
• Partial cash sale and earn out
• Partial cash sale and stock options
• ESOP
• Partner buy-out
• Stock or asset sale

13. What can I do during the sale process to ensure the highest price?

• Eliminate surprises. You are on the same team as your M&A firm.  Be as open as possible about issues and problems that will be uncovered in due diligence.  If we present them to buyers up-front, they will gain confidence and trust in you. If, however, you try and hide problems, they are typically uncovered at the end of the process. If it’s late in the process, your best case scenario is a reduced offer and worst case scenario is losing the buyers altogether.

• Watch the bottom line. Keep growing your business and try to exceed your performance projections. If we try and sell the company on next year’s numbers, you need to keep hitting your targets throughout the process to maintain your strength in negotiations.

• Act as if you’re keeping the company. Worst case scenario, if you are not happy with the final offer, you have the option to walk away from any deal.  In that unlikely scenario, you want the company to be in better shape than if you had never considered selling. Until the money’s in your account and you’ve handed over the keys, the deal is not done.

• Keep your distance in negotiations. If you are paying someone to negotiate on your behalf, they need to be your voice in all discussions. A buyer will try and play different parties off against each other.

Trust in the ability of your intermediary to get you the best deal. If you can stay out of negotiations, you do not risk appearing greedy or unrealistic in your expectations. Always be on hand to answer questions and make buyers feel confident in your company, but don’t give them the opportunity to try and work you down in negotiations.

14. Should I tell my managers that I’m selling?

• Fewer that know the better. This is the simple answer, but you know your managers better than anyone. If they can handle the news and get on with the job, then great. If, however, you think it will be a distraction for them, then wait until the end of the process to let them know your intentions.

• Managers are there to stay. If a buyer likes your business, they also like your people. Your managers are key to the ongoing success of your business post acquisition, so you need to make sure that they buy into the proposed sale and that they understand the new opportunity. New owners will often want to incentivize existing managers with stock options or partial ownership in the company.

• Think carefully about the timing. Plan ahead how you are going to break the news to them and plan what you want to say. They should understand your reasons for selling and in the big picture understand that a new buyer, with new energy, is more likely to grow the business and increase their opportunities in the future. Reassure them about their job security and the buyer’s desire for them to stay.

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