Mergers and Acquisitions

Succession Planning: Exit Strategies

C.J. Harris and Company, LLC brings an integrated approach to representing the sale of a client's closely held company. The firm's expertise as M&A Brokers and Business Brokers in mergers, acquisitions, and general business brokerage, combined with its preeminence in research and market making provides clients with a broad range of resources.

Succession by Exit Strategy is the means in which investors or business owners are compensated for their initial investment. Often this is referred to as a liquidity event. Exit strategy can take many forms, such as the ones listed below:

1. Organized Market Sale
2. Succession/Next Generation Passing
3. Other/Special Situtations

C.J. Harris and Company, LLC's direct access to the latest information on mergers, acquisitions, and general business brokerage makes the firm uniquely qualified as M&A Brokers and Advisors to act as financial advisors in the above matters.

The Evaluation Process

1. Description of Assignment: The business evaluation process itself will depend on the purpose of the evaluation and the nature of the value to be determined. For example, the preliminary valuation used in the marketing of a business may yield a different value than that for an equitable distribution involving a minority shareholder position. As such, the determination of purpose for the valuation and definition of value to be estimated is the critical first step in the process.
2. Appraisal of Economic Conditions: Economic conditions are studied at the national, regional, and local levels for their effect on the business. Economic trends and forecasts are weighed for their impact on the value of the business. Industry data is gathered to determine the direction and condition of the specific industry.
3. Appraisal of Industry: Information is gathered from trade associations, company ownership, business publications and numerous other sources. Value is affected both by the industry's condition and the company's position in it.
4. Fundamental Position of the Company: The business is analyzed from both a qualitative and quantitative point of view. This step involves close work with the ownership and management of the company as well as its support team of accountants, banks, attorneys, etc. Qualitative issues considered include the history of the company, physical facilities, markets and marketing strategy, strategic position, competition, customer and supplier relationships, product/service lines, and management structure. Quantitative studies include a thorough financial trend analysis, ratio analysis, and comparative analysis (in comparison to industry standards). Financial statements are scrutinized closely to determine the true earning capacity and value of the firm.
5. Determination of Value: Information from the above steps is used to determine the appropriate valuation methodology. Using our research capabilities, valuation experience, and knowledge of current practices and precedent, we select the method(s) that will best estimate the company's true value.

Business Consulting and Coaching

C.J. Harris and Company, LLC's management consultants assist clients in strategic planning, management systems, market analysis, organizational development, and retail management. We offer this range of services by virtue of our staff expertise in a variety of disciplines and topics. Specializing in team problem solving, we work to understand the current situation, research available data, create testable hypotheses, and present final recommendations.

We approach these consulting efforts from a generalist perspective, practicing certain management fundamentals basic to all businesses and covering a range of functional areas.

Our consultants benefit our clients in numerous ways:

• Provide unbiased judgments and independence
• Present new ideas and a fresh approach
• Possess the ability to diagnose problems and evaluate solutions
• Perform tasks with technical skills infrequently needed
• Supplement present skills and staff management

Our role is as a facilitator and a resource base. As a facilitator, we work closely with ownership and management in determining and addressing the key strategic issues, guiding the consulting process and drawing from the knowledge and resources of the company and its people. We are a resource base both through our research capabilities and our experience in other consulting engagements. With the consultant serving in these capacities, the client is assured of a final product that truly reflects his own philosophy.

The Planning Process

The planning process begins with a situation analysis, determining the current position and condition of the company. From there, it delves into a comprehensive and integrative planning process, combining best practices spanning the various functional areas and accounting for their impact on the bottom line. The end goal is a balanced, consistent plan that evolves and grows with the company and anticipates change, instead of reacting to it.

Central to C. J. Harris and Company's philosophy and a vital part of any planning assignment is a market orientation. This strategic orientation focuses the company's resources towards satisfying market needs, thereby rooting the plans of the company in the marketplace and making them more responsive and sensitive to the market.

The value of planning is great, accruing not so much from the end product, but more from the planning process itself, leading to the following benefits:

• Precipitates the consideration of strategic issues, thereby establishing direction for the company.
• Forces long-range perspective (three to five years).
• Provides a communication, control, and coordination tool, used as a source document for budgets, operating plans, policies and procedures, tactical plans, etc.
• Tests the business concept before committing physical and financial resources: highlighting strengths, weaknesses, opportunities and threats.
• Determines capital needs, thereby providing document for capital funding requests.

Debt Capital Placement

Capital placement is closely linked to the planning process, for without effective planning, capital needs cannot be estimated accurately. Therefore, our engagements in capital placement are frequently preceded by the preparation of a business plan and funding request package. This also allows us to represent our clients more effectively as we have been an integral part of the entire planning and funding process.

As part of the planning process, considerable attention is given to the determination of capital needs and optimal capital structure. Beginning with income projections and projected balance sheet structure, we determine the amount of capital needed for the business. Recommendations are then made for type of funding and its structure. All of these variables are further tempered by sensitivity analysis, allowing us to gauge the effect of varying assumptions on the projected capital need. Once the optimal capital structure is determined, a funding package is prepared. We then move into the debt or equity (private placement only) markets for actual placement.

C. J. Harris and Company has numerous resources it can tap in capital placement. For one, our career experience in lending grants us the perspective of the lender, allowing us to effectively anticipate and address his concerns. Second, we know how to effectively use today's increasingly diverse and complicated capital markets. In the equity placement area, we offer clients the resources of our mergers & acquisitions and general business brokerage areas, bringing us into regular contact with individuals and groups interested in equity investments.

As a firm, our philosophy is to design and establish the optimal capital structure for the company while maintaining control of the company for our client, the business owner. We prefer to fill capital needs through debt when possible, thus preserving ownership. There are situations where equity is clearly called for, of course, and we are equipped for those needs, as well. But the effective preparation and presentation of a funding request can often increase the viability of the debt package enough to decrease or eliminate the need for such equity funding.