Unit-1 Slides

ETHICAL PROFITS
IN CRISIS
CHALLENGE
STUDENT HANDBOOK
© 2020 Roland Frasier Roland Frasier
Read this…
Pre-Work 1
https://www.themiddlemarket.com/news/viral-impact-
how-covid-19-is-affecting-m-a-and-private-equity
Covid-19 has started a recession in the US. That’s the best

time to acquire companies because prices and multiples
drop, buyers tend to disappear and nervous sellers
scramble to sell.
© 2020 Roland Frasier
Pre-Work 1
Multiples are
low when
recessions start
and increase
steadily
thereafter

Read this…
Pre-Work 2
https://www.bain.com/insights/recessions-can-present-
rare-ma-opportunities-mint/
And this…
https://www.thedeal.com/private-equity/coronavirus-
clouds-ma-lending-market/

Pre-Work 2
It’s important to position
yourself to act and acquire
quickly before confidence
returns (as it always has)
and prices rise digging into
your profits.

Pre-Work 3
Read this…
https://www.bcg.com/en-us/publications/2019/mergers-
and-acquisitions-report-how-to-master-in-downturn.aspx
And this…
https://www.nytimes.com/2020/03/15/business/econom
y/coronavirus-economy-impact.html

Pre-Work 3
Despite a downturn in the
overall economy there is
plenty of cash for M&A
deals, meaning plenty of
cash to buy you out when
you exit.

Day 1
Become An EPIC
Investor
CRISIS INTO
OPPORTUNITY
Crisis comes from the Greek word
”Krisis,” which means turning
point in a disease that will result
either in recovery or death

Post-Recession GDP Change 1929-2009
Source: Wikipedia © 2020 Roland Frasier

M&A
FOR
GROWTH
$10 Trillion Opportunity
4.5 Million Businesses worth Only 20% of businesses that SME EBITDA sale
$10T will transition over the go to market end up selling – multiples = 2.8x –
next 10 years – EPI BizBuySell Insights 2019 DealStats Value Brief.
50 Million Baby Boomers will 96% of businesses fail to PE EBITDA buy multiples
retire over the next 10 years continue for 10 years or average 12X – Pitchbook
– Insured Retirement Inst. more – Inc. Magazine Report US PE Report 2019
12 Million Baby Boomers 420k Boomer Businesses/Yr. 15k US & 30k Global M&A
own businesses – Wealth Will Transition for the next deals closed 2019. Decline
Management Report 10 Yrs. – GenEquity Insights 15%/12% – IMAA Report

Let’s Compare Returns
SME Outperforms…
Savings by 4,037%
S&P by 550%
RE by 415%
Sources: Bankrate | MacroTrends | BestRate | Mashvisor © 2020 Roland Frasier

Why Buy vs. Start-Up?
1. Less Risk Buy A Business
2. Financing Options
3. Brand Recognition Start-Up
4. Instant Customers
5. Instant Sales
6. Instant Profits
7. Instant Contacts
8. Instant Systems
9. Instant Employees
Why Start-Ups Suck
90% Failure Rate Why They Fail*… 1st time founders have a
10% rate of success
10% Fail Year 1 42% no market demand
Previously unsuccessful
70% Fail Years 2 – 5 29% run out of money
founders have a 20% rate
75% of VC Deals fail 23% not the right team of success.
19% get out-competed VC funded founders have
a 25% rate of success
18% pricing/cost issues
Previously successful
17% user unfriendly product founders have a 30% rate
17% product w/o bus. model of success
14% poor marketing

* CB Insights| Failory | SBA | © 2020 Roland Frasier
Acquisition vs. Start-Up
Acquisition Start-up
Cash Invested $50k $50k

Leveraged Funding $950k $165k*
Valuation $1M++ $199k++
Profit Margin 10%** 10%**
EBITDA/SDE $357k $71k+
Risk of Failure 2% 90%
Source: *Experian **Investopedia + Payscale ++DealStats © 2020 Roland Frasier
The “o-Myth”
Above: (VERY Few People):
Find Investors | Acquire Competitors
Integrate Supply/Dist. Chain | Acquire New Verticals
In (Most People): On: (Some People):

Open store Hire Operator
Make coffee Install Systems
Serve customers Create Processes
Order supplies “Think Time”
Sweet floors Community

5 OPPORTUNITIES 10 STRATEGIES PRE-POSITION IDEAL TARGET SIZE
FINDNG DEALS: FINDING DEALS:

ID SPECIFIC TARGETS IDEAL TARGET TYPES
RIGHT WAY WRONG WAY
FIND THE PLAYERS HOW TO CONTACT WHAT TO SAY + ASK DEAL STRATEGIES
FUNDING:
NEGOTIATION DEAL STRUCTURE DEAL ANALYSIS
DEAL STACK

TERM SHEET DUE DILIGENCE DEAL LIFECYCLE
5 OPPORTUNITIES 10 STRATEGIES PRE-POSITION IDEAL TARGET SIZE
FINDNG DEALS: FINDING DEALS:

ID SPECIFIC TARGETS IDEAL TARGET TYPES
RIGHT WAY WRONG WAY
FIND THE PLAYERS HOW TO CONTACT WHAT TO SAY + ASK DEAL STRATEGIES
FUNDING:
NEGOTIATION DEAL STRUCTURE DEAL ANALYSIS
DEAL STACK

TERM SHEET DUE DILIGENCE DEAL LIFECYCLE
SME > PE > IPO Multiple Arbitrage
Systems
12X
24X
3.7X
2.5X
Unsophisticated SME Sophisticated SME Private Equity

NASDAQ PE Multiples
Acquisition Multiples Acquisition Multiples Acquisition Multiples
> $100M
$100k - $1M Deal Size $1M-$10M Deal Size $10M-$100M Deal Size

ARIBTRAGE
OPPORTUNITY #1
CLOSINGS
595,000 Businesses
Simply Close
Each Year
Top Reasons for Closing
1. Money
2. Retirement
3. Relocation
4. Burn-out
5. Health
6. Shiny Object
7. Up-Cycle
8. Partners
9. Death
ARIBTRAGE
OPPORTUNITY #4
“Equity Deals”
Equity Deals
$0 Dollar Investment becomes very valuable via efforts
Earn-In To Equity
a) Advisor 1% - 5%
b) Growth Assist 10% - 50%
c) Exit Assist 5% - 10%
Warrants, Options, or Phantom Equity To Avoid Taxes
Getting Paid:
a) Lump-sum or monthly cash + any expenses
b) Performance-based cash kicker
c) Put option with pre-determined value for easy exit
d) Call option with performance-based trigger © 2020 Roland Frasier
Be The
Thing That
They Want You as
The Most… Investor
Position Yourself As Investor

ALWAYS USE AN
SPV
“The one thing I know now
that I wish I had known when I
got started is the SPV. It would
have saved me tens of millions
of dollars.” Gary Vaynerchuk

The Magic Of The SPV
What it’s called: Special Purpose Vehicle or SPV
What it is: Any limited liability entity that you form to use for a deal,
especially an acquisition, spin-out, split-off, carve-out or joint venture
Why use it: Creates a bright line for isolating liability from a proposed
transaction in an entity separate from your personal or other
business assets and income.
When to form it: Immediately so that you always have one available
for deals when they come up.
How much does it cost: Use LegalZoom or other cheap formation
EPIC CHALLENGE ACTION STEP
Reposition Yourself As An Investor: Add
“Investor” to your LinkedIn and social media
profiles, about page, bio and email signature.
Form an SPV: Use a service like LegalZoom or
BizFilings or file one yourself.
Study Arbitrage: Review arbitrage opportunity

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ETHICAL PROFITS

Covid-19 has started a recession in the US. That’s the best

© 2020 Roland Frasier

© 2020 Roland Frasier

© 2020 Roland Frasier

© 2020 Roland Frasier

© 2020 Roland Frasier

© 2020 Roland Frasier

Source: Wikipedia © 2020 Roland Frasier

© 2020 Roland Frasier

Sources: Bankrate | MacroTrends | BestRate | Mashvisor © 2020 Roland Frasier

14% poor marketing

Cash Invested $50k $50k

In (Most People): On: (Some People):

© 2020 Roland Frasier

FINDNG DEALS: FINDING DEALS:

© 2020 Roland Frasier

FINDNG DEALS: FINDING DEALS:

© 2020 Roland Frasier

Unsophisticated SME Sophisticated SME Private Equity

© 2020 Roland Frasier

© 2020 Roland Frasier

© 2020 Roland Frasier

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