Intro to Buying, Managing, & Selling Businesses

Review of Current Platform

Key to Accessing Deal Flow

How to win the deal without paying the most

Know When to Hold 'em and Know When to Fold 'em

Apply the 6 "C"s to the Purchase Process

If You Have the Opportunity, Always Meet with Seller

Issue Letter of Intent

Issue Letter of Intent

Letter of Intent - Continued

Closing the Transaction

Raising Capital

Raising Capital - Steps 1 - 6

Step 1:

• Need a focused investment strategy
• Opportunistic vs Focused - CapRE

Step 2:

• Need a track record

Step 3:

• Need consistent upper tier returns

Step 4:

• Need a team that has been together that created track record

Step 5:

• Need knowledge of what is market rate waterfall

Step 6:

• Having an actionable investment opportunity is preferable

Step 7

• Need a pitch deck
• Essential Elements
• Strategy, team, track record, case studies

Raising Capital - Step 7

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Pitch Deck

Step 8

Raising Capital - Step 8

• Refine your pitch
• Focus on the 6th "C" - Communication
• You have a short window to gain credibility with the audience - make it count
• Buy and read the "Credibility Code" to refine your communication skills

Step 9 - Focused Elevator Pitch

Raising Capital - Step 9

"Five years ago, we sat down as a team to formulate a focused investment strategy with the following attributes:

1. The product strategy was early in its product life cycle

2. The strategy would perform well in both up and down market cycles and

3. It would provide above market returns

We concluded that just as millennials have disrupted the retail and resi sectors - they were about to do the same to the office sector. We are happy to report our creative office repositioning strategy check all those boxes and has provided a cumulative levered project level IRR of 20%"

Step 10

• Strategy of the pitch
• Be very precise on what you will or won't do
• Current raise

Step 11 - Key Issues in J. V. Agreement/Operating Agreement

Raising Capital - Steps 10 & 11

• Amount of capital (you - capital partner)
• Timing of funding
• Waterfall
• Dilution
• Discretion
• Indemnification
• Loan Guarantees
• Keyman Policies
• Remember the Golden Rule

How It's Done:

1. Determine the key metrics for that position and determine if they are being accomplished on a timely basis

• First, see if there is written job description for the position
• if so, review it
• if not, create one
• Lehman Brothers

2. Ask questions about what challenges that person faces and what they perceive are risks and opportunities facing the firm

3. Review salary and benchmark against industry standards

How it's done

C, D, E

C. Tour facilities to get a feel for operations

• Cleaver Brooks Boiler
• Hamburger Hamlet - Hockey Puck
• Koo Koo Chicken - Hispanic Work Force
• FEDCO - Furniture, empty shelves, warehouse
• Packaging Plus - Warehouse Software

D. Tour Competitors - 2nd "C" - Curiosity

• Boston Chicken - Pricing GAP
• Houston's - efficiencies - narrow menu - R&D

E. Determine what is your value proposition

• Price
• Service
• Customer experience
• Wherehouse Music
• Used music
• G. S. R. Buffet

F, G, H

F. Get the key players in a room and then go through the budget on a line-by-line basis and ask questions

• G. S. R. - 55 page budget
• Nebraska boiler - margin issue
• Closed store chain - Prandium

G. Insist on daily cash report from CFO

• Prandium

H. Develop bi-weekly cash flow report - and review actual vs. budget every week

• Casino OPS Meeting - 4 hour MTG every Monday

Tricks of the Trade

1. Always savings in insurance

• G. S. R.
• Prandium

2. Ask to see business plan

• If no business plan speaks volumes as to mgmt oversight
• G. S. R. convention business

3. Bad news doesn't get better with time

• Be decisive
• Prioritize things that need fixing
• Make some early fixes to gain credibility and momentum
• FEDCO
• G. S. R. - Buffet

4. If you need to downsize, do it once

• Reassure balance of team

Tricks of the Trade

People

People

Salary and Benefits Review

• Need to benchmark against industry standards
• Top performers need to be addressed - with stay bonus
• Revised incentive compensation, etc.

Incentive Compensation

• Essential to have clearly defined incentive compensation program
• Benchmark against others in same industry
• Critical to focus on controllable variables
• Critical to split between departmental goals from overall profitability
• Be creative of types of incentive compensation
• G. S. R. - silverware
• Property wide 30% of 1st year annual savings

Business Activities

Strategic Business Plan

• Requires Division by Division
• Or Department by Department review
• FEDCO - Challenging as we sold everything/Walmart

Strategic Business Plan

Identification of Non-Core Assets

• Retail - underperforming store/close/Wherehouse Music
• Restaurants - store P&L's Critical
• Closed Store Concept - 50 Leases
• Used #1 and #3 of 6 C's to deal with that

Business Activities

Compliance & Regulatory Issues

• Chi Chi's Hepa Outbreak
• Innoculation Fiasco
• The great "shell" company mystery
• Trademark - Margaritaville

Compliance & Regulatory Issues

Policies, Processes,

& Procedures

• Hamburger Hamlet - Hockey Puck
• Nebraska Builder
• Build Sheet signoff
• Debt Goals vs. Corporate Goals

Business Activities

Legal Structure & Issues

• Absolute Priority Rule - Prandium HQ, Bldg.

Here is the Common Theme:

Common Theme

"When we are open to new possibilities, we find them; be open and skeptical of everything."

- Todd Kashdan - scientist

Supply Chain/

Vendors

Supply Chain/Vendors

• Evaluate Suppliers
• Hamburger Hamlet
• Product Spec
• Full Load vs. Partial Load
• Chi Chi's - Indemnification
• Blockbuster Video - Rev. Share
• Sierra Meats G. S. R. - Favored Nation's Clause
• Liquor Distributors
• Distribution Center Optimization - Late Deliveries
• Packaging Plus - "Never in 100 years"

Supply Chain/Vendors

Information Systems

• Evaluate CRM, Inv. Mgmt, Utilization Tracking
• G. S. R. - Reservation System
• Wherehouse Music - Inventory Mgmt System - JDR vs. Custom System
• FEDCO - In-house vs. JDR/Installation/Specifications/User Base

Information Systems

Real Estate & Equipment Leases

• Prandium - Lease Rejection - L. L. Rights
• Wherehouse Music - Lease Renegotiation
• RB Furniture - Lease Hold Interest Sale
• Go Dark Clause
• Percentage Rent, CPI, Stated Escalations
• Equipment Leasing - Interest Rate Sensitive

Trended Operating Metrics

Trended Operating Metrics

• Prandium Trended Sales - Topline vs. Customer Count
• Critical For Planning and Uncovering Issues
• Chi Chi's Menu Changes
• Checkout.com
• Unprofitable Contracts
• G. S. R.
• Customer Incentives
• What Motivates Purchase Decision
• Testing New Concepts
• Chi Chi's vs. Penny's
• Mesquite BCH
• Rebel Rents
• Inv. Utilization/Mgmt
• Rate vs. Number of Units

Descriptions by Functional Area

Descriptions by Functional Area

• Convention Bus at G. S. R.
• Define and track performance by business type
• Blend of Conference Space Rental, F&B, Room Rate, Audio/Visual Capability
• After identifying and segregating business activity by function, we were able to optimize revenue

Customer

Customer

• "Know thy customer"
• Essential to your success
• Most people confuse their tastes for the customer taste
• Koo Koo Roo Chicken Burrito - Baja Fresh
• Up and In Burger
• Chi Chi's Authentic Mexican
• Seek feedback from people closest to customer
• Chi Chi Menu Selection - Field Staff
• Closely evaluate the customer experience
• Chi Chi's - Blue Tortilla Chip

Customer

Marketing Plan Evaluation

Marketing Plan Evaluation

• Chi Chi's TV Advertising Plan - Brand vs. Value
• G. S. R. - Evaluation of Incentives
• G. S. R. - F&B Strategy
• Happy Hour
• Country Western Bar
• Aladdin
• No Reason to Stay on Site
• Gaming Strategy
• F&B Strategy
• Night Club
• Showroom
• EBITDA Improvement
• G. S. R. Fun Quest - Free Play
• G. S. R. Bowling
• G. S. R. Movies
• G. S. R. Buffet
• Wherehouse Music

Industry Trends

Industry Plans

• Wherehouse Music
• X-rated videos
• E-commerce - Checkout.com
• Interactive nature of site
• Facebook, Ebay
• Customized loading page
• Instantaneous page creation
• FEDCO - Price leader on electronics
• Wherehouse Music - first ever digital music store

OBJECTIVE: BE A LEADER, NOT A FOLLOWER

Competitive Review

Competitive Review

• Need to consistently compare pricing in space - be it print, digital , or TV
• Chi Chi's advertising agency

• Rapidly changing landscape in interactive digital advertising space

• S. E. O. - Search Engine Optimization
• Essential to understand and leverage digital marketing options

Salary & Benefits Review

• Need to benchmark against industry standards
• Top performers need to be addressed - with stay bonus
• Revised incentive comp., etc.

Salary & Benefits Review

Incentive Compensation

• Essential to have clearly defined incentive comp program
• Benchmark against others in same industry
• Critical to focus on controllable variables

Turnaround Strategy

Where do you start?

Turnaround Strategy

Key Revenue Drivers

Key Revenue Drivers

• Public play guest fees
• Outing round guest fees
• Initiation fees
• Member dues
• Member cart fees
• Food and beverage
• Sales - Pricing (BACC)
• Driving Range Rees

Key Revenue Drivers

Expense Reduction Opportunities

Expense Reduction Opportunities

• Sharper purchasing in Proshop
• Food cost - Big opportunity
• (50 - 31)

Expense Reduction Opportunities

Expense Reduction Opportunities

Budget Presentation and Review

Detail

Detail

Detail

Detail

Detail

Detail

Detail

Typical M&A Process - Continued

Typical M&A Process Overview - Continued

Typical M&A Timeline

Overarching Rules on Sale

1. Don't be greedy - Blackhawk Casino

2. Get to know your buyer - M. C. A.

3. Set the game rules at the outset - current deals

Overarching Rules on Sale

Multi-Billion Dollar Turnaround and Sale of Apartment Developer

Multi-Billion Dollar Turnaround

• Landing the business

• Turnaround

• Sale

3. Aladdin

Aladdin

• Hired as chief restructuring officer for this 2000 and room Last Vegas Hotel Casino
• Challenge - everyone had concluded it was a poor design and couldn't be fixed
• EBITDA at time of hire $10 million with a stretch valuation of $250 million
• Creditors were at each others throats
• Solution - used the 6 C's
• Key to success - Curiosity, Shift to Action-Based Plans
• Quickly Determined we had customers, but no compelling reason for them to stay on site to spend money gambling, dining, or having fun
• Solution:
• Changed restaurants
• Opened night club - Curve
• Changing programming in show room
• Closed high-end boutique casino
• Changed slot strategy
• R&D - Pool Strategy - Hard Rock
• Two years later
• EBITDA $65 million
• Sold to Planet Hollywood for $635 million
• Sale Process Details
• First Sale Attempt
• 2nd Sale
• Cash flow MTG
• Negotiation of Starwood AGMT
• My clients: 2x Plus Return