Preface xxiii Acknowledgments xxix Part One Middle Market Overview 1 Chapter 1 The Middle Market 3 Performance and Impact 4 Definition 5 Characteristics of Middle Market Companies 7 Ownership 7 Access to and Use of Capital 8 Organization 8 Chapter 2 Private Capital Markets 11 Segmented Markets 12 How Market Players View Risk 17 Capital Providers 17 Owners'' and Managers'' Views of Risk/Return 18 Buyers 20 Market Activity 26 Chapter 3 Valuation Perspectives for the Private Markets 31 Private Business Valuation Can Be Viewed Through Different Standards of Value 32 Market Value 34 Investment Value 37 Fair Market Value 37 Fair Value 37 Incremental Business Value 38 Owner Value 38 LBO Value 39 Collateral Value 39 Book Value 39 Valuing Intangibles 39 Why the Different Versions of Value? 41 Valuation as a Range Concept 42 Value Worlds and Deals 43 Part Two For the Business Owner/Operator and Entrepreneur 45 Chapter 4 Transition, Succession, and Exit Planning 47 A Decision Framework 49 1. Owner Ambitions and Goals 50 2. Industry Cycle 51 3. Business Cycle 52 4. Company Foundation 53 A Team Approach 53 Chapter 5 Value Growth and Optimization 55 Increasing the Return on Invested Capital 57 Strategic Position 58 Customer Base 59 Cost Structure and Scalability 60 Working Capital 60 Human Capital 61 Reducing the Risk of Investment 62 Awareness and Planning 63 Growth Plans and Relative Position 63 Leadership Team 63 Predictability of Revenues and Earnings 65 Concentrations 65 Compliance 66 Keeping Current 67 Ease the Transfer of Ownership 67 Financial Information 68 Contracts 69 Title to Assets 69 Corporate Structure and Attributes 70 Don''t Lose Focus on the Core Business 70 Summary 71 Formula Definitions 72 Part Three The M&A Practice and Processes 75 Chapter 6 Practice Management 77 Primary M&A Advisors 78 Marketing the M&A Practice 80 Target Audience 80 Networking 81 Marketing and Advertising 81 Pretransaction Consulting 82 Valuation Services 82 Other Consulting Services 82 Becoming an Expert 82 Client Acceptance 83 Confidentiality 84 Client Engagement 84 Identification of the Parties 85 Scope of Service 85 Limitations and Disclosures 86 Fees-- Selling Advisor 86 Example Fee Structures 88 Termination and Tail 89 Buy-Side Engagements 89 Licensure Issues in the M&A Business 90 Chapter 7 Sell-Side Representation and Process 93 Selling Process Overview 93 Step 1: Preliminary Discussions with Seller 94 What Is the Transaction? 95 Value Expectations 95 Process 96 Step 2: Data Collection 97 Step 3: Industry Research and Identifying Buyers 100 Research Market Buyers 101 Step 4: The Marketing Book 101 Preparation 103 Seller Motivation 104 Financial Disclosures 105 Specific EBITDA Presentations 105 Balance Sheet Presentation 105 Other Financial Disclosures 106 Prospective Financial Presentation 106 Step 5: Marketing Process 106 Clear the List with the Seller 107 Initiate Contact with Buyers 107 Obtain Nondisclosure Agreements 108 Distribute the Book 108 Follow Up, Discuss, and Set Expectations 108 Step 6: The Auction Dynamic and Negotiations 109 Negotiated Sale 109 Private Auction 111 Public Auction 112 Step 7: Buyer Interest and Transaction Structure 113 Term Sheets 114 Indication of Interest (IOI) 114 Letters of Intent 114 Deal Structure 116 Asset versus Stock Structure 116 Other Tax Deferral Techniques 117 Step 8: Due Diligence 120 Step 9: Definitive Agreements 121 Step 10: Closing Process 122 Price and Valuation Changes 123 Terms and Conditions Changes 123 Third-Party Challenges 123 Allocation of Risk 124 Other Preclosing Mistakes 124 Postsale Integration 124 Chapter 8 Corporate Development and the Buy-Side Process 127 Why Acquire? 129 The Dismal Ds 130 Alternatives 131 The Acquisition Process 132 The Pipeline and Filter 133 Approaching the Target 134 The Balance between a Deep Dive and Locking In the Deal 135 Lower-Middle Market versus Middle Market Deals 136 Valuation from a Strategic''s Perspective 137 Structuring the Transaction 140 The Bid 141 Due Diligence 141 Integration 144 Practical Tips and What Causes Deals to Fail 146 What Should We Acquire? 146 Why Are We Doing This? 147 Alignment of Interests 147 Recruit the Right Advisors Early 148 Allocate Enough Resources 148 Every Interaction Is a Negotiation 149 If It Can Go Wrong, It Will Go Wrong 149 Chapter 9 Buy-Side Representation 151 Buyer Clients 151 Strategy 152 The Filter 153 Financing 154 Quality of Earnings 154 Coordination 156 Integration 156 Chapter 10 Technology in the M&A Process 157 Virtual Data Room 158 Market Insight and Data 159 Deal Sourcing and Exchanges 162 Due Diligence Software 163 Project Management Software 164 Comprehensive M&A Software 164 Supporting Tools 165 Artificial Intelligence and Technology Trends 165 Technology Providers 167 Chapter 11 Professional Standards and Ethics 169 Holistic Advice 171 Ethical and Professional Standards 172 Competence and Professionalism (Reputation) 173 Best Practices (Activities) 173 Ethics (Behavioral Boundaries) 174 The Middle Market Standard 175 Part Four M&A Technical Discussions 177 Chapter 12 Financial Analysis 179 Financial Reporting Motivation 179 Ebitda 181 Balance Sheet Analysis 184 Working Capital 185 Normalization 190 Chapter 13 Market Valuation 195 Reasons for Appraisal 196 Determine the Value Subworld 196 Calculate the Benefit Stream 197 Synergies 203 Determine Private Return Expectation 205 Specific Investor Return 206 General Acquisition Selling Multiples 207 Derive Value 208 Chapter 14 Deal Structure 213 Structural Priorities 213 Business and Economic Terms 214 Tax Structure 218 Legal Structure 222 Mergers 224 Initial Analysis of Both Entities 224 Strategic Rationale 225 Valuation Modeling 225 Understanding Cost, Operational, and Cultural Differences 226 Developing the Integration Plan 227 Deal Structure and Negotiations 227 Chapter 15 Financing Sources and Capital Structure 229 Perspective 229 Financing Primer 230 Capital Structure 230 Factors Shaping the Capital Structure 234 Basic Deals 237 Buyouts 237 Recapitalizations 242 Acquisitions 243 Sources and Types of Funding 245 Debt 246 Private Equity 249 Personal Guarantees 250 Chapter 16 Due Diligence 255 Due Diligence Process 256 The Diligence Team 256 Traditional Due Diligence 257 Financial Matters 258 Quality of Earnings Analysis 258 Balance Sheet Analysis 260 Ratio Analysis 260 Other Risks 261 Audited Financial Statements 261 GAAP Compliance 262 Tax Structuring and Compliance 262 Compensation and Benefits 263 Legal 264 Technical Due Diligence 266 Business Due Diligence 267 Chapter 17 Tax Provisions Used in M&A 271 Tax Fundamentals 272 Transaction Tax Basics 275 Asset Transactions 275 Stock Transactions 277 Stock versus Asset Sale Example 278 Asset Transaction Details 280 Buyer Tax Issues 285 Detailed Tax Structuring 287 Installment Sales 287 Risk of Forfeiture 288 Assets That Qualify for Installment Treatment 288 Installment Planning Opportunity 289 Partnership M&A 289 General Partnership Doctrine 290 Partnership versus S Corporation 290 Partnership Gain Tracking Rules 292 Purchase Price Allocation for Partnership Buyers 293 Corporate M&A Issues 293 Contributions to Corporations 294 Stock/Asset Sale Election: Section 338 295 Mergers and Reorganizations 296 S Corporation Issues 300 Tax Glossary and Reference 302 Chapter 18 Legal Documentation 309 The Attorney''s Role 309 Preliminary Legal Documents 311 Nondisclosure and Confidentiality Agreement 311 Letter of Intent 312 Acquisition Agreements 316 Structure of the Deal 316 Stock Sale/Merger 316 Asset Purchase 317 Representations and Warranties 318 Qualifications to Representations and Warranties 319 Indemnification 320 Transaction Statistics 321 Consulting and Employment Agreements 322 Regulatory Compliance 322 Chapter 19 Regulation and Compliance 323 Protecting Investors: Securities Act of 1933 324 Exemptions under the 33 Act 326 Commonly Used Priva.