Jan Davis Tudor is the president of JT Research LLC, an information brokering company that serves business appraisers, financial analysts, and economists. She lives in Portland, Oregon.

Super Searchers on Mergers & Acquisitions

The Online Research Secrets of Top Corporate Researchers and M&A Pros

By Jan Davis Tudor, Reva Basch

Information Today, Inc.

Copyright © 2001 Jan Davis Tudor
All rights reserved.
ISBN: 978-0-910965-48-4

Contents

Copyright,
Foreword, by Martin Sikora,
Acknowledgments,
Introduction,
Mark Tygart Middle Market Information Specialist,
Luci Barry Law Librarian and Knowledge Manager,
Lisa Doble Johnson Business Valuation Researcher,
Sylvia James Specialist in International M&A Research,
Penny Cagan Wall Street Library Veteran,
Reed Nelson Law Librarian,
Steven J. Bell University Library Director,
Rob Teitelman M&A Newspaper Editor-in-Chief,
Jim Mallea M&A Database Product Manager,
Jack Sanders Business Intermediary,
Rob Schlegel Business Appraiser,
Ed Vazquez M&A Database Product Developer,
Bruce Liebman Librarian and Information Professional,
Appendix A: Referenced Resources,
Appendix B: Glossary of Terms,
Appendix C: Bibliography,
About the Author and Editor,
Index,

CHAPTER 1

Mark Tygart Middle Market Information Specialist

Mark Tygart is an Information Specialist at Emerge Corporation, a mergers and acquisitions advisory firm in Costa Mesa, California.

mtygart@emergecorp.com http://www.emergecorp.com

Mark, tell me a little bit about your background.

When I was growing up, I never thought that I would be an information professional. I think I would have much preferred to be a knight, or an astronaut, or something else that children prefer, but I ended up graduating with a degree in history. I had done some substitute teaching but really wasn't all that into being a teacher. One of my best friends was working in an antique shop, and at some point a person who worked at a business brokerage came in to shop and complained about the problems they were having with their research. My friend promptly exclaimed that he had done similar research when he was at Berkeley, and why didn't they hire him on the spot? They ended up hiring him about a week later, and he recruited me to come to the firm, the Geneva Companies.

How did you end up at Emerge?

When I left the Geneva Companies, there were a lot of ex-Geneva-ite people around. I began to work as an information broker with some of them for a while. Then some of the people I had done research projects for at Geneva started a company called Emerge Corp. I was available when the company was starting, and they hired me because there was a fairly high trust factor since we had worked together in the past.

What realm of M&A research are you involved with? Do you focus on a certain aspect of the M&A world?

My research falls into a couple of categories. Emerge does a lot of work for valuation purposes, so the research is essentially transactional. That means that we need to find completed deals for which the relevant financial data for the purchased company is available. We also want to know if a control premium was paid, if there was liquidity discount given, what the multiples were, and the particular industry information for that industry. We do this research at a fairly initial stage, normally when a client engages us.

What are multiples, control premiums, and liquidity discounts?

Multiples are the financial numbers that are representative of a transaction and are used as a shorthand way of talking about what price was paid for a business. Multiples are usually a fancy way of saying how much your business is really making. The key metrics are EBITDA or EBIT. EBIT means earnings before interest and taxes, and EBITDA means earnings before interest, taxes, depreciation, and amortization. By looking at a transaction we might discover that a $20 million green widget manufacturer might be selling for five times its EBITDA. The "five times its EBITDA" is a multiple.

A control premium has to do with the amount paid for the control of a business, in other words, fifty-one percent or more of the company. Premiums are often paid because a controlling interest in a business is usually worth more than a minority interest. A control premium is a discount paid for a minority interest because minority interests do not share the same benefits as a controlling interest. Minority interests are also more difficult to sell.

Liquidity discounts are often applied for liquidity — how fast you can buy and sell the stock. A public stock is more liquid because you can call your broker and simply sell all of it. This makes a public stock more valuable.

Is all this information always available for any given deal?

No, no, it is not. In fact, M&A is a fragmented informational market because the data is not well-tracked. There is never enough information available, especially the hard financial numbers that people need to do their financial analysis.

Emerge's Web site states that it provides M&A advisory services to private, middle market companies. What exactly does "middle market" mean?

"Middle market" is a rough term. We tend to use it to describe firms that have roughly $10 million to $100 million in revenue. Middle market is sort of the Twilight Zone, if you will. It's everything that's not Wall Street, and not really brokerage or Main Street. It's everything that falls in between.

What size deals are considered "Wall Street" or "brokerage" or "Main Street?"

Wall Street deals sell for $100 million and over, whereas Main Street deals sell for under $1 million. Brokerages typically handle the transactions of companies that sell for $1 million or under.

Describe a typical client that engages your firm's services for valuation.

We define our clients in two groups. Our typical clients are the more traditional brick-and-mortar types of businesses. They tend to be job shops, particularly in aerospace, electronics, manufacturing, and capital equipment industries, or fairly high-level service industries such as computer integrators. We also have an Internet practice group; I would consider Internet businesses to be atypical clients by definition because the standard valuation metrics don't usually apply.

So, for instance, a company that makes sensors would come to Emerge and engage your services to value their company, so they can sell it?

Yes. Emerge performs a valuation exercise simply because we need to know what ballpark we're in. In other words, we need to know what other people are paying for these types of companies and what the issues are. Once we've done a valuation, we need to sit back and try to find out who would be a good buyer. In fact, a lot of my research is focused on finding a buyer. I look at deals and try to figure out who's buying and why.

How do you start? Describe your typical research project.

I'll describe a deal, actually. Typically, the financial professional will want a very broad overview of the industry in which the client participates. So, he'll say to me, "Mark, I have a semiconductor capital equipment client. Could you prepare some material for me to read so I can be up-to-date on what's happening in that market before I talk to him?" That's a very general, relatively simple, request for which I might pick up U.S. Industry and Trade Outlook [151, see Appendix A] or the Standard & Poor's Industry Surveys [142]. I may also...