Allegiance Capital Corporation -
Q&A with Katherine Kirkpatrick  

What business size do you typically represent?
We represent private companies with revenue between $20 million and $500 million and an EBITDA of at least $4 million.

Does your firm focus on a particular industry or sector?
We are generalists with a great deal of experience representing family-owned businesses.

What geographic region does your firm cover?
Our firm’s footprint includes the entire U.S. We have also done deals involving companies from Asia, Canada, Europe, Mexico and South America.

What are the components to the compensation for your service?
On the sell-side we are compensated based on a percentage of the transaction.

How many M&A professionals are there at your firm?
Approximately 50 professionals work at our firm.

Describe the main services your firm provides.
Allegiance Capital Corporation (ACC) assists companies in every aspect of selling and financing a business, including debt restructuring, mezzanine financing, executing leveraged buyouts, strategic partnering, consulting and other related services.  ACC's Special Situations group handles financial restructuring and distressed mergers and acquisitions. We also offer exit planning services.

What other services are provided by your firm?
On the buy-side we help acquirers by:  developing strategic acquisition criteria, identifying target acquisitions, creating realistic pricing models, conducting comprehensive due diligence, structuring and closing transactions.

What have you found to be the single largest factor in getting the highest price and terms for your client?
We do thorough due diligence on our client and put together an Acquisition Opportunity Report that indicates where the client’s company has been, its history, where it is today and a very specific and detailed explanation of what the opportunities and future growth potential for the company are. We then do very thorough and complete research on potential buyers both domestic and international.  If you are going to maximize the return to the selling shareholders, the buying company must see a value proposition that is beneficial to them. Our research on buyers allows us to customize the acquisition opportunity report specifically for each targeted buyer.  We go to great lengths for buyers to see the opportunity for gain that exists for them in making the acquisition. When we have a cadre of buyers, we then hold a confidential auction to maximize the return for the selling company’s shareholders.

What is a common misconception that you find among your clients?
Often times, business owners don't understand why they need an intermediary to represent their interests when they bring their company to market.

How is your team unique?
Our processes generated the following results for an oil field services company called Fiberod in Weatherford, Texas. The company had revenue of $25,000,000 and EBITDA of $5,500,000.  We sold the company for $60,000,000 cash at closing and an earn-out of $30,000,000. The earn-out was made in full in less than 24 months.  The total selling price was $90,000,000 making a multiple of better than 16.5 times.

How do you deal with difficult-to-close transactions?
Allegiance Capital always recommends that our clients have very competent and experienced M&A attorneys representing them. Clients sometimes plan to use the family attorney they have used for many years -- who may be good at contracts or litigation but doesn’t have strong M&A experience. Buyers normally have very competent M&A counsel. An inexperienced M&A attorney will often “blow a deal up” and ultimately not serve the client’s best interest.

Describe a tense moment at the closing table.
For the buyer, the price is always too much money.  For the seller, it is never enough money. Negotiating price and the terms surrounding price can be very emotional for a seller. The business owner is selling a business that has been in the family for many years or one that has been his or her “baby” started 20 or 30 years ago. If the seller doesn’t think he is getting a fair price and negotiations get tense, the deal can fall apart. The key to avoiding those tense moments is to make certain no one is surprised. It is something we do as a matter of course.

Have you ever saved a client from a fraudulent buyer?
We’ve never had this problem. We thoroughly research and interrogate potential buyers. There are a lot of wanna-be buyers out there. To avoid a problem, we review their financial capability and talk to their banker.

What can a client do to maximize their company’s valuation or enhance the business sales experience?
Allegiance Capital ensures its clients are well prepared before we bring buyers in. We do a complete due diligence analysis on the company. We substantiate, to the best of our ability, earnings and add backs. We make sure the company is organized and prepared for sale and the audit trails are in place. If the company’s systems are lacking or its financial controls are weak, we will bring in consultants to get the right systems and processes in place. Buyers like to acquire companies that are well run, have good systems and can sail through due diligence analysis without a lot of problems or hiccups. We also work to bring in buyers whose culture is compatible with the seller’s culture. If buyer and seller bond and you build a solid relationship, it helps greatly in the negotiating process and enables the seller to enhance his valuation.

What should a business owner do if they are potentially interested in using the services of your firm?

1. Give us a call and share your interests with us.
2. We will immediately send you a Confidentiality Agreement so you can be assured that any information you share with Allegiance Capital is held in the strictest of confidence.
3. We will review your financials and your earnings and growth potential. We will give you strong indication of what we believe the value of your company will be in today’s marketplace. And we will share ideas for things that could be done to enhance value.
4. The next step would be to meet in person, get to know the personnel at Allegiance Capital, and understand our capability and how we work. We invite you to check Allegiance Capital’s references to determine that Allegiance Capital has the competency and capability to sell your company and maximize the return to the selling shareholders.
5. Once a potential client is satisfied and engages with Allegiance Capital, we do our due diligence on the client’s company. If we find anything that we believe would be detrimental to a sale or effect the value of a sale, which results in our not being able to meet our client’s expectations, we would immediately cancel our agreement and there would be no cost to the potential client. Our success fee is based upon building successful relationships.