Maximizing Enterprise Value IN THIS ISSUE: PAID ADVERTISEMENT TODAY BUSINESS STRATEGIES Total Money Management from the professionals at First National Bank
Vincent J. Delie, Jr. Chairman, President and CEO F.N.B. Corporation First National Bank “Think big.” It’s a cliché that masquerades as business advice, but there is a measure of truth behind the maxim. Businesses that achieve a larger scale often must approach problems with a broader vision and seek more complex solutions to maintain momentum and drive greater enterprise value. In this issue of Business Strategies Today, we consider some of the advanced tools and techniques used by organizations to overcome the hurdles that come with maturity and reach. With a forward-looking plan to mitigate volatility, protect margins and manage various forms of change, established businesses can put themselves in a strong position to maximize performance, profitability and returns. We begin with an introduction to commodities hedging, an important strategy for businesses that rely on products and goods, such as energy, metals or agricultural products. Volatility in these markets can greatly impact growing companies seeking to invest in their future. Commodity hedging, however, creates and maintains stability, enabling businesses to preserve margins and working capital. Our second article examines best practices for going global. A big move for many businesses — both figuratively and geographically — is beginning international operations. Whether that entails simply transacting with cross-border suppliers or going so far as to open a factory an ocean away, there are several factors to weigh and problems to solve, from financial impacts of operating abroad, such as tariffs or the challenges of multiple currencies, to regulatory requirements. Finally, we have a pair of articles on the varied financial strategies that may come into play before or after a business restructuring or sale. In one, we take a high level look at key considerations in a purchase or sale; the other explores the complexities of managing personal wealth and its transfer following a potentially transformative liquidity event. As a full-service financial institution, FNB is equipped to help leaders create, maintain and manage value in their business. I welcome you to explore our business-oriented products and services and award-winning eStore® at fnb-online.com. THE FIRST NATIONAL BANK DIFFERENCE First National Bank, the largest subsidiary of F.N.B. Corporation (NYSE: FNB), is a growing financial services organization with a long-standing tradition of helping our customers and communities thrive. Throughout more than 160 years of service, we have remained dedicated to providing total money management solutions for our consumer, small business and commercial clients. We have a core business concentration on middle and upper middle market companies and serve their needs as a value-added partner. MORE INSIGHT FROM FNB You can always look to FNB for expertise on the topics and trends that have the greatest impact on you and your business. In Business Strategies Today, experts from across our Company have covered a wide range of subjects, such as making the most of the economic environment, staying the course to innovation and planning for the future of your business. Just a few of the topics we’ve covered recently include: check International Expansion check Interest Rate Management check Payments Solutions check Wealth Management check Succession Planning check Cybersecurity check M&A To learn more about topics that may benefit your business, call us at 1-866-362-4603 or visit fnb-online.com/business 02
04 MANAGING RISK IN COMMODITIES MARKETS WITH HEDGING STRATEGIES IS NOW THE TIME FOR M&A? PLANNING FOR A MAJOR CHANGE 08 06 BEYOND BORDERS: WHAT TO ASK BEFORE GOING GLOBAL WITH YOUR BUSINESS 10 WHAT BUSINESS OWNERS NEED TO CONSIDER BEFORE LIQUIDITY EVENTS COMMERCIAL BANKING* ▶ Corporate & Business Banking ▶ Investment Real Estate ▶ Builder Financing ▶ Asset-Based Lending ▶ Lease Financing ▶ Capital Markets ▶ Commodity Hedging ▶ Public Finance ▶ Mezzanine Financing ▶ Treasury Management ▶ International Banking ▶ Small Business Administration (SBA) Lending ▶ Government Banking CONSUMER BANKING* ▶ Deposit Products ▶ Mobile & Online Banking ▶ Mortgage Banking ▶ Consumer & Small Business Lending ▶ eStore® Digital Banking Experience * Bank deposit products and services provided by First National Bank of Pennsylvania. Member FDIC. Equal Housing Lender. FULL-SERVICE SOLUTIONS INSURANCE ▶ Property & Casualty ▶ Employee Benefits ▶ Personal ▶ Title WEALTH MANAGEMENT ▶ Trust & Fiduciary ▶ Retirement Services ▶ Investment Advisory ▶ Brokerage ▶ Private Banking Not FDIC/NCUSIF Insured Not Guaranteed by the First National Bank of Pennsylvania or its affiliates May Lose Value Not Insured by Any Federal Government Agency Not a Bank Deposit First National Bank of Pennsylvania does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. 03
MANAGING RISK IN COMMODITIES MARKETS WI TH HEDGING STRATEGIES FNB-ONLINE.COM 04
Commodity consumers, conversely, use hedges to protect against price increases. In the energy sector, typical consumers can include transportation companies, utilities, manufacturers and logistics firms. These businesses often have natural hedging strategies in place — if fuel prices increase, costs are passed through to the end user. However, amid inflationary periods and when commodity prices remain higher for longer, customers may have less appetite for increased product or service prices. Given the prevailing environment, then, it can benefit an energy consumer to establish a hedge while the commodity is at a lower price to decrease their own costs and reduce pass-through impacts to end users. If the commodity prices go up, the hedge itself will instead pay back the extra cost incurred by the consumer. Regardless of whether a business is buying or selling a commodity, hedging is a valuable tool for reducing risk and promoting a stable balance sheet. Hedges are not cookie-cutter, however, and businesses should work with an experienced institution to customize an effective plan. HEDGING FOR CONSUMERS Few, if any, people can answer these questions with 100-percent certainty — what will the price be for a barrel of oil in six months? Units of natural gas? Soybeans? Global events continue to prove that a business can do its best to analyze the markets and forecast trends, but there is no true crystal-ball strategy for predicting the future cost of commodities. Instead, producers and consumers alike can introduce more clarity into their businesses and protect their margins with hedging strategies. As recent trade turmoil, supply chain upheaval and post-pandemic inflation showed, economic volatility spurred by widespread crises can surface unexpectedly and endure indeterminately. Commodity hedging is a popular and important method for reducing risk in what can be particularly sensitive markets, including energy, metals or agriculture. HOW HEDGES WORK Similar to interest rate hedging, commodity hedging enables businesses to lock in prices on vital commodities. Typically, a hedge is a derivative contract made with a lender that establishes how much a producer must sell a commodity for or how much a consumer must spend to purchase a commodity. Hedges last for specific periods and apply to certain percentages of commodity transactions performed in that time, with companies often having multiple hedges in place at varying terms. Hedges create stability and enable a business to better forecast and manage their margins. In turn, decision-makers can worry less about negative price swings and focus more on core business needs and future investments. HEDGING FOR PRODUCERS Concerning producers, hedging guards against any potential drops in the price of the commodity they produce and bolsters creditworthiness when securing financing. An oil company, for example, may lock in a hedge to sell the oil it drills at $60 per barrel for the coming year, knowing it is greater than the profit break-even point and upholding confidence it can sell its production at that price. Hedging at that price means the producer forgoes any extra profit if the price of a barrel increases above $60 per barrel, but it has the benefit to protect against losses if it drops below that price per barrel while ensuring it will have a strong revenue stream. Managing fluctuations in interest rates, including through rates hedges, is also key to mitigating risk. Use the QR to check out the FNB Knowledge Center article “Growing Through Changing Rate Environments” for more. Amid uncertainty over recent market volatility, inflation and tariffs, hedging is likely to become an increasingly valuable strategy. FNB’s Capital Markets team has an emerging specialization developing hedging strategies for companies in the oil and gas industry. Visit fnb-online.com/capitalmarkets to set up an appointment. 05 BUSINESS STRATEGIES TODAY • SPRING 2025
BEYOND BORDERS WHAT TO ASK BEFORE WITH YOUR BUSINESS GOING GLOBAL For many companies, the business world is just that — the world. Customers are not limited to defined borders, or it may be more economical to source parts and supplies from across an ocean. Operations might exist, at least partially, in a place far from home. The potential financial benefits of conducting business internationally often outweigh the risks — which can include tariffs, tenuous supply chains and regulatory quagmires — but proper planning and care can alleviate trouble. Before buying, selling or expanding overseas, a business should ask and answer some important questions. 06 FNB-ONLINE.COM
It is important to understand the business environment in the country where a business plans to operate or transact. In addition to trade relations, there are many factors to consider, including the type of business being conducted, the sophistication of the banks involved, the legal rules regulating commerce between the U.S. and the opposite nation, and the level of risk. Such elements can be best understood by a business through performing due diligence on the regions where it expects to operate. Business leaders should learn about the laws and tax implications for transacting in any new country, as well as the risk exposure. Are there tariffs on the products or materials involved? Are there supply chain issues? What currency will a transaction use? If there is a counterparty, are they trustworthy? For companies that are opening an office or facility in another nation, there are even more questions and unknowns, so their review may benefit from a visit to the country before making a final decision. WHO CAN HELP ME? Large, multi-national corporations typically have the benefit of entire teams dedicated to their global ventures, but small- to middle-market companies often require expert advisors to investigate, initiate and manage international affairs. Law firms with international and business practices can assist with navigating regulatory and risk concerns, as can financial institutions, which bring expertise in financing, managing currency exchange and tracking funds, among other vital services. Additionally, institutions may have access to wider networks of trusted partner banks in other countries, enabling a business to more easily and quickly complete transactions. WHAT DO I KNOW ABOUT THE COUNTRY WHERE I AM DOING BUSINESS? WHAT TOOLS CAN HELP WITH GOING GLOBAL? ▶ Foreign exchange markets: Currency values regularly fluctuate, which can make it difficult to complete transactions with overseas partners without help. Foreign exchange (FX) markets enable businesses to convert currencies safely and accurately. International banking professionals can assist businesses in accessing FX markets and mitigating currency risks. FNB’s team, for example, identifies and quantifies a business’ risk and develops a customized hedging strategy to avoid volatility in currency values. ▶ Trade financing options: Financing international trade and investment comes with unique challenges, ranging from geopolitical risks to regulatory bottlenecks. Working capital lenders who have experience with importers and exporters may be able to offset those risks by connecting businesses to a variety of domestic credit agency programs, originating multicurrency loans to guard against currency fluctuations and facilitating loans that establish subsidiaries in foreign markets. ▶ Treasury management: Digital tools make international business more convenient than in previous eras, creating efficient and transparent processes that simplify cash management. Modern banking technologies allow for live financial reporting, including payments tracking solutions that ensure sums that transfer between multiple banks make it to their end point securely. More treasury management solutions include multicurrency accounts to hold, send and receive several currencies at once and streamlined reporting platforms to assist with regulatory requirements. The right blend of these tools, along with assistance from reliable advisors and the proper due diligence, has a large influence on whether a business can thrive in foreign markets —opening a world of opportunities. For more about supply chains and managing risk, check out this article on FNB’s Knowledge Center by using the QR. IMPROVING SUPPLY CHAIN MANAGEMENT Depending on the type of business, success is often tied to the strength of the global supply chain. How a company navigates the vast worldwide network of businesses and individuals that produces products, materials and components can foster positive outcomes for all connected parties. That connection also increases risk exposure and the potential for disruption, as highlighted during the pandemic, geopolitical events and economic swings. To mitigate these risks and bolster supply chain management, businesses should consider these actions: ▶ Develop a formalized supply chain management plan, including steps for responding to disruptions. ▶ Stockpile backup inventory of internationally sourced supplies. ▶ Diversify suppliers and include domestically based companies. ▶ Invest in technology and automated processes to maintain and track inventory. FNB’s International Banking team partners with clients to identify global payments solutions, financing and currency exchange options and to manage foreign accounts. Learn more at fnb-online.com/international. BUSINESS STRATEGIES TODAY • SPRING 2025 07
TIME M&A? After prolonged stagnation, investors, lenders and businesses may have pent up capital to deploy. As businesses contend with their own evolving needs, a merger or acquisition may be an attractive way to add value to or extract value from an organization. IS NOW THE FOR PLANNING FOR A MAJOR CHANGE FNB-ONLINE.COM 08
ANSWER WHY M&A? The first step in any deal starts with a clear understanding of a company’s strategic intent and how a merger or acquisition fits into that corporate direction. Is the business filling gaps or growing in an area aligned with changing circumstances? Is it more costeffective to evolve through a deal than to do so organically? ENGAGE STAKEHOLDERS EARLY AND CONSIDER OUTSIDE EXPERTISE Ensure the company’s management team has a highly skilled set of advisors to guide them through the deal. Lawyers, bankers, communications firms, government relations specialists, human resources consultants and others are critical to the process. Given the complexity of M&A transactions, it may be prudent to also add an investment bank or M&A advisory firm to the roster. These specialized service providers have in-depth knowledge that can help to ensure a smooth process for deal participants. In addition to buy-side and sell-side M&A advisory, an investment banking partner can deliver many value-added services to bolster a client’s position when approaching a transaction, including support raising capital; optimizing an organization’s capital structure; or providing accurate, objective company valuations. In many cases, such firms may take on the management of the entire deal process, leading workstreams pertaining to due diligence, negotiation and, in the case of a sale, marketing. As a result, company leadership can stay focused on operations and maintain the performance that makes their organization an attractive buyer or target. ANTICIPATE EVOLVING REGULATIONS The regulatory steps associated with M&A vary from jurisdiction to jurisdiction, and they often are in a state of flux, especially around global privacy and security. Organizations need to keep an eye on these changes, particularly as businesses look to diversify their supply chains and governments look for new revenue streams to counter or prevent future losses. CREATE, BUILD OR MAINTAIN A STRONG CULTURE When acquiring, leaders should find the exceptional talent and try to retain them. After the deal, it is essential to ensure the positive aspects of both cultures remain. Decisions about M&A should be based on short- and long-term goals — for your business and yourself. To ensure a deal delivers optimal value, it is a good idea to engage your advisors as soon as a purchase or sale becomes a consideration for your team. It also is essential to work with a lender that understands your total financial picture and has the resources and connections to accommodate your needs. Learn about FNB’s solutions at fnb-online.com/business. When a company decides that M&A is the right strategic choice, it is essential that they be primed to attract interest, move quickly and act decisively whether they are buying or selling. No matter what side of a transaction a business is on, there are essential steps to take when conducting M&A. USE DEBT STRUCTURE TO DRIVE ENTERPRISE VALUE For some businesses, it is apparent early on that a sale may be the best ultimate exit strategy. A close financial partner can devise funding strategies that position a company to succeed today and become an attractive, high-value sales target in the years ahead. For example, a deal structure that incorporates mezzanine financing may enable a business to fund event-driven growth (such as acquiring an add-on business or equipment for a new product). Mezzanine loans can be comprised of subordinated debt or a combination of subordinated debt and equity, with a potential for higher investor return balanced by more flexible structures for borrowers. As a result, a company can pursue expansion opportunities they may not otherwise be able to afford, driving increased revenue without sacrificing its ownership stake or senior debt position. With a sale on the horizon, management may consider sourcing outside equity, mezzanine and senior debt in the near-term. With increased capital and disciplined management, the business may be able to increase its profitability. In turn, enterprise value may grow at a much faster rate than would be possible through existing earnings alone, leading to a bigger liquidity event for the ownership team when it is time to sell. Want to learn more on expanding your business? This article from the FNB Knowledge Center has some useful tips. Just use the QR. In April, FNB announced an acquisition of a successful investment banking firm, adding established M&A, corporate finance, valuation and capital raising advisory services to our comprehensive support for corporate clients. From startup to sale, FNB has solutions to assist you at every point in the business lifecycle. Contact us today at 1-866-362-4603 to plan for your future – for tomorrow, next year or 10 years down the road. 09 BUSINESS STRATEGIES TODAY • SPRING 2025
WHAT BUSINESS OWNERS NEED TO CONSIDER BEFORE The sale of a family business — or any event that results in an influx of wealth, often referred to as a liquidity event — is a momentous opportunity. Simultaneously, it can complicate your family’s finances and prompt you to reassess your goals and objectives, hindering preparations for what happens next. LIQUIDITY EVENTS FNB-ONLINE.COM 10
PREPARE EARLY “When preparing to sell a business, planning on the personal side often gets overlooked,” said Dave Panneton, Executive Vice President of FNB’s Advisory Business Group. “Managing this type of event can be an emotional whirlwind, so planning for the transition early can help balance your concerns about risk with opportunities to enhance the wealth that you’ve created.” Creating a financial plan well in advance (typically, two to five years) of a liquidity event is important to understand how deal structure (e.g., asset vs. stock purchase, earnout, equity rollover, etc.) will affect your after-tax proceeds and, ultimately, future lifestyle. Beyond lifestyle considerations, your plan should also estimate excess liquidity — the funds available for wealth transfer, charitable giving, etc. Overall, early planning provides you with a range of options to minimize taxes and implement systems to handle your new wealth. UPDATE YOUR ESTATE PLAN It is also important to establish or update your estate plan before a liquidity event. A carefully considered strategy can help you safeguard your assets and designate how your wealth will be transferred, whether it be to your heirs, taxes, philanthropy or something else. Your estate plan should leverage written documents and other legal entities to minimize the tax burden imposed on your beneficiaries. CONSIDER TAX IMPACTS The goal of wealth-transfer planning is not only removing the current value from an estate, but also optimizing the federal estate and gift tax on the transferred assets’ future growth. There are multiple strategies to address this estate planning challenge — trusts, gifting, installment sales and even life insurance (see the next section) are all good starting points for consideration. Every owner’s situation is unique, so consulting with a wealth advisor is highly recommended. Consider this recent example, where an F.N.B. Wealth Management advisor used estate planning techniques to help a married couple maximize their income after selling their business. Prior to the sale, the advisor devised a strategy, as authorized under applicable law, to leverage their lifetime exemptions by gifting discounted business shares to spousal lifetime access trusts for each other’s benefit. The gifts to these irrevocable trusts enabled the clients to forever remove the gifted value from their estates — while maintaining the ability to access the funds, if necessary, as they adjust to their next chapter. The assets will remain in trust for future generations, providing the couple with creditor protection and a continuing family legacy. With any anticipated major windfall of cash, the issues you may want to discuss with your advisors well in advance include updating your estate plans, anticipating the potential tax consequences and utilizing insurance products to create or preserve generational wealth. Doing so will put you in a better position to decide on your family’s investment strategy and, more specifically, the allocation of your portfolio among asset classes. Here are a handful of tips to help you navigate your upcoming milestone. EVALUATE INSURANCE STRATEGIES FOR ESTATE PLANNING While you’re planning for your business exit, it is also a good opportunity to revisit your life insurance policy and options. In addition to providing your family with liquidity when it’s needed the most, life insurance can help with estate planning by affording a tax-free source of income for beneficiaries and offsetting estate taxes. An irrevocable life insurance trust, for example, permits wealth to pass from one generation to the next without being subject to estate and generation-skipping taxes. Most importantly, life insurance can ensure your family’s wealth is protected and distributed in the manner you wish. FIND YOUR TEAM Assemble an experienced team of professionals to manage the objectives you set, including an estate attorney, tax advisor and a financial partner such as FNB that employs insurance specialists, private bankers, trust advisors, financial planners and investment advisors. Choose professionals you are comfortable communicating with and who are willing to engage with you. You may have questions and require reassurance while you gain confidence in the strategy your team designs and implements. Need help planning for an upcoming liquidity event? Visit the F.N.B. Wealth Management team at fnb-online.com/wealth. Deciding how and when to leave a business is difficult, so consider this article, “Planning for Succession of a Business Interest,” for more on the process. 11 BUSINESS STRATEGIES TODAY • SPRING 2025
President’s “E” Award for Export Service BANKING TECH AWARDS USA 2024 Proven performance that powers your business forward. Can your bank do that? Data as of April 22, 2025 FNB10-264 Equal Housing Lender | NMLS #766529 | Member FDIC Let’s get started. Visit fnb-online.com to learn more. FNB is redefining what’s possible with sophisticated products and solutions, local expertise and award-winning customer service. With our superior capital position and experienced management team, we have 160 years of strength and stability to help your business thrive.
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