Download Document

The Market Today &
Business Valuations
Kevin Uphill
Avondale
www.avondale.co.uk
The Market
Avondale SME/mid tier commercial focus.
35 transactions pa.
Organic growth slow driving acquisitions
(average 5 bids per project).
Fast change driving interest in niche
companies with products.
www.avondale.co.uk
Advanced economies no longer driving
global GDP growth
Global market
percentage change on a year ago
10
Emerging and
developing economies
8
6
•
2011 Global economy worth
69,659,626 million US
dollars.
•
The United Kingdom is
world’s 7th largest
economy.
•
Over 300,000 companies
in UK employ more than 6
people.
4
2
World
0
Advanced economies
-2
-4
1980
1985
1990
1995
2000
2005
2010
2015
Source: IMF,
3
www.avondale.co.uk
UK output- Recovery lagging
last two recessions
9
8
7
The UK M&A market
Spare capacity increases competitive
factors and creates driver for
consolidation and Mergers and
Acquisitions (M&A) activity.
Interest rates low to 2015?
1981
1992
6
5
4
2011
3
Weak credit
arena/volatility
creating drag.
2
1
0
1
2
3
4
5
6
7
8
9
10
11
Overall 2012 M&A activity (by value) increased on 2011 with Europe
most active due to consolidation. Activity down 20% on 2007 but down
only 10% in sub £250m arena. 1st qtr 2013 increased on 2012.
Motivations
Sellers
Personal/strategic cross roads
Growth in sector
House in order
Elevator deal
Leap of faith
Buyers
House in order
Organic growth slow
Create shareholder value
Strategic
(New products/team/services)
Strategic deals
+ Economies
+ Synergy
+ Value influence
Sum
1
1
1
6
www.avondale.co.uk
Valuation Methods
Discounted cash flow forecast or price earnings multiple of profits
Debt free/cash free
Adjustments to profits
Valuations are financial forecasts to exceed in the process
www.avondale.co.uk
www.avondale.co.uk
Adjusted Balance Sheet
Example hire business
31/12/2013
Equipment undervalued
£ 50,000
Debt free/cash free
£-75,000
Surplus cash negotiate extra to
deal for tax savings but be
warned buyers will try and
include as goodwill, if its there.
£-25,000
Consider tax instrument to
remove surplus – EFURBS?
Adjustment to final price
Debt- Long term liabilities
Less - Cash
www.avondale.co.uk
Adjusted Profit & Loss
Example hire business
31/12/2012
Turnover
£1,850,000
Gross
£746,976
Operating Profit
£177,725
Forecast
Financial value x 4 est.
4 x £316k = £1.26 ml
Adjustments to net profit
Director’s pension
£3,600
Spouse salary (non operational)
£21,859
Directors remuneration (parttime/strategic role)
£78,005
NI On Directors
£7,800
Additional rental
-£15,000
Bank interest
£639
Factoring
£16,806
Hire purchase interest
£3,542
Amortisation (of goodwill)
£21,600
Actual
Marketed on Offers
4 bids
Offer achieved £1.9 ml
--------------------------------Dutch co seeking UK base
Depreciation real cost hire co
Adjusted PBIT under
management
£316,576
www.avondale.co.uk
Deal Structure
1. On Completion
£1,450,000
2. Deferred Payment
£ 225,000
3. Earn out
£ 225,000
4. Total
£1,900,000
Protections
Charges on shares for deferred
Earn out on gross not profit- easier to define
Earn out on current not growth
Protections business to be run materially same
Quality buyer/covenant
Access to records
Reverse non compete
Deal
structure is
a multiple
influencer
www.avondale.co.uk
Strategic Deals Case Studies
Type
Profit/t/0
Value
ROI
PE
Notes
Construction
£316,000
Hire
Tuition (London) £70,000 pbit
£1,900,000
11%
7
£240,000
25%
4
Gateway Ltd
£500,000
ebitda
£3,500,000
14%
7
Renewable
Energy
Distribution
Kiddicare
£3,600,000
£20,000,000
17 %
6
£3,200,000
£78,000,000
4%
24.3
Dutch buyer needed
UK presence
Actually 8 multiple
plus as no owner
manager costwent to a charity
£100 million buyer,
looking at new
products
Rare right buyer again
£100 million
turnover
Online positionMorrisons
Supermarket
Positioning - Modelling - Deal Structure
35% of projects international buyers 2013
www.avondale.co.uk
Business Value by Design
Business Angel yourself (think like an investor)
How much time do you spend on strategy versus management?
How do you design a better value business?
What is your worst envelope?
Management Strategy
The Profit Engine
RECURRING REVENUE | NICHE PRODUCTS | REDUCE RISK
BARRIERS TO ENTRY | TEAM- NOT OWNER DRIVEN
Company Foundation
REAL TIME DASHBOARD | PROSPECTS
www.avondale.co.uk