Transcript The Market Today and Business Valuation

The Market Today and Business
Valuation
Avondale - master brokerage in
commercial business sales,
acquisitions & strategy
- Team of 30.
Ave 4 offers per project up from 2
in 2010. Sales increased by 50%
Demand but why?
Advanced economies no longer driving
global GDP growth
Global market
percentage change on a year ago
10
Emerging and
developing economies
8
●
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.
6
4
2
World
0
Advanced economies
-2
-4
1980
Source: IMF,
2
1985
1990
1995
2000
2005
2010
2015
The UK M&A market
UK output- Recovery lagging
last two recessions and volatile
9
8
7
6
Spare capacity increases competitive
factors and creates driver for
consolidation and Mergers and
Acquisitions (M&A) activity.
Interest rates low to 2015?
1981
1992
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 2011 M&A activity (by value) increased on 2010 with Europe
most active due to consolidation. Activity down 30% on 2007 but
down only 10% in sub £250m arena. 1st qtr 2012 on a par 2011.
Sources: data stream- merger market
Transaction Drivers
Reasons to sell
• Retirement/health
• Lifestyle changes
• Capitalise on assets
Business drivers
• Lack of succession
• Underperformance
• Investment
• Entrepreneur’s Relief
10%- £10m
Leap of faith
Buyer
and seller
drivers.
Reasons to buy
• Drive shareholder value
• Buy, build and sell
• Interest rates low
• Organic slow down
Business drivers
• Quality with
sustainable earning
• Increase market
share/ product
base/ skills
1+1+1 = 6
Discounted cash-flow
Valuation methods
IP/capital projects/Start ups
Price Earnings Ratio (multiples)
PBIT/EBITDA
Include net assets
Debt free/cash free/
What assets?
P/E
Revalue
What profits?
Sustainable/art
Earnings
Value Influencers
Key Drivers
Recurring revenue/loyalty clients
Company positioning (Brand)
Scale-ability
Intellectual property
Management track record/skills
Capital requirements
Economies and synergy
Sale Process employed
(strategic buyer)
Risk, certainty and return on
investment
P/E Multiples
PBIT/EBITDA £000’s
50k
250k
500k
750k
1,500k
2,500k
3,500k
Multiples (years earnings)
10
9
8
7
6
5
4
3
2
1
Most likely
Financial Buyer
Least likely
Strategic Buyer
Adjusted Profits- example
Example hire business
31/12/2010
Turnover
£1,850,000
Gross
£746,976
Operating Profit
£177,725
Multiple Influencers
Adjustments to net profit
Directors pension
£3,600
Spouse salary (non operational)
£21,859.00
Directors remuneration (parttime/strategic role)
£78,005
In top 5 brands in UK
NI On Directors
£7,800
Scalable/expanding niche
Additional rental
-£15,000
Strong systems
Bank interest
£639
Balance sheet with surplus
removed £220,000
Factoring
£16,806
Good forecast/client list
Hire purchase interest
£3,542
Amortisation (of goodwill)
£21,600
Depreciation real cost hire co
Adjusted PBIT under management
£316,576.00
X pre-tax multiple 4 =
£1. 26 ml
Forecast Value- example
Calculation
Net
x multiple = £_______ (debt free cash free)
£316,576
x 4
= £1.26 mil (debt free cash free)
Actual 2011
Marketed on Offers
5 Offers
Offer achieved £1.7 million
All cash strategic deal
Dutch co seeking UK base.
Deals Structure effects multiples
Earn-outs common
Deal Structure
Performance related payments
Can help buyers hedge risk
Rules
Avoid profit related
Gross Profit easier to calculate
Reverse Non Compete clause
Secure the Risks
Guarantees/Debentures/Charges
Access to Records
Materially same as present
Escrow
Multiple
Influencer
Preparation/
Approach/Structure
Valuation an art not
science
Risk
Strategic deal
Market
Comparisons