Business valuation oct 2011

Business ValuationCraig West

iSelect buys Infochoice, BidMyLoan and Once Life for $33.5 million (May 2011)

iSelect announced this morning the acquisition of Once, which is the major shareholder in financial comparison site Infochoice.

The company was founded 15 years ago, and in March recorded a 37% increase in revenue for the 2010-11 financial

year, along with a full-year profit of $216,462.

VALUATION EXAMPLES :

Yahoo!7 buys group buying site Spreets for $40m

(Jan 2011)

Spreets was only launched in February 2010

VALUATION EXAMPLES :

EBITDA * earnings multiple = valuation

VALUATION FORMULA :

Earnings before interest, tax, depreciation and amortisation.

Normalized earnings - add backs, adjustments, market salary etc.

EBITDA

Case Study Worksheet : The Facts

Dollar Value

2009 EBITDA $ 800,000

2010 EBITDA $ 900,000

2011 EBITDA $ 1,000,000

2012 Estimate $ 1,400,000

Case Study Worksheet : The Facts

Add Backs

Director One is paid $450,000 p.a. - $ 250,000

Director 2 takes only $50,000 in Super $ 150,000

Net Adjustment - $ 1,000,000

Valuation Formula

"Price is what you pay – Value is what you get "

Warren Buffett

1.Earnings

2.De-risk

3.Multiple

Value drivers

EBITDA

Financial analysis

Gross profit + 5 %

Reduce expenses - 5%

Increase sales + 5%

Earnings

Financial Analysis

Now Change New

Sales 2500 + 5% 2625

Gross Profit 1400 + 5% 1543.50

Expenses 850 - 5% 807

EBITDA 550 33.9% 736.50

Decrease risk

Strategic buyer

Listed company

Sales multiple

Non- financial analysis

Owner dependence

Reverse due diligence

Advisory board

Key people

Decrease risk

Non Financial Analysis

“When I go into any business deal my chief thoughts are on how to save myself if things go

wrong”

J Paul Getty

1 + 1 = 3

Offshore buyer

Listed company

Strategic buyer

Valuation

Australian Business Pty Ltd

$500K profit

EX

IT

To achieve a higher sale price, its much smarter to focus on HOW to sell and WHO to sell to,

rather than trying to increase profit.

Sale to Listed Company @ 6 x = $ 3 million

Strategic Sale@ 4 x = $ 2 million

Trade Sale @ 2 x = $ 1 million

Net proceeds is the important $

CGT – small business concessions.

Structures – who owns assets – before and after

Other costs - legal, accounting, other fees.

Case Study - Answers

WAME: $1,080,000

Multiple: 3.80

Valuation: $ 4,104,000

What Next?

Further information on our website:www.successionplus.com.au

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Craig West1300 665 473

cwest@successionplus.com.au

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