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H&K Strategic Business SolutionsH&K Strategic Business Solutions
Valuing Your Government Contractor Business
John T. SchellSpecial Briefing
The McLean HiltonOctober 3, 2001
Holland & Knight Consulting Strategic Business Solutions
H&K Strategic Business SolutionsH&K Strategic Business Solutions
What is Your Business Worth?What is Your Business Worth?• Book Value? Liquidation Value?• Fair Market Value
– Financial Buyer• Stock Price (Public Company)• Adjusted Cash Flow (Private Company)• Revenues (Small, specialty only)
– Strategic Buyer• Market (Agencies, programs, expertise, etc.)• Buyer can consolidate and improve cash flow.• Buyer can generate cash flow from other areas.
Holland & Knight Consulting Strategic Business Solutions
H&K Strategic Business SolutionsH&K Strategic Business Solutions
What Kind of Cash Flow?What Kind of Cash Flow?EARNINGS
Plus Non-cash charges
Plus Owners’ Perks and Excess Salary
Plus Non-recurring Expenses
Less Non-recurring Revenues
ADJUSTED INCOME
Plus Interest
Plus Taxes
Plus Depreciation
Plus Amortization
EBITDA
Key Issue: Historical or Forecast?
Holland & Knight Consulting Strategic Business Solutions
H&K Strategic Business SolutionsH&K Strategic Business Solutions
Valuation of Cash FlowValuation of Cash Flow
• Relevant Methods– Discounted Cash Flow
– Capitalization of Earnings.
– Payback on EBITDA.
• Calculation vs. Market Comparables.
• Reduce by Outstanding Debt.
Holland & Knight Consulting Strategic Business Solutions
H&K Strategic Business SolutionsH&K Strategic Business Solutions
Estimate of True ValueEstimate of True Value• Contractors Providing Services: 3x-5x EBITDA
– Titan/BTG: 4.24x 2001 EBITDA
• Adjust for Variables, e.g:– Interest in Government Sector.– Agencies served (Intelligence, GSA, etc.)– Contract Backlog, Terms, Follow-on Work.– Modify for Earn-outs, Stock, Seller Financing.– Abundance and Viability of Contract Vehicles.– Value-Added Work, Technical Skills and Margins.– Task Order Win Rate.
