The Market Today & Business Valuations Kevin Uphill
Avondale
Slide 2
www.avondale.co.uk The Market Avondale SME/mid tier commercial
focus. 35 transactions pa. 25 team 3 mentors Organic growth slow
driving acquisitions (average 5 bids per project). Fast change
driving interest in niche companies with products.
Slide 3
3 2011 Global economy worth 69,659,626 million US dollars. The
United Kingdom is worlds 7th largest economy. Over 300,000
companies in UK employ more than 6 people. 2 billion to 7 billion
in 60 years Advanced economies no longer driving global GDP growth
Source: IMF, Global market www.avondale.co.uk
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The UK M&A market 0 1 2 3 4 5 6 7 8 9 1234567891011 1981
1992 2011 Spare capacity increases competitive factors and creates
driver for consolidation and Mergers and Acquisitions (M&A)
activity. Interest rates low to 2015? UK output- Recovery lagging
last two recessions Weak credit arena/volatility creating drag.
Overall 2013 M&A activity (by value) increased on 2012 with
Europe most active due to consolidation. Activity down 20% on 2007
but down only 10% in sub 250m arena. 1st qtr 2014 increased on
2013.
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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 Motivations www.avondale.co.uk
Valuation Methods www.avondale.co.uk 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
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www.avondale.co.uk
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Example hire business31/12/2013 Equipment undervalued 50,000
Debt free/cash free-75,000 Adjustment to final price-25,000 Surplus
cash negotiate extra to deal for tax savings but be warned buyers
will try and include as goodwill, if its there. Debt- Long term
liabilities Less - Cash www.avondale.co.uk Adjusted Balance
Sheet
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Example Medical Clinic31/12/2013 Turnover2,320,000
Gross1,800,976 Operating Profit438,000 Adjustments to net profit
Rent130,000 Managers salary/NI60,000 Directors remuneration (part-
time/strategic role)-150,000 Bank interest639 Factoring16,806 Hire
purchase interest3,542 Insurance21,600 Depreciation real cost hire
co Adjusted EBIT under management520,587 Forecast Financial value x
4 est. 5.5x 500k = 2.86 ml Actual Marketed on Offers 2 bids Offer
achieved 4 ml --------------------------------- Private Equity
backed trade Group UK wide www.avondale.co.uk Adjusted Profit &
Loss
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Deal Structure 1. On Completion 2,000,000 2. Deferred Payment
1,000,000 3. Earn out on growth 1,000,000 4. Total 4,o00,000 Deal
structure is a multiple influencer www.avondale.co.uk Protections
Deferred subject to continued service Charges on shares for
deferred Protections business to be run materially same Quality
buyer/covenant Access to records Reverse non compete
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Positioning - Modelling - Deal Structure Strategic Deals Case
Studies TypeProfit/t/0ValueROI PENotes Construction Hire
316,0001,900,00011%7 Dutch buyer needed UK presence Tuition
(London)70,000 pbit240,00025%4 Actually 8 multiple plus as no owner
manager cost- went to a charity Gateway Ltd 500,000 ebitda
3,500,00014%7 100 million buyer, looking at new products Meter
Provida3,600,00020,000,00017 %6 Rare right buyer again 100 million
turnover Updata5,600,00080 million 7% 14.2Recurring revenue
Forecasts 12 million www.avondale.co.uk 35% of projects
international buyers 2014
Slide 13
Business Value by Design Company Foundation The Profit Engine
www.avondale.co.uk Management Strategy How much time do you spend
on strategy versus management? How do you design a better value
business, ahead of the competition? What is your worst
envelope?