www.avondale.co.uk

Company Valuations & How You Can Increase

Kevin Uphill Avondale

www.avondale.co.uk

Strategic deals + Economies

1+ Synergy 1+ Value influence 1 Sum 6

The Market

Avondale team of 20, 35 plus transactions per annum. Commercial specialists.

Organic growth slow driving acquisitions (average 4 bids per project).

Fast change driving interest in niche companies with products.

When/why sell

Personal/strategic cross roadsGrowth in sectorHouse in orderLeap of faith

When /why buy

Acquisitions fasterOwn house in orderCashflow strongOrganic growth slowLow interests ratesCreate shareholder valueNew products/team/ services

Timing

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Valuation Methods

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Discounted cash flow forecast or price earnings multiple of profitsDebt free/cash free

Adjustments to profits

Valuations are financial forecasts to exceed in the process

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Example hire business 31/12/2013

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.

Consider tax instrument to remove surplus – EFURB?

Debt- Long term liabilities

Less- Cash

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Adjusted Balance Sheet

Example hire business 31/12/2012

Turnover £1,850,000

Gross £746,976

Operating Profit £177,725

Adjustments to net profit

Director’s pension £3,600

Spouse salary (non operational) £21,859.00

Directors remuneration (part-time/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

Depreciation real cost hire co

Adjusted PBIT under management £316,576.00

ForecastFinancial value x 4 est.4 x £316k = £1.26 ml

ActualMarketed on Offers 4 bidsOffer achieved £1.9 ml---------------------------------Dutch co seeking UK base

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Adjusted Profit & Loss

Deal Structure

1. On Completion £1,450,000

2. Deferred Payment £ 225,000

3. Earn out £ 225,000

4. Total£1,900,000

Deal structure

is a multiple

influencer

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ProtectionsCharges on shares for deferredEarn out on gross not profit- easier to defineEarn out on current not growthProtections business to be run materially sameQuality buyer/covenantAccess to recordsReverse non compete

Positioning - Modelling - Deal Structure

Strategic deals Case StudiesType Profit/t/0 Value ROI PE Notes

Construction Hire

£316,000 £1,900,000 11% 7 Dutch buyer needed UK presence

Tuition (London)

£70,000 pbit £240,000 25% 4 Actually 8 multiple plus as no owner

manager cost- went to a charity

Gateway Ltd £500,000 ebitda

£3,500,000 14% 7 £100 million buyer, looking at new

productsRenewable

energy distribution

£3,600,000 £20,000,000 17 %

6 Rare right buyer again £100

million turnoverKiddicraft £3,200,000 £78,000,000 4% 24.3 Online position-

Morrisons Suermarket

www.avondale.co.uk35% of projects international buyers 2012

Value Drivers

Company Foundation

The Profit Engine

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Management Strategy

Preparation (Value Build & Business Design)

Current reality- future reality- options – strategy - implement

The right advisor, buyer and process

Right timing