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