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Valuations & exit planning


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Private Company Valuation methods with a brief explanation

Private Company Valuation methods with a brief explanation

Published in: Business

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  • Illustration for each quad: Tesco & T&S Stores (success) GM & EDS Diversification Cisco has completed 108 acquistions – most recently a provider of set top boxes, following on from Linksys acquisition which took them into the consumer market. (Product Development) Morrisons & Safeway
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    • 1. Increasing the value of your clients business Tim Luscombe
    • 2. OpportunityReframe your clients perceptionof your fees
    • 3. Valuation TechniquesAsset Based * Ratio(s) of Profits*Cash flow based * PaybackPeriods * ROI *Buyers Valuation* BenchmarkAll Estimating What a willingbuyer will pay to a willing seller It is an art, not a science
    • 4. Asset basedValue of net assetsAdjust for depreciation methods?As above, + good will elementMarket Value of net assets Strip out cash & property
    • 5. Profit Based Typically P/E ratios Value of the companyPost tax profits of the company
    • 6. P/E Ratios Find an equivalent public company’s P/E RatioDiscount that ratio for the lack of liquidity in the market in private companiesApply to adjusted post tax profits Over different periods
    • 7. Cash Flow basedMultiples of EBITDAEarnings before interest tax depreciation andamortizationDCF and / or NPV calculationsBased upon forecast cashflows
    • 8. Payback PeriodsNumber of years to recoupinvestmentUsually between 3 and 5 yearsFactors include costs ofintegration and savings fromconsolidation.
    • 9. Return on InvestmentROI based upon forecast post tax profitsEnables easy comparison to alternativeinvestmentsDifferent rates of return for different buyersRate of return is set by reference to cost ofcapital
    • 10. Buyers ValuationLooks at the increased value of thecombined businessesWill consider cost of capital, but alsoearnings dilution (especiallyimportant in public companies)Estimating costs of integration butalso synergistic benefits
    • 11. Industry BenchmarksOften a very simple calculationWidely known in the industry – soalmost self-fulfillingExamples might be n x turnover orn x contracted revenue or £x persubscriber….
    • 12. Why buy a business ?
    • 13. Why would someone buy yourclients business? + =
    • 14. When to sell?
    • 15. What could acquiring your client’s business do for the acquirer? Ansoff New Market Diversificatio penetration nMarkets Current Market Product extension developmen t Existing New Products
    • 16. It is a numbers gamePast profits are a guide to helpestimate future performanceAdjustments, add-backs andfudges reduce the credibility of theaccounts
    • 17. Value DrainersRisk of under performanceRisk of liability issuesGreater risk equates to lower overallvalueGreater risk drives pay by performance
    • 18. Value DrainersRisk of under performanceRisk of liability issuesGreater risk equates to lower overallvalueGreater risk drives pay by performance
    • 19. Value DriversRecurring RevenuesConsistent historic resultsSystems, processes, proceduresQuality StandardsManagement Team
    • 20. We can help!Assessment“Where are we now?”Value Drivers & Drainers“good bits & bad bits”
    • 21. We can help!Target“What can we get by when?”Plan & Deliver - BSP“Enhance good bits & eliminate badbits”
    • 22. Peter KroegerTim LuscombeMark Oxenham