How to sell your business, expert advice on valuing your business and how, when, who to sell you business to.

1. Simon MacGovern Realising the value of your business

3. WHERE IS THE VALUE?

4. Theoretical Value Multiple of turnover Multiple of earnings EBIT EBITDA P/E Net Assets Discounted cash flow Industry-specific measures

5. Worked Example (1) ABC Limited Turnover £15m Earnings before interest and tax £1m Long term debt £250,000 Surplus cash £500,000 Illustrative EV/EBIT multiple 6x Enterprise Value: 6 x £1m = £6m Plus cash +£500,000 Less debt -£250,000 Equity value £6.25m

6. Worked Example (2) ABC Limited Turnover £15m Earnings before interest and tax £1m Long term debt £250,000 Surplus cash £500,000 Illustrative turnover/EBIT multiple 0.5x Enterprise Value: 0.5 x £15m = £7.5m Plus cash +£500,000 Less debt -£250,000 Equity value £7.75m

7. Valuation (continued) So why the difference? £6.25m vs. £7.75m Value depends on your perspective… Example (1): Standalone investment? Example (2): Bolt-on to existing business?

8. Valuation (continued) “ The true value of a business is what someone is prepared to pay for it”

9. What actually drives value? Profit? Yes, but also… Customer base Channels to market Intellectual property/know-how Key individuals Reputation The right place at the right time

10. Case study Specialist design/manufacturing company Turnover £1.8m Employees 6 Historic net assets £19k Price paid £7-9m Why?

11. Case study (1) Significant strategic value to the eventual buyer (based in Australia). For them the business provides… Access to a rapidly growing segment of the market Client base in a particularly affluent industry Market leading products Protected by key IP assets Uniquely talented management (design expertise)

12. Valuation - conclusion Theoretical valuation is interesting, but may have limited meaning in a ‘real’ transaction situation. The key to the value of a business lies in its value drivers. Realising this value depends on how the business is sold, when and to whom …

13. WHEN TO SELL? WHEN TO PREPARE? (There is a difference!)

14. Timing of sale Timing can be driven by any number of factors… Personal motivation (retirement, ill-health, financial needs, diminishing fulfilment) Condition of the overall market Financial performance of your business Level of transactional activity in your industry

15. Timing of sale – market conditions Market confidence Stock market levels Interest rates Availability of debt / equity funding

16. Timing of sale – business performance Can price expectations be met? Seasonality Working capital position New contracts about to be secured? When is your year end?

17. Timing of sale – deal activity Is your industry flavour of the month? Appetite from Venture Capital, for example, can drive pricing upwards – herd mentality Is your industry consolidating? Is regulatory change driving deal activity?

18. Timing – Preparation The key to getting your business to market in the right condition and at the right time is early preparation Adequate time for grooming Tax planning Market testing/research Engaging appropriate advisers Future plans? In some cases this may need to start several years in advance of the final transaction

19. WHO WILL BUY?

20. Buyers Broad categories of buyer include: Corporate Trade buyers Strategic buyers Financial MBO / MBI Institutional

21. Buyers The most suitable type of buyer will depend the circumstances… MBO can work if there is a willing (and capable) management team and if funding can be sourced A strategic buyer may provide a greater chance of achieving a premium price

22. CONCLUSION

23. Conclusion Consider your route to exit well in advance This will allow you to: Prepare the business for sale Get the timing right Understand what drives the value Identify who will buy the business… Thereby maximising value

24. The tax implications of selling your business John Kingsley

31. QUESTIONS?