M&A: Pursuing a Profitable Exit

1. M&A: Pursuing a Profitable Exit
James Fieldhouse
James.Fieldhouse@BDO.co.uk

2. Introduction
M&A activity in the Recruitment sector
• Trends
• Transaction map
Valuation
• Methodology
• PCPI
• Trends in multiples
Optimising value
• Key considerations
• Building the multiple
De-risking options
Any questions
AGENDA

3. • JAMES FIELDHOUSE
BDO M&A Managing Director
16 years advising entrepreneurially
spirited businesses
Based in the North West but leads the
Human Capital M&A team nationally
Experience across a variety of sectors
within human capital including:
• Recruitment
• Professional services
• Outsourced services
JAMES FIELDHOUSE
+44 (0)161 817 7691
+44 (0)7854 278 307
James.fieldhouse@bdo.co.uk
INTRODUCTION

4. INTRODUCTION TO BDO

5. • WHAT SETS US APART
private
equity36%
deal involvement
2,000Corporate Finance
professionals globally
100countries
providing
dedicated corporate
finance services
1,440
completed deals
globally in 2018
deal value
$81.4bn
28%
cross-border
of our
deals are
TOP 4
in league
tables
*
AWARDAn
Corporate Finance business
WINNING
of the world’s1
advisers
most active
*4th leading DD provider – Mergermarket global accountant league tables 2018
5th leading M&A advisor Thomson Reuters mid-market Europe 2018 financial advisor report
BDO GLOBAL CORPORATE FINANCE

6. M&A ACTIVITY IN THE
RECRUITMENT SECTOR

7. • TRANSACTION MAP
Orion Managed
Services Limited
Private
Individuals
Private
Individuals
Company acquired
Spun out of
Listed
Seller
KEY
M&A ACTIVITY

8. VALUATION

9. • METHODOLOGY
VALUATION MULTIPLEMAINTAINABLE EARNINGS
Different
methodologies
available
Based upon
individual
circumstances
of the business
EBITDA
methodology
most common
Apply a multiple Adjustments
x
OUTSTANDING DEBTSURPLUS CASH +
= SHAREHOLDER VALUE
= ENTERPRISE VALUE
-
VALUATION

10. VALUATION
•EARNINGS MULTIPLE CASH GENERATION
• Presentation is key
• ‘Quality’ of the earnings:
– Sustainable
– Contract element.
• Cost of investment:
– In branches
– In new teams
– New consultants
– New systems
• Run-rate of
earnings/growth
prospects.
• Recruitment sector
valuations
– Quoted multiples
– Other transactions
• M&A activity in the sector
• Sector dynamics − high
growth, niche etc
• Specific factors relating to
the business
• Business sold on a debt
free/cash free basis
• Balance between
investing for future growth
and short-term cash
generation
• Working capital
management

11. VALUATION
• BDO PRIVATE COMPANY PRICE INDEX

12. VALUATION
• BDO RECRUITMENT FTSE INDEX
Source: MarketIQ, mergermarket and BDO research

13. VALUATION
• BDO RECRUITMENT FTSE INDEX – EV/EBITDA
Source: MarketIQ, mergermarket and BDO research

14. OPTIMISING VALUE

15. OPTIMISING VALUE
• KEY CONSIDERATIONS
• A clear value proposition?
• Market factors?
• KPIs tracking performance
& value drivers?
• Quality of financial
information?
• Regulatory requirements
covered?
• Management of risks?
• Succession planning?
• Restructuring required?
• Management
incentivisation?
• How does business convert
profits to cash?
• Treasury management
procedures?
• Working capital initiatives?
• IT systems fit for purpose
and scalable?
• Information security
strategies?
• Impact of tech advances?
1. STRATEGIC DIRECTION
5. DIGITAL
4. CASH OPTIMISATION 3. PEOPLE
2. BUSINESS CONTROLS
EXIT
READINESS
• Exit readiness on the board
agenda?
• Exit routes?
• Stakeholder alignment?
6. PROCESS MANAGEMENT
VALUE
OPTIMISATION

16. OPTIMISING VALUE
• BUILDING THE MULTIPLE
MULTIPLE
SHAREHOLDERVALUE
Growing end
user markets
Diversified
revenue
Asset
management
Lack of second tier
management
Strong
management team
Under invested
Hidden value
Synergies
Creating lower
capex business
model
VALUE ENHANCERS
MANAGE
POTENTIAL
DOWNSIDES
Funding
lines
Missing
forecasts
Diligence issues/
or ‘overselling’
Unprepared
for process
Diversified
revenue
Niche or specialist
provider
Strong
management team
PSLs or contractual
income
Synergies
Contract book

17. DE-RISKING OPTIONS

18. DE-RISKING OPTIONS
MANAGEMENT
INCENTIVISATION
EMPLOYEE
OWNERSHIP
TRUSTS
OWNER BUY-OUT
MANAGEMENT
BUYOUT
(MINORITY
STAKE)
MANAGEMENT
BUY-OUT
(MAJORITY
STAKE)
TRADE SALE
RETAIN AND GROW FULL EXIT
Shareholder considerations
• Shareholder strategy
• Maximising Value
• Maximising Cash Out
• Participation in future growth
• Management team
• Investor control
• Process
• Funding

19. ANY QUESTIONS?