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M&A: Pursuing a Profitable Exit
- 1. M&A: Pursuing aProfitable Exit James Fieldhouse James.Fieldhouse@BDO.co.uk
- 2. Introduction M&A activity inthe 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 BDOM&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
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- 5. • WHAT SETSUS 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 INTHE RECRUITMENT SECTOR
- 7. • TRANSACTION MAP OrionManaged Services Limited Private Individuals Private Individuals Company acquired Spun out of Listed Seller KEY M&A ACTIVITY
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- 9. • METHODOLOGY VALUATION MULTIPLEMAINTAINABLEEARNINGS 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 CASHGENERATION • 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 PRIVATECOMPANY PRICE INDEX
- 12. VALUATION • BDO RECRUITMENTFTSE INDEX Source: MarketIQ, mergermarket and BDO research
- 13. VALUATION • BDO RECRUITMENTFTSE INDEX – EV/EBITDA Source: MarketIQ, mergermarket and BDO research
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- 15. OPTIMISING VALUE • KEYCONSIDERATIONS • 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 • BUILDINGTHE 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
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- 18. DE-RISKING OPTIONS MANAGEMENT INCENTIVISATION EMPLOYEE OWNERSHIP TRUSTS OWNER BUY-OUT MANAGEMENT BUYOUT (MINORITY STAKE) MANAGEMENT BUY-OUT (MAJORITY STAKE) TRADESALE RETAIN AND GROW FULL EXIT Shareholder considerations • Shareholder strategy • Maximising Value • Maximising Cash Out • Participation in future growth • Management team • Investor control • Process • Funding
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