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![Case study-S Limited - Digital agency
No pressure on sale – realised opportunity
Expected commitment post sale
EBIT on an upward curve
Characteristics:
◦ Geography
◦ Expertise
◦ New market entrant
◦ Growth
Negotiated valuation of up to £10m [30x historic 10.5x
current run rate]](https://image.slidesharecdn.com/maximisingthevalueofyourbusinesspresentation-110217111749-phpapp02/75/Maximising-the-value-of-your-business-presentation-40-2048.jpg)
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Maximising the value of your business presentation
- 1. Maximising the Valueof your business Marc Fecher and Richard Heap 16th February 2011
- 2. Recent Trends andDeal drivers for 2011 Technology and Telecoms Technology & Telecoms Group
- 3. Richard Heap Partner Technology, Media& Telecoms
- 4.
- 5. Equities – UKand US A good year, technology performs ahead of the overall market 7000 6000 5000 4000 FTSE (+8%) 3000 FTSE Techmark 2000 (+25%) NASDAQ (+19%) 1000 0 Dec'09 Dec'10 Jan'11
- 6. Technology Deals inEurope Numbers increased in 2010, but still down on 2005 - 2007 Number of Deals – Europe – Technology 1500 1000 500 0 2005 2006 2007 2008 2009 2010
- 7. Technology IPOs inEurope A weak market, with few noteworthy IPOs, for size or success Number of IPOs - Europe - Technology 160 140 120 100 80 60 40 20 0 2005 2006 2007 2008 2009 2010
- 8. Value of Dealsin Europe Overall values down in line with volumes, and smaller deal sizes $bn 400 350 300 250 200 150 100 50 0 2005 2006 2007 2008 2009 2010
- 9. UK Technology Deals UKCorporates were responsible for 2/3 of deals 201 18% 16% Private Equity UK Trade Cross border trade 66%
- 10. Global Technology Spend Growthof 8% in 2010 due to capital spending upgrade Worldwide IT Spending Growth (%) 14% 12% 10% 8% 6% 4% 2% 0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 -2% -4% -6% Source: IDC
- 11.
- 12. Private Equity Increasingly activein the sector with funds to spend $ 1 trillion of untapped committed capital worldwide €200 billion in Europe Wanting to invest in quality assets Mixture of deals - replacement IPO financing, public to private....
- 13. Corporates Have huge cashpiles burning a hole in their pockets Driven by the need for growth and want to plug gaps in product and service offerings The top 25 tech companies have approx $500bn of cash, including: Apple Microsoft Google Cisco $60bn $50bn $35bn $40bn Money needs putting to work
- 14. Valuations On the increase Zynga $5.8bn 300m players Groupon Twitter $15bn $10bn 50m users Facebook 175m users $50/60bn 600m users Huff post LinkedIn $315m $2.5bn 25m 90m users Lovefilm readers £200m 1.2m users A bubble.......?
- 15. Global Technology spend Forecastto increase between 3-6% in 2011 2011 forecasts: Gartner 3% and IDC 6% (2010: 8%) Emerging markets will account for 25% of IT (IDC), BRIC will dominate China – is transforming to becoming a centre for innovation
- 16. Multiples Are increasing acrossthe sector Price Earnings (P/E) Ratios – year end 30 25 20 15 Technology 10 Media Telecoms 5 0 2006 2007 2008 2009 2010 2011 (15th Feb.)
- 17. Summary Cashreserves and Private Equity funds + Plugging gaps in offerings + the need for growth Recovery of valuations + Improving credit markets = A positive outlook for Technology M&A in 2011
- 18. Deal Drivers for2011 And who will be showing the money
- 19. Key Themes Mobility Social networks Cloud computing Security Blurring of industries e.g. healthcare, automotive, media
- 20. Mobile Ecosystem Tabletv Smartphone v PC iOS v Android....and Blackberry OS and Windows Phone 7 (Symbian is dead!) Smartphones - 3D, dual screen, voice recognition, video calling, gaming Infrastructure – NFC, Sensors, Femtocells, Wifi, LTE.... Mobile payments to reach $1.1tn by 2014 (IE Mkt Research)
- 21. Social Networks Gaming and Apps Social commerce Marketing & the Brands Mobile Driven by the biggest of them all, , causing a huge shift in consumer and business behaviours
- 22. Cloud Computing Momentumwill continue to gather pace After 18 months of frenzy around cloud storage, attention is turning to Cloud Applications Companies are preparing for a monumental shift that will make Cloud standard 2010 2014 £5.8bn £10.4bn UK UK TechMarketView
- 23. Security and DataPrivacy We are giving up privacy for access to content Well publicised breaches of privacy by Facebook Data Protection Act – fines being raised “Mobile wallet” means payment technologies will get more sophisticated
- 24.
- 25. Agenda • Multiples • Sectoroverview • The strategic review • The valuation methodologies and myths • Tax • Who are the buyers and what do they want • Timing • Top Tips
- 26. Long-term Strategy • CorporateStrategists Our • Alternative Solutions Focus • Articulate in plain language • Action - Hands on director team • FSA Regulated firm Our Services: Long term Corporate Shareholder Strategic Fundraising Acquisitions Advice Value
- 27. DCFL – SectorP/Es 40 35 30 25 Health 20 Marcomms Food 15 Transport Construction 10 Engineering 5 0
- 28. What are myoptions? • Despite such high awareness of the meaning of “exit Strategic plan 21% strategy”, only (30%) have any form of formal succession Written exit plan 9% planning or written exit plan in place. Unformulated exit plan 24% • However, one in four (24%) Identification of potential 6% have an unformulated exit buyer planned a further 6% have 33% identified a potential buyer. None • The survey showed that 40% of 7% those surveyed have not Don’t know considered their exit route grooming or their exit strategy despite being aware of the term exit strategy.
- 29. Activity Specific Hardwareand Software Software sales Consultancy distribution development B to B B to C Social Media Communications e-commerce e-commerce Publishing Information Advertising Recruitment
- 30. Single most importanttransaction in business life Proper Preparation The Pre-sale and No second planning planning Get it right chance process first time Strategic Plan “Failing to plan” is “Planning to Fail”
- 31. What is agood Exit Strategy? A plan, that matches owners aspirations with a range of purchasers and their needs Unique to each business A full strategic review of all business and non business assets and objectives
- 32. The Pre salePlanning Process Strengths • Enhance Weaknesses • Remove Opportunities • Exploit Threats • Manage To Improve the multiple and the quality of earnings and cash generation
- 33. Valuation Summary £21.2m £16.8m £11.6m £7.0m Valuation Split £000 % Contracts 7,629 36% Products 3,799 18% new 67% Government 1,950 9% £4.3m Analytics 806 4% Projects 3,765 18% Current Fieldworkks 2,266 11% 33% Other 1,046 4% 21,262 100% FY10 FY11 FY12 FY13 FY14
- 34. Timeline and ActionPlan Short term Medium Term Long Term Immediate Phase 1 Phase 2 Phase 3 Phase 4 Performance management Implement timesheet system remuneration system Budget for all jobs on detailed Control job costs and profitability proforma by employee Prepare cashflow forecast for all large jobs and negotiate terms Improve working capital accordingly Performance improved, complete XYZ ‘platform‘ Corporate reorganisation and structure 2nd tier management team empowered and setup EMI Scheme Focussed Growth Strategy • Long term contracts • Government sector • Product development Interim debt raising / capital injection to support growth if necessary Deliver exit strategy Key Milesone: Key Milesone: Key Milesone: Key Milestone: • New system goes live • Group Reorganisation Key Milesone: • Projects Developed • £500k of products sold • Delivery Exit Strategy • Performance improved • 2nd tier management fully and implemented. • 5 main contracts won empowered Ongoing trading/KPI‘s enshrined: – Time targets – Write off targets Increasing Partnership Value
- 35. The Process • Objective = maximise value, meet owners emotional expectations and maintain confidentiality Maintainable Price The Business Earnings Earnings Value (Post-Tax) Ratio • To improve both the multiple and the quality of the earnings • To attract a premium buyer
- 36. What valuation shouldI expect? • NAV minimum • EBITDA multiple less Debt • P/E multiple of maintainable earnings • Discounted Cashflow • Strategic acquisition valuation
- 37. Which multiple isused ? 2008 2009 20 10 Valuation of business £7m £ '000 £ '000 £ '0 00 Multiples: 2008 2009 2010 Turnover 7,000 8,000 9,000 Gross Profit 2,100 2,400 2,700 Pre tax 70.0 23.0 18.0 Overheads 2,000 2,100 2,300 Adjusted pre Tax 50.0 17.5 9.8 Pre tax profit 100 300 400 EBITDA 15.9 9.3 6.7 Adjustments Excess Directors Rem 40 65 200 One off Recruitment costs 35 Redundancy payment 70 Repairs and maintenance 45 40 100 315 Adjusted Pre Tax profits 140 400 715 Depreciation 250 300 300 Interest 50 55 35
- 38. Entrepreneurs relief • First £5million 10% • Thereafter 28% • One-off lifetime amount • 5% of the business • 12 month test of ownership and employment
- 39. Who are thebuyers Financial International Trade Strategic Buyer The Management Company Team
- 40. Case study-S Limited- Digital agency No pressure on sale – realised opportunity Expected commitment post sale EBIT on an upward curve Characteristics: ◦ Geography ◦ Expertise ◦ New market entrant ◦ Growth Negotiated valuation of up to £10m [30x historic 10.5x current run rate]
- 41. Why would theybuy Competitor removal Gain market share Geographic expansion Enter complementary market Broaden product / service offering Buying power cost benefits Marginal costs to run Diversification As Preparation for their exit
- 42. What buyers want Good market Flexible Other key Quality of dynamics and property issues both management secure market arrangements good or bad team position Quality of earnings and Relatively rapid Low price and a Future growth sustainability in Payback low risk the future Hidden asset Quality of Maintainable Protected IP values operations earnings Minimal Simple Hidden asset working capital transaction values requirements structure
- 43. Exit Puzzle Cash Buyers Market Warranties Esteem USP Employees Results Timing
- 44. The Best Timeto Sell 50 40 Profits after tax 30 20 10 0 - 10 0 1 2 3 4 5 6 7 8 9 10 - 20 Time
- 45. Do I needto stay on? • Motivation • Deal structure • Deferred consideration • Earnout
- 46. Corporate Clean Up 1.Excess directors / family 1. The Management Team salaries, pensions 2. Option scheme 2. Benefits in kind 3. Maintainable Earnings 3. Family property 4. Subsidiaries & Branches 4. Cash drawings 5. Share buy backs 5. Private Assets 6. Ownership of intangible assets 7. Property 8. Cost base and Margins
- 47. Top 10 Mistakes 1. Process Triggered by adversity 2. No strategic plan 3. No idea of real worth 4. Too much own involvement 5. No DD on other side 6. “CASH” only 7. Weak secondary management team 8. Wrong partner/strategy 9. Wrong time 10. “Eye off the ball”
- 48. C Limited • Pageimpressions 1.5m • Income £100k • PBT £8k • NO forecasts • Developed revenue model • Proved concept • Sold for £
- 49. Objectives • Platform for growth • Broadens products and services • Enter new market / Geography Vendors • Critical mass Objectives • Non-cash • Deferred • Overhead savings • If necessary tie in vendor • Secure future for business • Income stream or retire • De-risk • Cash Buyers • Up-front Objectives • Goodwill recognition • New challenges
- 50. H Ltd –Sale • Profitable - Turnover £65m • Excellent business trade buyers were interested • 3 offers from international buyers • Offers were based upon valuation of £15m • Offers were based on 65/35 completion/performance • Owners felt loyalty to staff and wanted a continued investment but also wanted to retire from the business.
- 51. Plan B • Currentmanagement wanted to acquire the business • Deal structure • Total business valued at £12m – Vendors kept 20% of the equity – MBO team funded £12m of acquisition finance (Once in a life time opportunity) – Assist with raising the debt funding to buy the business – Business currently valued at £40m • Devonshire’s Plan B realized over double the best offer from a trade buyer for the vendors!
- 52. Top Tips 1. It’s never too early for strategic pre-sale planning 2. Get earn outs clearly documented 3. Strategic buyers pay premiums 4. Auction situations maximise value 5. Keep your eye on the ball 6. Experienced advisors pay for themselves 7. Timing, Timing,Timing – Window of opportunity
- 53. Conclusion and nextsteps • No second chances • Get it right first time • The best outcome arises when there is:- – A well planned grooming and sales process And Plan B
- 54. World wide Network Ksi – Member Firms Total number Total number of Total number of of offices partners staff 146 407 3,780
- 55. The Technology and Telecomsteam Marc Fecher Richard Heap Partner , Corporate Finance Partner, Technology & Telecoms mfecher@kingstonsmith.co.uk rheap@kingstonsmith.co.uk 020 7566 3588 020 7566 3765 Jon Sutcliffe – Head of Technology & Telecoms jsutcliffe@kingstonsmith.co.uk 020 7566 3810 Mark Twum-Ampofo - Partner Twum- LinkedIn: KSTech Mtwum-ampofo@kingstonsmith.co.uk 020 7566 3648 Paul Spindler - Partner : Tax pspindler@kingstonsmith.co.uk 020 7566 3815 KSTechnology