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Valuations & exit planning


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Private Company Valuation methods with a brief explanation

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Valuations & exit planning

  1. 1. Increasing the value of your clients business Tim Luscombe
  2. 2. OpportunityReframe your clients perceptionof your fees
  3. 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. 4. Asset basedValue of net assetsAdjust for depreciation methods?As above, + good will elementMarket Value of net assets Strip out cash & property
  5. 5. Profit Based Typically P/E ratios Value of the companyPost tax profits of the company
  6. 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. 7. Cash Flow basedMultiples of EBITDAEarnings before interest tax depreciation andamortizationDCF and / or NPV calculationsBased upon forecast cashflows
  8. 8. Payback PeriodsNumber of years to recoupinvestmentUsually between 3 and 5 yearsFactors include costs ofintegration and savings fromconsolidation.
  9. 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. 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. 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. 12. Why buy a business ?
  13. 13. Why would someone buy yourclients business? + =
  14. 14. When to sell?
  15. 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. 16. It is a numbers gamePast profits are a guide to helpestimate future performanceAdjustments, add-backs andfudges reduce the credibility of theaccounts
  17. 17. Value DrainersRisk of under performanceRisk of liability issuesGreater risk equates to lower overallvalueGreater risk drives pay by performance
  18. 18. Value DrainersRisk of under performanceRisk of liability issuesGreater risk equates to lower overallvalueGreater risk drives pay by performance
  19. 19. Value DriversRecurring RevenuesConsistent historic resultsSystems, processes, proceduresQuality StandardsManagement Team
  20. 20. We can help!Assessment“Where are we now?”Value Drivers & Drainers“good bits & bad bits”
  21. 21. We can help!Target“What can we get by when?”Plan & Deliver - BSP“Enhance good bits & eliminate badbits”
  22. 22. Peter KroegerTim LuscombeMark Oxenham