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The Market Today & Business Valuations Kevin Uphill Avondale

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www.avondale.co.uk The Market Avondale SME/mid tier commercial focus. 35 transactions pa. 25 team 3 mentors Organic growth slow driving acquisitions (average 5 bids per project). Fast change driving interest in niche companies with products.

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3 2011 Global economy worth 69,659,626 million US dollars. The United Kingdom is worlds 7th largest economy. Over 300,000 companies in UK employ more than 6 people. 2 billion to 7 billion in 60 years Advanced economies no longer driving global GDP growth Source: IMF, Global market www.avondale.co.uk

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The UK M&A market 0 1 2 3 4 5 6 7 8 9 1234567891011 1981 1992 2011 Spare capacity increases competitive factors and creates driver for consolidation and Mergers and Acquisitions (M&A) activity. Interest rates low to 2015? UK output- Recovery lagging last two recessions Weak credit arena/volatility creating drag. Overall 2013 M&A activity (by value) increased on 2012 with Europe most active due to consolidation. Activity down 20% on 2007 but down only 10% in sub 250m arena. 1st qtr 2014 increased on 2013.

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Sellers Personal/strategic cross roads Growth in sector House in order Elevator deal Leap of faith Buyers House in order Organic growth slow Create shareholder value Strategic New products/team/services Motivations www.avondale.co.uk

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Valuation Methods www.avondale.co.uk Strategic deals + Economies1 + Synergy1 + Value influence1 Sum6

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Valuation Methods www.avondale.co.uk Discounted cash flow forecast or price earnings multiple of profits Debt free/cash free Adjustments to profits Valuations are financial forecasts to exceed in the process

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www.avondale.co.uk

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Example hire business31/12/2013 Equipment undervalued 50,000 Debt free/cash free-75,000 Adjustment to final price-25,000 Surplus cash negotiate extra to deal for tax savings but be warned buyers will try and include as goodwill, if its there. Debt- Long term liabilities Less - Cash www.avondale.co.uk Adjusted Balance Sheet

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Example Medical Clinic31/12/2013 Turnover2,320,000 Gross1,800,976 Operating Profit438,000 Adjustments to net profit Rent130,000 Managers salary/NI60,000 Directors remuneration (part- time/strategic role)-150,000 Bank interest639 Factoring16,806 Hire purchase interest3,542 Insurance21,600 Depreciation real cost hire co Adjusted EBIT under management520,587 Forecast Financial value x 4 est. 5.5x 500k = 2.86 ml Actual Marketed on Offers 2 bids Offer achieved 4 ml --------------------------------- Private Equity backed trade Group UK wide www.avondale.co.uk Adjusted Profit & Loss

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Deal Structure 1. On Completion 2,000,000 2. Deferred Payment 1,000,000 3. Earn out on growth 1,000,000 4. Total 4,o00,000 Deal structure is a multiple influencer www.avondale.co.uk Protections Deferred subject to continued service Charges on shares for deferred Protections business to be run materially same Quality buyer/covenant Access to records Reverse non compete

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Positioning - Modelling - Deal Structure Strategic Deals Case Studies TypeProfit/t/0ValueROI PENotes Construction Hire 316,0001,900,00011%7 Dutch buyer needed UK presence Tuition (London)70,000 pbit240,00025%4 Actually 8 multiple plus as no owner manager cost- went to a charity Gateway Ltd 500,000 ebitda 3,500,00014%7 100 million buyer, looking at new products Meter Provida3,600,00020,000,00017 %6 Rare right buyer again 100 million turnover Updata5,600,00080 million 7% 14.2Recurring revenue Forecasts 12 million www.avondale.co.uk 35% of projects international buyers 2014

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Business Value by Design Company Foundation The Profit Engine www.avondale.co.uk Management Strategy How much time do you spend on strategy versus management? How do you design a better value business, ahead of the competition? What is your worst envelope?