Increasing the value of your Increasing the value of your client's businessclient's business

Tim LuscombeTim Luscombe

OpportunityOpportunity

Reframe your client's perception Reframe your client's perception of your feesof your fees

Valuation TechniquesValuation Techniques

Asset Based * Ratio(s) of ProfitsAsset Based * Ratio(s) of Profits

*Cash flow based * Payback *Cash flow based * Payback Periods * ROI *Buyers Valuation Periods * ROI *Buyers Valuation * Benchmark * Benchmark

All Estimating All Estimating What a willing What a willing buyer will pay to a willing sellerbuyer will pay to a willing seller

It is an art, not a science

Asset basedAsset based

Value of net assets Value of net assets

Adjust for depreciation methods?Adjust for depreciation methods?

As above, + good will elementAs above, + good will element

Market Value of net assetsMarket Value of net assets

Strip out cash & propertyStrip out cash & property

Profit BasedProfit Based

Typically P/E ratiosTypically P/E ratios

Value of the companyValue of the company

Post tax profits of the companyPost tax profits of the company

P/E RatiosP/E Ratios

Find an equivalent public Find an equivalent public company’s P/E Ratiocompany’s P/E Ratio

Discount that ratio for the lack of Discount that ratio for the lack of liquidity in the market in private liquidity in the market in private

companiescompaniesApply to Apply to adjustedadjusted post tax profits post tax profits

Over different periods Over different periods

Cash Flow basedCash Flow based

Multiples of EBITDAMultiples of EBITDAEarnings before interest tax depreciation and Earnings before interest tax depreciation and amortizationamortization

DCF and / or NPV calculationsDCF and / or NPV calculationsBased upon forecast cashflowsBased upon forecast cashflows

Payback PeriodsPayback Periods

Number of years to recoup Number of years to recoup investmentinvestment

Usually between 3 and 5 yearsUsually between 3 and 5 years

Factors include costs of Factors include costs of integration and savings from integration and savings from consolidation.consolidation.

Return on InvestmentReturn on InvestmentROI based upon forecast post tax profitsROI based upon forecast post tax profits

Enables easy comparison to alternative Enables easy comparison to alternative investmentsinvestments

Different rates of return for different buyersDifferent rates of return for different buyers

Rate of return is set by reference to cost of Rate of return is set by reference to cost of capitalcapital

Buyers ValuationBuyers Valuation

Looks at the increased value of the Looks at the increased value of the combined businessescombined businesses

Will consider cost of capital, but also Will consider cost of capital, but also earnings dilution (especially earnings dilution (especially important in public companies)important in public companies)

Estimating costs of integration but Estimating costs of integration but also synergistic benefitsalso synergistic benefits

Industry BenchmarksIndustry Benchmarks

Often a very simple calculationOften a very simple calculation

Widely known in the industry – so Widely known in the industry – so almost self-fulfillingalmost self-fulfilling

Examples might be n x turnover or Examples might be n x turnover or n x contracted revenue or £x per n x contracted revenue or £x per subscriber….subscriber….

Why buy a businessWhy buy a business

??

Why would someone buy your Why would someone buy your clients business?clients business?

+ =

When to sell?When to sell?

What could acquiring your client’s What could acquiring your client’s business do for the acquirer?business do for the acquirer?

Markets

Marketpenetration

Marketextension

Products

Current

New

Existing New

Ansoff

Product developmen

t

Diversification

It is a numbers gameIt is a numbers game

Past profits are a guide to help Past profits are a guide to help estimate future performanceestimate future performance

Adjustments, add-backs and Adjustments, add-backs and fudges reduce the credibility of the fudges reduce the credibility of the accountsaccounts

Value DrainersValue Drainers

Risk of under performanceRisk of under performance

Risk of liability issues Risk of liability issues

Greater risk equates to lower overall Greater risk equates to lower overall valuevalue

Greater risk drives pay by performanceGreater risk drives pay by performance

Value DrainersValue Drainers

Risk of under performanceRisk of under performance

Risk of liability issues Risk of liability issues

Greater risk equates to lower overall Greater risk equates to lower overall valuevalue

Greater risk drives pay by performanceGreater risk drives pay by performance

Value DriversValue Drivers

Recurring RevenuesRecurring Revenues

Consistent historic resultsConsistent historic results

Systems, processes, proceduresSystems, processes, procedures

Quality StandardsQuality Standards

Management TeamManagement Team

We can help!We can help!

AssessmentAssessment

““Where are we now?”Where are we now?”

Value Drivers & Drainers Value Drivers & Drainers

““good bits & bad bits”good bits & bad bits”

We can help!We can help!

TargetTarget

““What can we get by when?”What can we get by when?”

Plan & Deliver - BSPPlan & Deliver - BSP

““Enhance good bits & eliminate bad Enhance good bits & eliminate bad bits”bits”

Peter KroegerPeter Kroeger

Tim LuscombeTim Luscombe

Mark OxenhamMark Oxenham