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Valuations & exit planning
- 1. Increasing the value of your client's business Tim Luscombe
- 2. Opportunity Reframe your client's perception of your fees
- 3. Valuation Techniques Asset Based * Ratio(s) of Profits *Cash flow based * Payback Periods * ROI *Buyers Valuation * Benchmark All Estimating What a willing buyer will pay to a willing seller It is an art, not a science
- 4. Asset based Value of net assets Adjust for depreciation methods? As above, + good will element Market Value of net assets Strip out cash & property
- 5. Profit Based Typically P/E ratios Value of the company Post tax profits of the company
- 6. P/E Ratios Find an equivalent public company’s P/E Ratio Discount that ratio for the lack of liquidity in the market in private companies Apply to adjusted post tax profits Over different periods
- 7. Cash Flow based Multiples of EBITDA Earnings before interest tax depreciation and amortization DCF and / or NPV calculations Based upon forecast cashflows
- 8. Payback Periods Number of years to recoup investment Usually between 3 and 5 years Factors include costs of integration and savings from consolidation.
- 9. Return on Investment ROI based upon forecast post tax profits Enables easy comparison to alternative investments Different rates of return for different buyers Rate of return is set by reference to cost of capital
- 10. Buyers Valuation Looks at the increased value of the combined businesses Will consider cost of capital, but also earnings dilution (especially important in public companies) Estimating costs of integration but also synergistic benefits
- 11. Industry Benchmarks Often a very simple calculation Widely known in the industry – so almost self-fulfilling Examples might be n x turnover or n x contracted revenue or £x per subscriber….
- 12. Why buy a business ?
- 13. Why would someone buy your clients business? + =
- 14. When to sell?
- 15. What could acquiring your client’s business do for the acquirer? Ansoff New Market Diversificatio penetration n Markets Current Market Product extension developmen t Existing New Products
- 16. It is a numbers game Past profits are a guide to help estimate future performance Adjustments, add-backs and fudges reduce the credibility of the accounts
- 17. Value Drainers Risk of under performance Risk of liability issues Greater risk equates to lower overall value Greater risk drives pay by performance
- 18. Value Drainers Risk of under performance Risk of liability issues Greater risk equates to lower overall value Greater risk drives pay by performance
- 19. Value Drivers Recurring Revenues Consistent historic results Systems, processes, procedures Quality Standards Management Team
- 20. We can help! Assessment “Where are we now?” Value Drivers & Drainers “good bits & bad bits”
- 21. We can help! Target “What can we get by when?” Plan & Deliver - BSP “Enhance good bits & eliminate bad bits”
- 22. Peter Kroeger Tim Luscombe Mark Oxenham
Notas del editor
- Illustration for each quad: Tesco & T&S Stores (success) GM & EDS Diversification Cisco has completed 108 acquistions – most recently a provider of set top boxes, following on from Linksys acquisition which took them into the consumer market. (Product Development) Morrisons & Safeway