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The Market Today & Business Valuations. Kevin Uphill Avondale. www.avondale.co.uk. The Market . Avondale SME/mid tier commercial focus. 35 transactions pa. Organic growth slow driving acquisitions (average 5 bids per project ).

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kevin uphill avondale

The Market Today & Business Valuations

Kevin Uphill

Avondale

www.avondale.co.uk

slide2

The Market

  • Avondale SME/mid tier commercial focus. 35 transactions pa.
  • Organic growth slow driving acquisitions (average 5 bids per project).
  • Fast change driving interest in niche companies with products.

www.avondale.co.uk

slide3

Advanced economies no longer driving

global GDP growth

Global market

  • 2011 Global economy worth 69,659,626 million US dollars.
  • The United Kingdom is world’s 7th largest economy.
  • Over 300,000 companies in UK employ more than 6 people.

Source: IMF,

www.avondale.co.uk

slide4

The UK M&A market

UK output- Recovery lagging last two recessions

Spare capacity increases competitive factors and creates driver for consolidation and Mergers and Acquisitions (M&A) activity.

Interest rates low to 2015?

9

1981

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7

1992

6

5

Weak credit arena/volatility creating drag.

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2011

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2

1

0

Overall 2012 M&A activity (by value) increased on 2011 with Europe most active due to consolidation. Activity down 20% on 2007 but down only 10% in sub £250m arena. 1st qtr2013 increased on 2012.

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slide5

Motivations

  • 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)
  • Strategic deals
  • + Economies 1
  • + Synergy 1
  • + Value influence 1
  • Sum 6

www.avondale.co.uk

slide6

Valuation Methods

  • 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

www.avondale.co.uk

slide8

Adjusted Balance Sheet

Surplus cash negotiate extra to deal for tax savings but be warned buyers will try and include as goodwill, if its there.

Consider tax instrument to remove surplus – EFURBS?

Debt- Long term liabilities

Less - Cash

www.avondale.co.uk

slide9

Adjusted Profit & Loss

Forecast

Financial value x 4 est.

4 x £316k = £1.26 ml

Actual

Marketed on Offers

4 bids

Offer achieved £1.9 ml

---------------------------------

Dutch co seeking UK base

www.avondale.co.uk

slide10

2. Deferred Payment

1. On Completion £1,450,000

3. Earn out £ 225,000

Deal Structure

£ 225,000

Deal structure is a multiple influencer

4. Total£1,900,000

Protections

Charges on shares for deferred

Earn out on gross not profit- easier to define

Earn out on current not growth

Protections business to be run materially same

Quality buyer/covenant

Access to records

Reverse non compete

www.avondale.co.uk

strategic deals case studies
Strategic Deals Case Studies

Positioning - Modelling - Deal Structure

35% of projects international buyers 2013

www.avondale.co.uk

slide12

Business Value by Design

  • Business Angel yourself (think like an investor)
  • How much time do you spend on strategy versus management?
  • How do you design a better value business?
  • What is your worst envelope?
  • RECURRING REVENUE | NICHE PRODUCTS | REDUCE RISK
  • BARRIERS TO ENTRY | TEAM- NOT OWNER DRIVEN
  • REAL TIME DASHBOARD | PROSPECTS

Management Strategy

The Profit Engine

Company Foundation

www.avondale.co.uk

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