Ave 4 offers per project up from 2 in 2010. Sales increased by 50%

Demand but why?

The Market Today and Business Valuation

Avondale - master brokerage in commercial business sales,

acquisitions & strategy- Team of 30.

2

● 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.

Advanced economies no longer driving global GDP growth

Source: IMF,

-4

-2

0

2

4

6

8

10

1980 1985 1990 1995 2000 2005 2010 2015

percentage change on a year ago

Emerging and developing economies

Advanced economies

World

Global market

The UK M&A market

0

1

2

3

4

5

6

7

8

9

1 2 3 4 5 6 7 8 9 10 11

1981

1992

2011

Sources: data stream- merger market

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 and volatile

Weak credit arena/volatility creating drag.

Overall 2011 M&A activity (by value) increased on 2010 with Europe most active due to consolidation. Activity down 30% on 2007 but down only 10% in sub £250m arena. 1st qtr 2012 on a par 2011.

Reasons to buy• Drive shareholder value• Buy, build and sell • Interest rates low• Organic slow down

Business drivers• Quality with

sustainable earning• Increase market

share/ product base/ skills

1+1+1 = 6

Reasons to sell • Retirement/health• Lifestyle changes• Capitalise on assets

Business drivers• Lack of succession• Underperformance• Investment • Entrepreneur’s Relief

10%- £10m

Leap of faith

Transaction Drivers

Buyerand seller

drivers.

P/E

Earnings

Valuation methodsDiscounted cash-flowIP/capital projects/Start ups

Price Earnings Ratio (multiples)PBIT/EBITDA

What profits?Sustainable/art

RevalueWhat assets?

Include net assetsDebt free/cash free/

Value Influencers

Key DriversRecurring revenue/loyalty clientsCompany positioning (Brand) Scale-abilityIntellectual propertyManagement track record/skillsCapital requirements

Economies and synergy

Sale Process employed(strategic buyer)

Risk, certainty and return on investment

P/E Multiples

Multiples (years earnings)

50k 250k 500k 750k 1,500k 2,500k 3,500k

10

9

8

7

6

5

4

3

2

1

Most likely

Least likely

PBIT/EBITDA £000’s

Financial Buyer Strategic Buyer

Adjusted Profits- exampleExample hire business 31/12/2010 Multiple Influencers

Turnover £1,850,000

Gross £746,976

Operating Profit £177,725

Adjustments to net profit

Directors pension £3,600

Spouse salary (non operational) £21,859.00

Directors remuneration (part-time/strategic role) £78,005 In top 5 brands in UK

NI On Directors £7,800 Scalable/expanding niche

Additional rental -£15,000 Strong systems

Bank interest £639Balance sheet with surplus removed £220,000

Factoring £16,806 Good forecast/client list

Hire purchase interest £3,542

Amortisation (of goodwill) £21,600

Depreciation real cost hire co

Adjusted PBIT under management £316,576.00 X pre-tax multiple 4 = £1. 26 ml

Forecast Value- example

CalculationNet x multiple = £_______ (debt free cash free)

£316,576 x 4 = £1.26 mil (debt free cash free)

Actual 2011Marketed on Offers

5 Offers

Offer achieved £1.7 million

All cash strategic deal

Dutch co seeking UK base.

Deal StructureDeals Structure effects multiplesEarn-outs common

RulesAvoid profit relatedGross Profit easier to calculateReverse Non Compete clause

Performance related paymentsCan help buyers hedge risk

Multiple Influencer

Secure the RisksGuarantees/Debentures/ChargesAccess to RecordsMaterially same as presentEscrow

Strategic deal

Preparation/Approach/Structure

Market Comparisons

RiskValuation an art not

science