Client Alert: Proposed Changes to Family Valuation Discounts
Valuation and 360 Overview Sample Client
Transcript of Valuation and 360 Overview Sample Client
Valuation and 360 Overview Sample Client
This document is a guide for business owners and directors. The purpose is to give an understanding of how Nash Advisory present a perspective of a business valuation method and several ideas on where the business can be improved.
This is not designed to be a formal valuation, rather a view of value from multiple commercial angles.
Goals ʖ Improve short term profitability and cash flow
ʖ Increase company value
ʖ Increase the potential buyer pool for the company
ʖ Improve the likelihood of a fully executed sale
Why work with Nash Advisory?
Acquisition Search
Divestments / Sale of
Business
Valuations
Sale of Business
Preparation
Raising Capital
5 Key Reasons
ʖ Owned by Staff: All our staff have a monetary interestin the firm and therefore, fees generated from our suc-cessful engagements are shared amongst allteam members (not to overseas partners or passiveowners)
ʖ Experienced Staff: The majority of our staff havesignificant corporate and transactional experience,both domestically and internationally. We are heavyon senior staff, and underweight graduates
ʖ 100% skewed to success: We only take on engagements we can complete. As such, we are 100% skewed towards successful transactions with clients we work with
ʖ Value Add: If we feel we can not “value add” a situation, we will not progress with the engagement. For all outcomes, Nash must provide Value Adding advice
ʖ Invested: Our Team are investors in several businesses and understand the perspective of owners
MelbourneLv 12, 459 Little Collins St
SydneyLevel 15, 1 Castlereagh St
BrisbaneLevel 22, 127 Creek St Our
Locations
Lucas Couper Director
Sean O’Neill Director
Tom ButlerAssociate Director
Comfort Paul Senior Associate
Kevin Han Senior Analyst
Kieran Ellis Analyst
Team Nash has invested ~$2M of personal capital into its partner companies or ~ 10% of all invested deals
Core Team About usNash is a Melbourne based boutique investment firm that specialises in commercial business advice and investments
Currently manage ~$25M across 3 assets
We are licensed under Australian Financial Services License 424970
Predominantly we:
ʖ SELL Businesses between $5M to $100M in enterprise value
ʖ INVEST in opportunistic mandates when there is a clear value proposition
We are team of experienced but relatively young and new age individuals that use relationships as well as data and technology
Our team were trained at the “large” firms, but have an entrepreneurial spirit. All of our team participates in the upside on a successful transaction
Our team is based at our office in 459 Little Collins St
BackgroundThrough our discussions to date, we have been extremelyimpressed by Sample Client Company and yourselves.
We believe strongly in the potential for the company to grow inthe short and medium term, and to achieve a business sale thatexceeds your expectations.
We would be pleased to assist you over the coming years with:
ʖ Consulting services
ʖ Exit planning
ʖ An eventual sale
Our team will actively manage key developments in your businessplan with a view towards maximising the outcome for you.
On the following pages we list out some of our observations andrecommendations from our current understanding of the business.In the coming weeks and months we will discuss these with you indetail, and help you to execute changes where agreed.
0 1 2 3 4 5 6 7 8 9
Operators Recruitment
Pipeline
Vehicle Process / Pipeline
Work pipeline strong
Clear business goals
Owner reliance
Accounting/Auditing Reporting
Processes in Place
Safety and systems
Positive momentum and morale
IT System
Where business needs to be
Current business score
5
1
3 5
3
1
4
5
6
2
5
6 6
1 1 4
1 1
5
8
2
Brand
Offices
Website
Marketing
Customer mix
Contracts
Business development
New technologies
Accounting systems
Reporting
Auditing Managementteam
Long term business plan
Pipeline of future growth
Acquisitions
Working capital management
Debt
Being sale ready
Mapping the buyer pool and sensing them out
Innovation and staff training
Introduction to potential employees and networks
TargetRange
Lower Range 2
Lower Range less 10%
Mid Case
Upper Range plus 10%
Upper Range 2
$42.0M $46.7M $51.8M $57.0M $62.7M
Expect value to be between
$51M and $57M
40,000,000 40,000,000
12,000,000
-
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
Value Today Exit Outcome
We intend to help you to grow
the value ofthe Company
0
1 2
3
4
5
6
7
8
The company when Nash was engaged
Current assessment of the company
Target position at sale
Valuation Explained Valuation
Rationale Unit
Industry Multiple 6.30x
(-) 15% Discount for Private Business(sub 20M)
(0.95x)
New Target Multiple 5.36x
(-) Discount for lower Synergies base (0.40x)
(-) Discount for lack of management team (0.25x)
(+) Increase for IP in Software 0.50x
New Target Multiple 5.21x
FY 2017 / 2018 EBITDA (80%) 8,800,000
FY 2018 / 2019 EBITDA (20%) 10,250,000
Weighted Average EBITDA $9,960,000
(x) Target Multiple 5.21x
Enterprise Value $51,841,800
Valuation Ranges Multiple Enterprise Value
Lower Range less 10% 4.68x $46,657,620
Mid Case 5.21x $51,841,800
Upper Range plus 10% 5.73x $57,025,980
0 1 2 3 4 5 6 7 8 9
Operators Recruitment
Pipeline
Vehicle Process / Pipeline
Work pipeline strong
Clear business goals
Owner reliance
Accounting/Auditing Reporting
Processes in Place
Safety and systems
Positive momentum and morale
IT System
Where business needs to be
Current business score
5
1
3 5
3
1
4
5
6
2
5
6 6
1 1 4
1 1
5
8
2
Brand
Offices
Website
Marketing
Customer mix
Contracts
Business development
New technologies
Accounting systems
Reporting
Auditing Managementteam
Long term business plan
Pipeline of future growth
Acquisitions
Working capital management
Debt
Being sale ready
Mapping the buyer pool and sensing them out
Innovation and staff training
Introduction to potential employees and networks
TargetRange
Lower Range 2
Lower Range less 10%
Mid Case
Upper Range plus 10%
Upper Range 2
$42.0M $46.7M $51.8M $57.0M $62.7M
Expect value to be between
$51M and $57M
40,000,000 40,000,000
12,000,000
-
10,000,000.00
20,000,000.00
30,000,000.00
40,000,000.00
50,000,000.00
60,000,000.00
Value Today Exit Outcome
We intend to help you to grow
the value ofthe Company
0
1 2
3
4
5
6
7
8
The company when Nash was engaged
Current assessment of the company
Target position at sale
We have valued the company at $51.8 million today based on the information provided.
There are a range of valuation methods than can be employed – Discounted CashFlow, Market Method, Multiples Method, Public Markets Comparisons, FCFE, FCFF.
Each of these have unique characteristics. To value the company we employeda Multiples Method with discounts applied for each segment.
This method has been employed since there are a number of relevant market comparisons.
ʖ In order to enhance company value our consulting plan will specifically addressthese short comings. This will deliver up to $5-12 million in incremental value.
Example KPI Map The chart to the right illustrates the key KPIs for the Company
In our experience, business sales generally fall over or don’t generate the expected sale value due to:
ʖ Too much reliance on the owner/founder
ʖ Poor reporting and systems
ʖ Lack of contracts or customer spread 0 1 2 3 4 5 6 7 8 9
Operators Recruitment
Pipeline
Vehicle Process / Pipeline
Work pipeline strong
Clear business goals
Owner reliance
Accounting/Auditing Reporting
Processes in Place
Safety and systems
Positive momentum and morale
IT System
Where business needs to be
Current business score
5
1
3 5
3
1
4
5
6
2
5
6 6
1 1 4
1 1
5
8
2
Brand
Offices
Website
Marketing
Customer mix
Contracts
Business development
New technologies
Accounting systems
Reporting
Auditing Managementteam
Long term business plan
Pipeline of future growth
Acquisitions
Working capital management
Debt
Being sale ready
Mapping the buyer pool and sensing them out
Innovation and staff training
Introduction to potential employees and networks
TargetRange
Lower Range 2
Lower Range less 10%
Mid Case
Upper Range plus 10%
Upper Range 2
$42.0M $46.7M $51.8M $57.0M $62.7M
Expect value to be between
$51M and $57M
40,000,000 40,000,000
12,000,000
-
10,000,000.00
20,000,000.00
30,000,000.00
40,000,000.00
50,000,000.00
60,000,000.00
Value Today Exit Outcome
We intend to help you to grow
the value ofthe Company
0
1 2
3
4
5
6
7
8
The company when Nash was engaged
Current assessment of the company
Target position at sale
Improvement Area Score
1 Brand 5
2 Offices 6
3 Website 4
4 Marketing 2
5 Customer mix 2
6 Contracts 2
7 Business development 7
8 New technologies 6
9 Accounting systems 9
10 Reporting 4
11 Auditing 1
12 Management team 9
13 Long term business plan 4
14 Pipeline of future growth 4
15 Acquisitions 6
16 Working capital management 4
17 Debt 5
18 Being sale ready 8
19 Mapping the buyer pool and sensing them out 5
20 Innovation and staff training 6
21 Introduction to potential employees and networks 4
360 Overview
0 1 2 3 4 5 6 7 8 9
Operators Recruitment
Pipeline
Vehicle Process / Pipeline
Work pipeline strong
Clear business goals
Owner reliance
Accounting/Auditing Reporting
Processes in Place
Safety and systems
Positive momentum and morale
IT System
Where business needs to be
Current business score
5
1
3 5
3
1
4
5
6
2
5
6 6
1 1 4
1 1
5
8
2
Brand
Offices
Website
Marketing
Customer mix
Contracts
Business development
New technologies
Accounting systems
Reporting
Auditing Managementteam
Long term business plan
Pipeline of future growth
Acquisitions
Working capital management
Debt
Being sale ready
Mapping the buyer pool and sensing them out
Innovation and staff training
Introduction to potential employees and networks
TargetRange
Lower Range 2
Lower Range less 10%
Mid Case
Upper Range plus 10%
Upper Range 2
$42.0M $46.7M $51.8M $57.0M $62.7M
Expect value to be between
$51M and $57M
40,000,000 40,000,000
12,000,000
-
10,000,000.00
20,000,000.00
30,000,000.00
40,000,000.00
50,000,000.00
60,000,000.00
Value Today Exit Outcome
We intend to help you to grow
the value ofthe Company
0
1 2
3
4
5
6
7
8
The company when Nash was engaged
Current assessment of the company
Target position at sale
Before starting an engagement we typically outline up to 20 to 30 areas of interest where our team will assessthe quality and areas for improvement. Typically, with enough planning, most businesses can improve their score and ultimately their business value.
Scope of Project
Observation Discussion Effect on Company Timing
BrandThere is the opportunity to reposition Fredo Company to become a healthcare brand and company.
Repositioning as healthcare orientated will increase company value
Short Term
OfficesOpportunity exists to present a more professional business to customers and potential buyers. Changes would also allow for growth in employee base, and a nicer working environment. This may attract and retain staff.
Potential to increase exit multiple
Medium Term
Website
The current website is focused on the “old” business. Opportunity is to reposition towards “current” business and generate in-bound customer leads from aged care homes.We have a range of experts in this field who can assist.
More customers…lower customer concentration…
higher revenue and profits…..higher company
value
Short Term
Marketing
Effective online marketing through Google Adwords and LinkedIn could significantly increase customer sales opportunities.We have a range of experts in this field who can assist.
As above Short Term
Scope of Project
Observation Discussion Effect on Company Timing
Customer mixAt present the company has a high customer concentration. Increasing the number of customers will diversify the business and result in a higher exit multiple.
Increase value by customer
diversificationShort Term
ContractsContract lengths and the terms of a contract can affect a sale negotiation and valuation. We have the opportunity to review and plan for the best outcome.
Increase value bycontract diversification
Short Term
Business development
Hiring resources and targeting new customers may lead to more customers and diversity of the customer base.
We may be able to assist with introductions to some customers.
Increase value Short Term
New technologiesTargeting the “new technology” may result in new revenue opportunities, but will also reposition the company as a “technology” player, which leads trends.
Potential to increasevalue by riding future
waves
Medium Term (adding this to the pipeline of growth)
Scope of Project
Observation Discussion Effect on Company Timing
Accounting systemsHaving specific data on projects, customers and margins is important tobuyers as it explains how the finances of a business operate. Differentparts of the business will attract different valuation multiples.
Being able to quickly report metrics on the
business units will increase company value
Medium Term
Structure & governance
Regular management reporting will ensure that we are tracking our performance against budgets and goals. Formalising aspects of the business will bring structure and governance to the business. A buyers level of confidence will be improved through strong historical reporting as it reduces the risk that things will deteriorate post a sale.
Should increase exit multiple
Short Term
AuditingCleaning up the books, and having an independent party audit the financials will give buyers confidence in the figures that are presented.
Should increase exit multiple
Medium Term
Management teamDepth of management team derisks the business upon a business sale as it reduces the reliance on the owners. The goal in the year before a sale is to extract the owners from the day to day.
Should increase exit multiple
Medium Term
Scope of Project
Observation Discussion Effect on Company Timing
Long term business planHaving a track record of setting plans and achieving them illustrates the strength of the business. Having a codified plan for future growth at the time of sale will give buyers confidence in what they are buying.
Should increase exit multiple
Medium Term
Pipeline of future growth Being able to show the pipeline of future growth (customer or project opportunities) will increase the confidence level of buyers.
Should increase exit multiple
Short Term
AcquisitionsThere are likely small businesses in the sector with some attractive characteristics. An opportunity may exist to acquire some of these at low prices, and integrate them into the company.
May increase exit valuation Medium Term
Working capital managementShowing a consistent level of working capital and strong conversion of profit to cash flow will increase the attractiveness of the company to buyers.
Should increase exit multiple
Medium Term
Debt
Often private companies see debt as the enemy. However a business with $5m of EBIT will be able to source bank debt without personal guarantees at interest rates of 5-6% per annum. Aside from being a cheap source of capital, having a relationship and track record with a bank can provide buyers with confidence about the strength of the business.
May increase exit multiple Medium Term
Scope of Project
Observation Discussion Effect on Company Timing
Being sale ready
A sale can take between 2 and 12 months. Being nimble and sale ready can result in a great outcome. Large buyers are opportunistic, and being able to execute a quick sale if the offer is attractive can be the right decision. We recommend building a base sale dataroom in the next year.
May result in an exit being achieved where otherwise
unlikelyMedium Term
Mapping the buyer pool and sensing them out
We will assemble a large potential buyer pool and begin sensing out their interest in acquisitions early on. We will also start to consider international buyers.
Results in correct decisions being made and refining
business plan to suit buyer market
Medium Term
Innovation and staff trainingImplementing best practice and developing the employees will result in higher staff retention and new business opportunities.
Should increase profitability Medium Term
Introduction to potential employees and networks
Through our networks we know people who may make great additions to thecompany.
May improve teams performance
Medium Term
Why Nash?Nash Advisory is a boutique mergers and acquisitions firm that focuses on financial advisory services for high growth companies, business owners and entrepreneurs, managers and investors. Our Melbourne based team, who are investors in several business themselves, can provide practical advice with unique and tailored solutions for every client. Nash Advisory is named after the Nobel Prize winner John Nash, who changed modern day economic theory through his Equilibrium Theory. Our role for most of our client engagements requires Game Theory – that is, analysing multiple potential outcomes by configuring a range of assumptions.
MelbourneLv 12, 459 Little Collins St
SydneyLevel 15, 1 Castlereagh St
BrisbaneLevel 22, 127 Creek St Our
Locations
1300 860 917 www.nashadvisory.com.au