An acquisition can be a way of achieving immediate growth

Are you considering buying another business? An acquisition may enable you to achieve overnight growth in the scale of your existing operations or to secure a foothold in a new industry sector. With careful evaluation and implementation, it can also help to achieve operational and financial synergies.

Realising the full potential of an acquisition for your business demands that it be properly planned and executed from beginning to end. Our services include:

Our acquisition services

Finding your target

We are often involved from the very outset of the search for targets. Our service typically involves the following key stages:

• Defining your acquisition criteria and strategic rationale then carrying out detailed research to produce a shortlist of potential acquisition targets
• Once you have agreed the acquisition targets, we make the confidential initial approach
• We can assist you in formulating the initial offer and negotiating the price and structure of the transaction
• Where appropriate, development of the business plan and financial forecasts for submission to potential funders including subsequent negotiations with funders
• Project management of the transaction to completion

We ask for an initial payment at the outset, but most of our fees are awarded when we successfully complete the acquisition for you.

The benefits of appointing Albert Goodman Corporate Finance (AGCF) are:

• We have access to specialist information sources which remove the difficulties associated with identifying acquisition targets, particularly where you are trying to find opportunities to diversify away from your current activities
• We have the specialist knowledge and contacts to help ensure that the acquisition is structured and financed properly
• We free your time to enable you to concentrate on running your business whilst we progress all potential opportunities. This reduces the extent to which you need to be involved in the day-to-day acquisition tasks, which can be both distracting and time consuming.

Financial due diligence

If you are considering an acquisition, financial due diligence provides the comfort you need that the transaction makes sense both from a financial perspective, and in terms of risk.

One of the key strengths of AGCF is that our work is Partner-led and undertaken by qualified chartered accountants with significant experience of performing the lead advisory role on transactions. This ensures you will receive high quality, practical, "added value" due-diligence advice.

As part of this exercise, we will also provide you with clearly defined opinions and make practical recommendations.

We regularly carry out due diligence for management teams considering a management buy-out (MBO), management buy-in (MBI), or management buy-out buy-in "BIMBO" transaction, for corporate acquirers and institutional funding providers.

Our contacts mean that we are able to bring together a team at short notice and deliver, reporting to tight deadlines.

If you are interested in acquisitions, simply complete and submit the form below and one of our specialists will be in touch.

MANAGEMENY BUY-OUT (MBO)

A management buy-out can be a rare opportunity to combine the rewards of business ownership with the responsibility for key decision making

An MBO is where the management team of a business acquires the business from its owners - and for business owners it can sometimes represent the most viable exit route.

The work involved in an MBO is often time consuming, complex and there can be a number of unexpected developments as the work proceeds towards completion. It is essential to appoint corporate finance advisers who can lead you through the transaction.

Typically, our MBO services include the following (when acting for management):

• Establishing feasibility of the MBO, so that any offer put forward is sufficiently attractive from the vendor's perspective, realistically priced, structured and fundable.
• Negotiating the main terms of the transaction with the vendor including price and structure.
• Developing the business plan and financial forecasts in conjunction with the buy-out team for submission to potential funders.
• Leading discussions and negotiations with potential funders so that the most appropriate funding offers are selected.
• Project managing the transaction to completion once the preferred funder(s) have been chosen.

Often we come across situations where the business owners and MBO team have spent considerable time agreeing a deal before we get involved, and where the price or structure cannot then be funded. For this reason, we always recommend that teams involve us in their discussions as early as possible.

MANAGEMENT BUY-IN (MBI)

A management buy-in is similar to a management buy-out, except that the management team making the acquisition is from outside the company

It is essential that MBI candidates have past experience of successfully managing businesses.

We work with the MBI team to carefully define their acquisition criteria and identify suitable target businesses.

Once a suitable target has been identified, the MBI process is similar to the MBO.

MANAGEMENT BUY-IN / BOUT-OUTS (“BIMBOs”)

A BIMBO is similar to the buy-in and buy-out in that the BIMBO is a transaction where a business is acquired by external MBI candidates along with an incumbent management team.

The BIMBO can be a useful means of bridging any skills and funding gaps in a buy-out team.

Sell My Business

A business sale/disposal allows business owners to realise the value of their investment. Maximising the value of a business sale is often a one-off opportunity

We are passionate about maximising the value of your business sale and specialise in selling UK businesses for private individuals and unquoted companies.

Our vendor clients place a high value on their exit and we work closely with them so that together we plan for this in advance, rather than waiting until they retire.

If you are thinking about selling your business, you may be considering an MBO/MBI, or a sale to a strategic trade purchaser. Whatever transaction you choose, our business and company valuation services are an essential starting place. We not only know how to value a business but we also know how to identify and structure the best deal for you.

Vendor-initiated buy-outs/buy-ins

Where it is most appropriate for your business to exit via a sale to a management team (MBO), you may wish to consider a "vendor initiated" buy-out/buy-in. This enables vendors to control the deal to a greater extent.

Trade sale to a competitor or strategic purchaser

Selling a business can be a distracting and demanding process. It is therefore important to appoint advisers early in the process. This allows owners to continue running their business and to prevent value from inadvertently seeping away as the sale proceeds.

Our business disposal services:

• Advising on valuation and the optimum exit strategy to maximise your chances of receiving the best value
• We prepare an Information Memorandum for potential purchasers to provide them with an understanding of the business
• We carry out detailed research in order to draw up a list of potential purchasers with you, who we then confidentially approach on your behalf. Many of our competitors will advertise your business for sale. We will not do this. Our highly skilled researchers will make individual and confidential contact and only to an agreed list of identified targets
• We negotiate with potential acquirers and advise you on the selection of a preferred purchaser/successful bid
• The preferred bidder is invited to complete the deal within an exclusivity period. We manage the transaction throughout this period so that it is completed on a timely basis.

There is an initial fee at the outset, but the majority of our remuneration is awarded on the successful completion of the business sale and is thus contingent on a successful outcome.

If you are interested in selling your business, simply complete and submit the form below and one of our specialists will be in touch.

There can be several reasons to consider corporate restructuring:

• To prepare for an acquisition
• To prepare for expansion
• To prepare for a business sale
• To improve management structures
• To improve the financial structure
• To spread risk
• To aid a business recovery plan

AGCF has extensive experience and expertise advising on corporate restructuring. We take a realistic and commercial approach, ensuring that we understand the commercial imperative behind the restructuring.

As businesses grow, many reach a point in their life cycle where an injection of fresh capital is needed to allow them to move to the next development stage. Alternatively, the current funding structure may be restricting development.

AGCF has access to a variety of funding options with specialist debt and development capital providers and will work with you to assess the most suitable funding package for your business.

Valuing unincorporated businesses and unquoted companies demands specialist knowledge of the relevant law, business organisation and management

A valuation may ultimately be about the numbers, but number crunching is just part of the equation. The real challenge lies in understanding the business context and the purpose of the valuation.

Whatever your need for an independent valuation - new accounting standards, litigation, commercial or tax purposes - Albert Goodman Corporate Finance (AGCF) can help.

Corporate Finance Partner Tracey Williams, holds the CF Qualification, the International Standard in Corporate Finance. Tracey is also a Fellow of the Institute of Chartered Accountants in England and Wales, a management consultant, a member of the prestigious SSBV (Society of Share and Business Valuers), an MRICS Registered Valuer and is actively engaged in corporate finance transactions where the first matter under review is the value of the target business being considered. As a result, AGCF is able to provide you with a robust valuation, no matter how complex the case or information involved.

AGCF provides expert valuations for Section 459 cases, matrimonial, solicitors' negligence and assessment of loss and disputed transactions. AGCF's valuations service includes:

• Valuations for accounting standards such as FRS25
• ‘Fair value’ requirements under articles of association and/or shareholder agreements
• Equity valuations
• Expert witness reports
• Intellectual property valuations
• Intangible assets
• Valuations under Companies Act
• Option valuations
• Tax valuations for Enterprise Management Incentive (EMI) schemes, Capital Gains Tax (CGT), Inheritance Tax (IHT) and Income Tax.

Valuation Tool

Valuation work is often described as more of an art than a science. However, we believe in demystifying the process where we can.

Methods of Calculating Value

The science lies in preparing the scientific data from various calculations, and the 'art' lies in using this information to assess the value of the business/shares.

Welcome to our free business valuation tool

The AGCF Valuation Tool calculates an initial assessment of value using a price/earnings multiple.

All you need do is complete the following information as accurately as possible. It does rely on the accuracy of the information you provide and is provided as initial appraisal only. If you would like more detailed information, please contact AGCF directly. We will discuss the context of your valuation and other valuation approaches that, when taken together arrive at an ultimate assessment of value for your business. This is where science and art diverge.

Get a free valuation...

Methods of Calculating Value

Valuation methodologies for unlisted businesses

We take various factors into consideration when assessing the value of an unlisted business:

1. The liquidity of the shares
2. The premium required to take control of the business, and
3. The capital structure.

For private companies and divisions of public companies, we use mathematical formulae. These calculations generate the company's value based on either forecasted cash flow, earnings, or by analysing the price earnings value of comparable listed companies and recent M&A transactions in an industry.

Prior to performing the arithmetic, we take a strategic view of the industry and of the future prospects of the company to help place the valuation figures in the correct context. We also undertake an analysis of the competitive environment, barriers to entry, potential for substitute products and the strengths and weaknesses of the company to put the forecasted cash flow and earnings into perspective. Below, we review the three most commonly employed valuation techniques.

Discounted Cash Flow

The discounted cash flow (DCF) approach is the most commonly used method to value companies, or specific projects. The basis of the calculation is to determine the free cash flow taking into account the time value of money. This is cash available for repayment of debt or distribution to equity providers after all planned investments have occurred, including both working capital requirements and taxes.

Adjustments are made to the financial statements for non-cash items including depreciation and goodwill. An integrated financial model is developed, summarising the forecast profit and loss, balance sheet and cash flow statements for the company. Typically, a three - to five - year period is considered. The underlying assumptions of the forecasts are important to the integrity of the model. Additionally, the process of developing the model and checking the consistency with the competitive strategy of the company within the industry is as important a process as the calculation of the final valuation figure.

The calculation also estimates the “terminal” value of the business. With normalised cash flow and growth prospects a valuation according to comparable multiples will provide reasonable accuracy. This is typically an EBITDA multiple (earnings before interest, tax, depreciation and amortisation). Therefore, the valuation of a company taking into account the time value of money can be separated into its constituent parts.

Value of the expected future free cash flows = Present value of free cash flows during forecast period + Present value of terminal value at the end of the forecast period

The result represents the enterprise value of the business available to all security holders, discounted with the Weighted Average Cost of Capital, or WACC. The WACC reflects the combined cost of debt and equity with the weights of these capital sources based on their market, rather than book values. The key point to highlight is that a company’s WACC declines as it employs additional lower cost debt, thereby reducing the proportion of the more expensive equity. This is due to something known as the ‘tax shield’ resulting from the tax deductibility of interest payments.

The DCF process provides a valuation of the enterprise. The value of the equity can then be calculated by subtracting the net debt (total debt minus cash) from the enterprise value of the business. As with all valuation methodologies, it is important to carry out sensitivities around the key assumptions and to focus on a valuation range rather than on a specific number.

Comparing the DCF valuation with alternative methods is important as a sanity check. Each valuation approach contains useful information and, relying on several approaches in combination, is likely to produce more accurate valuation ranges.

Comparable Company Valuations

A difficulty with the DCF approach is arriving at the WACC. Thus, a more useful approach often used in practice relies on valuation multiples including:

1. Price to earnings (P/Earnings per share);
2. Price to book (book value of net assets); and the
3. EBITDA multiple (market value plus net debt/EBITDA).

Multiples are estimated from the prices of public companies with growth and risk characteristics comparable to the company being valued or by reference to multiples paid in actual deals. Firms in the same industry are the usual source of comparables. Precedent M&A or IPO transactions in the same industry are also likely to be a good match especially if the targets had similar growth rates and margins. ECF has access to information on M&A transactions which provides an understanding of the premium paid under recent business scenarios.

P/E multiples often differ between similar companies due to accounting differences, such as depreciation in earnings calculations. Net debt differences can also affect interest expense and earnings.

Choosing the value to apply in a particular situation can only be made after a careful study of the company and its industry. A comparison of the value of similar public companies can provide a reasonable guide to value for unlisted businesses.

Valuation in merger and acquisition discussions

The intrinsic value of the business is the net present value of expected future cash flows independent of any acquisition. This is the stand alone value and the basis for negotiations. Any price paid above the intrinsic value represents the control premium to be shared between the target company and the acquirer’s shareholders. This premium includes a market premium and the potential synergy value. These synergies comprise revenue enhancements, cost savings including financial engineering and tax benefits as well as process improvements.

Improving valuation prospects

Whilst strong growth prospects for both an industry and an individual company are important factors in a valuation, there are a number of additional factors where a company can improve its prospects prior to a strategic transaction:

Quality of management team

Developing a core group of managers to lead a business without over–reliance on one person will be value-enhancing for new shareholders. It is typical for an acquirer to enhance a management team with financial expertise whilst retaining an experienced Chief Executive and operating management team. However, in turnaround situations, replacing the top management team is often essential to revitalise the business.

Share Structure

A simplified share structure with one share representing one vote will enhance the transparency of the company. Private companies often have several classes of shares which have been issued during several rounds of financing. Alternatively, certain shareholders often retain voting control irrespective of the amount of financing. A simplified share structure will improve a company’s valuation, particularly when a flotation is under consideration.

Capital Structure

An under-leveraged balance sheet will provide an opportunity to a private equity firm to restructure a business, increase debt levels and improve the return on equity. Furthermore, existing shareholders should question whether the current or an enhanced management team can restructure the business and increase the value without changing ownership.

Conclusion

Generating a valuation is basic arithmetic. The key factor to enhancing a company’s value is through the execution of opportunities that enhance the future free cash flow of the business. A company’s strategic position within an industry with solid growth prospects is essential plus a well structured business and an experienced management team.

Valuation is an art and not a science, but the process of calculating a company’s value in a systematic way can uncover key growth opportunities for a business.