Presentation slides from seminar looking at how to grow the value of your business, originally presented at Liverpool Crowne Plaza Hotel together with GrowthAccelerator and Natwest Bank

1. Building Business Value
Ian Fletcher
Business Growth Manager

2. GrowthAccelerator, Manufacturing
Advisory Service (MAS), Intellectual
Property Audits and Design Mentoring
have integrated to become the Business
Growth Service.
We can help businesses to achieve their full
potential by identifying barriers to growth
and providing tailored support that fits your
needs. This support includes coaching,
consultancy, mentoring, training, access to
finance and export advice
What is the Business Growth Service?
Business Growth Service

3. Building sustainable growth
Aligned to Government’s growth agenda
Our focus:
– Turnover growth
– Profit growth
– Job creation and retention
– Build capability
– Improve efficiency

4. MC Vanguard &
Mitchell Charlesworth

5. www.mcvanguard.co.uk
Building Business Value
The Crowne Plaza Liverpool, 25th February 2015

6. Brian McCann
Partner,MCVanguard
0151 2552300
brian.mccann@mcvanguard.co.uk
MC Vanguard & Mitchell Charlesworth
Tim Adcock
Partner,MitchellCharlesworth
0151 2552300
tim.adcock@mitchellcharlesworth.co.uk

7. Contents
A Definition of Shareholder Value
The Valuation Process
How owners build value
The Buyers viewpoint
• What are they buying
• Valuation
• Strategic buyers
Constructing a Value Building Plan

8. Shareholder Value
The amount a willing seller and a willing buyer will come to agree on as the price
for the business

9. The Valuation Process
In most cases where a privately owned company is being sold, negotiations
about value will start with a multiple of maintainable profits
Where negotiations end will depend upon the bargaining positions of the two
sides and how effectively they negotiate
The majority of businesses are sold for between 2 and 6 times maintainable
profits but a small proportion achieve much higher multiples – we will look at
why this is

10. The Owners Perspective
Not every business owner is looking to sell at the highest possible price:
• Some family companies have no desire to sell
• Other owners prioritise looking after their workforce above maximising sale
value
• For some owners the priority is timing of sale so they can do other things
Even where maximising the sale price is not an absolute objective, a structured
approach to growing business value will improve the position for all
stakeholders

11. A Valuation Example
Maintainable Earnings Calculation
Calculation
2012
£000
2013
£000
2014
£000
Turnover 2,450 2,600 2,800
Cost of sales 1,300 1,400 1,550
Gross profit 1,150 1,200 1,250
Overheads (600) (720) (600)
Other operating income 1 0 0
Bank interest receivable 10 22 24
Net profit per accounts 561 502 674
Addbacks
Directors’ salaries 150 165 180
Directors’ pension costs 50 50 50
Depreciation 34 36 31
Other operating income (1) 0 0
Bank interest receivable (10) (22) (24)
223 229 237
Adjustments
Salary for Operations Manager (50) (50) (50)
Employer’s NI costs @ 13.7% (7) (7) (7)
(57) (57) (57)
Adjusted EBITDA 727 674 854

12. Maintainable Profits
2012
£000
2013
£000
2014
£000
Adjusted EBITDA 727 674 854
Weighting 1 2 3
Weighted Profits 727 1348 2562
Weighted Average Profits 773

13. Price Earnings Multiples are
determined by…
General Economic Conditions
Trends in quoted company multiples
Buyers expectations for profit growth
Competition - the more buyers bidding - the more likely the multiple will rise
Key characteristics of the business which effect the underlying qualities of
earnings.
Market perception of the business

14. What would a strategic buyer pay …
and why?
The Impact of Multiples
Multiple 3 4 5 6
Indicative
Value
£2.3m £3.1m £3.8m £4.6m
Valuation based on maintainable earnings of £773,000:

15. Realising Value at 10% Tax
Share v Asset Sale
Entrepreneurs Relief
• Trading Company
• Office Holder
• 5%
Danger areas
• Investment property
• Portfolio shareholdings
• Loans to directors/shareholders
• Holiday Homes
• Excessive Cash Balances?
12 months prior to disposal
20%

16. Nature of the consideration &
Entrepreneur’s Relief
Cash
Deferred
Share for share
Loan notes
Earn out
Employee ownership trust
Election for ER?

17. Financing the company’s activities
Enterprise Investment Scheme
Seed Enterprise Investment Scheme
• Income Tax Relief
• Capital Gains Tax deferral (and exemption)
• Tax free exit
NB: qualifying conditions (tortuous legislation!)

18. How Do Owners Build Business Value?
Build Maintainable Profits
Improve Business Attraction and lift the Multiple
Generate Competition between Buyers
Attract a Strategic Buyer

19. Tips for Building Maintainable Profits
Develop a financial business plan and use an outsider to challenge it
Establish clearly which products/services are making or losing money
Build on the winners and address the losers
Identify which overhead costs are essential to profit delivery
Question whether the essential costs can be purchased more efficiently
Drop or reduce the other overhead costs
Engage the management team with the profit improvement process
Link their rewards to the improvement achieved
Set gross and net margin budgets which are as close to the best in your
industry as practical
Search actively for technology improvements

20. Know WhereProfit is Made
0
100
200
300
400
500
600
1
2
3
4
5
6
7
8
9
10
Customers
Profits

21. Employee/Director Incentivisation
Employment related securities provisions
Approved share option schemes:
• EMI
• CSOP
Growth shares
Partly paid shares
Use of employee benefit trusts
Unapproved share option schemes
Employee shareholder regime

22. Doing the same thing -
but getting a different result
Source: Marketline
Major Retailer Net Margins:
J Sainsbury 3.0%
Wm Morrison (1.3%)
Tesco 1.5%

23. Chemicals Profit Margins
Source: Bureau Van Dijk
Company name Sales £’000s Profit Margin
Chevron North Sea Limited 1,169,800 53.15
Ineos Enterprises Group
Limited
269,800 6.86
Baerlocher UK Limited 13,481 2.14
Cogent SSC Limited 9,689 1.55
Chevon Marine Limited 483.833 0.20

24. Profit Improvement
Frequent Areas of Lost Profit:
• Ineffective sales process
• Lack of attention to buying as a route to better margins
• Accepting loss making products/customers/plants
• Lazy budgeting
• No attention to industry benchmarks
• Failure to manage cash

25. Tips for Building the Multiple
Make yourself dispensable
Tie in key members of the management team
Focus the business
Build profits year on year
Demonstrate delivery of the plan which extends beyond sale
Diversify the customer base
Sharpen (or develop) the sales process
Build recurring income
Maximise positive market profile
Manage the website and social media
Get the contracts signed
Take the big steps early
Don’t leave it too late

26. Moving the Multiple - Some Examples
Bolt on acquisitions to add critical mass
Building recurring income
Key customer tie-in (& contract signed)
Proactive PR Partner

27. Some Potential Value Builders
Feature/Rating 1 2 3 4 5 6 7 8 9 10
Dependency on owner Owner Driven Business Non Exec Owner
Management Gaps in team Full team with experience
Systems Weak or informal Established & robust
Customers Few & weak relationships Many strong relationships
Suppliers High dependency Secure supplies
Financial Information Volatile results Improving trend
Marketplace Mature & “me too” Growth market
Competition Many strong competitors Defendable niche
Workforce High turnover Key staff tied in
Growth Future growth limited Exciting growth options
IP No defendable IP Established IP
Regulation Regulatory threats Market driven by regulation

28. Which features matter most in your
business?

29. Moving the Multiple - Example
Criteria
Dependency on Founder
Management
Systems
Customers
Suppliers
Financial Information
Marketplace
Competition
Workforce
Growth
IP
Regulation
Weighting
12
10
10
10
10
9
9
-
8
6
-
-
Rating
9
7
9
9
9
5
8
-
5
3
-
-
Commentary
Founder already mostly retired.
Two tiers of management already in place.
Internal systems appear to be very good.
Strong and loyal customer base with no particular dependency.
Strong supplier base, again with no signs of dependency.
Only had sight of last 3 years figures, slight dip in 2009.
Growing marketplace with substantial global potential.
Not enough information in the document to comment.
Not enough data yet.
Clearly a potential for growth but where the growth will be, and
its funding requirements are yet to be determined.
84 64
Maximum Multiple 6
Score 76%
Guide
Multiple 4.6

30. Some recent deals
On 16/01/15 it was announced that The Foschini Group has acquired Phase
Eight from TowerBrook and other shareholders. The transaction values Phase
Eight at £238 million.
EBITDA in the year to Jan 14 £22.03m
Multiple 10.8
On 03/02/15 it was announced that Sofa Brands International has been
acquired in an MBO for an estimated £60m. Promethean Investments LLP and
Santander UK plc provided equity and debt financing to the management of
Sofa Brands to support the transaction.
EBITDA in the year to June 13 £7.3m
Multiple 8.3

31. Post exit
Inheritance tax
Investment

32. Building Business Value: Overview
Understand the value drivers and measure them
Objective assessment of current position
Develop a clear business vision of where you want to get the business to
Develop clear plans for bridging the gap
Evaluate the existing teams ability to deliver the vision
Implement the plans – a change management program

33. The Value Building Process
The purpose of the action plan and milestones is to concentrate attention on the
steps which can make the maximum impact give the priorities and timescales of
the shareholders
Current valuation
Building Business Value Workshop
• Profit improvement potential
• Current multiples
• Scope to build the multiple
• Potential strategic buyers
Building Business Value Action Plan and Milestones

34. Contact:
FOLLOW US…
www.mcvanguard.co.uk
Whilst the information is believed to be true, the communication may not be comprehensive and recipients should not act upon it without seeking professional advice.
Building Business Value
The Crowne Plaza Liverpool, 25th February 2015
Questions?

35. Brian McCann
Partner,MCVanguard
0151 2552300
brian.mccann@mcvanguard.co.uk
MC Vanguard & Mitchell Charlesworth
Tim Adcock
Partner,MitchellCharlesworth
0151 2552300
tim.adcock@mitchellcharlesworth.co.uk

36. Natwest

37. Jeff Cummins Lending Director
Merseyside, Cheshire & North
Wales
07753833085
jeff.cummins@natwest.com

38. Building Business Value February 2015
•Is Your Business on the Right Track?
•Structured Finance / Complex Transaction Execution Team
•What’s a Business Worth?
•Recent Deals
•Commercial Mortgages
•Lombard Green Energy

39. Is Your Business on the right track?
• Keeping Business Moving
• Supporting Your Business
• Ownership Strategy
• Always consult the experts
• The MBO
• Heading for the Exit
Free Guide : nw-businesssense.com

40. Structured Finance/Complex Transaction Team
• Coverage based in Manchester to support local Managers.
• Deal with HLT’s and large and complex cases.
• Deal Numbers Trend: 2012: 14. 2013: 18. 2014: 24
• Debt Levels: 2012: £15.4m 2013: £39.3m 2014: £69.4m
• 2014 saw increased number of MBO deals highlighting
increasing emphasis around succession planning
• Increasing number of secondary deals, with refinance of
Loan notes as an example
• 2014:3 significant opportunities won from 2 competitors who
appeared to have less appetite for HLT’s & unsecured debt.

41. Whats a business worth?

42. Recent Deals
• Privately owned Restaurant chain-50% MBO of retiring
shareholder via £1m Loan.
• Manufacturer of high quality precision parts and
components for P&M. £2m facility to refinance Loan
notes from a 2005 MBO.
• Industrial & Retail Waste recycling business total re-
finance package >£4m with Term Loan, I.D Line and
Lombard.
• Long established Waste recycling and Quarry business
total re-finance >£6.5m through a Loan and additional
working capital headroom.

43. Start-up business banking
Appetite to purchase
4
10
12
5
29
44
51
42
38
36
30
43
25
9
6
9
5
1
1
1
0 20 40 60 80 100
In today's climate its
better to rent than buy
Its hard to get
commerical loans to
purchase property
Commercial loans are
too expensive
Now is a good time to
buy
%
strongly agree agree neither disagree strongly disagree
Source: RBS Commercial Mortgage Survey: September 2013: Base – total sample 615 with an annual turnover between £250,000 and £10m
47% believe its a good time
to buy
54% believe its hard
to get a commercial
mortgage

44. Why a good time to buy? Why SMEs don’t buy?
 Investing for the future
 Low interest rates
 Raising economic confidence
 Company doing well
 Increasing rental costs
 Need for flexible cashflow
 Fear of being locked in
 Lack of funding
 Lack of available property
 Lack of deposit
Source: RBS Commercial Mortgage Survey: September 2013: Base – total sample 615 with an annual turnover between £250,000 and £10m

45. ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO
NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER DEBT SECURED ON IT.
Please note that the FLS cannot be applied to overdrafts, or business credit cards. Usual lending conditions apply.
Structured Finance and Real Estate Finance are excluded.
The funding is available due to our participation in the Government’s Funding for Lending Scheme (FLS) .
Security may be required for which a fee may apply. Over 18s only.
 A choice of loan - Borrow from £25,001 upwards.
 A choice of interest rate options - Fixed, capped and variable rates.
 Flexi Fee option – Via our participation in the Government’s Funding for Lending
Scheme.
 Flexible repayments – Option to take a capital repayment holiday should you need
to re-direct your finances. In this event, interest will still be charged and your future
monthly payments may increase.
 Flexible repayment term – Repay the loan over a period of up to 25 years. Early
repayment charges may apply depending on the product selected.
Challenging these assumptions with choice and flexibility….

46. NatWest funding sees Forest Contract set for growth.
Security may be required. Product fees may apply. Over 18s only.
ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO
NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER DEBT SECURED ON IT.

48. Accelerating
Business Growth

49. The story so far …
22,000 businesses
£1.5 billion GVA growth
36,572 job created
Sources: Grant Thornton, ONS, BVD FAME for SME Growth

50. 4x faster

51. Building sustainable growth
• Build a successful growth strategy
• Unlock your capacity for further innovation
• Discover new routes to funding and investment
• Harness the power of your people
• Unite and excite your leadership team

52. Strategic Visioning

53. What can clients expect?

54. Is the service right for you?
Ambition
• You have got to want to grow – growth wish
• You have got to commit to growth
Opportunity
• You have got to have or be able to develop opportunities
Capacity
• You have got to understand how you will deliver and scale

55. Who is it for?
Easy entry
• Registered in the UK
• Based in England
• Less than 250 employees
• Turnover less than £40 million
• Not part of a larger group
• Any sector

56. What’s the investment?
1-4 employees £600 + £700 VAT*
5-49 employees £1,500 + £700 VAT*
50-249 employees £3,000 + £700 VAT*
* VAT is based on 20% of nominal value of service, at £3,500
so all businesses pay the same amount of VAT
* The VAT can be reclaimed at the end of the next VAT quarter if you
pay standard rate VAT.

57. What do clients get
• Dedicated Business Growth Manager
• Tailored growth plan
• GROWTHmapper assessment
• Output focused coaching with a specialist growth coach
• Up to £2,000 match funded Leadership & Management
training per manager
• Six business development workshops

58. Growth Impact Pilot
1. Led by Leadership & Management Training Funding
• Up to £2,000 matched funding per senior manager
2. Eligibility same as core GA package except:
• Turnover between £250,000 and £2 million
3. 50% of companies (600 nationally) will be randomly
selected to receive coaching
4. Cost if selected for coaching is VAT element of GA
contribution i.e. £700

59. Are you ready
for Growth?

60. Ian Fletcher
Business Growth Manager
i.fletcher@winning-pitch.co.uk
07769 227 208