1. Buying & Selling Private Company

2. Avondale Group Ltd Lead Advisors - Business sales - Acquisitions - Mid market deals - International Transaction Advisors - Due diligence - Post deal integration - Valuations - Fund raising Strategic Advisors - Increasing shareholder value - Exit Planning - Business coaching - Strategy Avondale established 20 years, UK wide team. Avondale offer a fully integrated service combining sales, acquisition, finance and transaction support as well as strategic advice. We have an exceptional track record in assisting clients on a wide range of SME and mid market transactions.

3. Part of the Avondale Group Commercial SME £100k-£750k value Experienced & Dedicated Experts Best Advice Exceptional Service Proven Track Record Avondale Group Lead Advisors Transaction Advisors Strategic Advisors Clear Business Sales

4. The market Deal types/market 300,000 commercial companies employ more than 5 people. Trade MBO / MBI / BIMBO purchase Investor / Private equity purchase AIMS / OFEX Float (requires ambitious management willing to stay after float) Today Competitive markets drive consolidation Organic growth decline/halted driving acquisitions Contraction forces economies of scale as essential driver Cash-flows settling improving finance lender opportunities Interests rates affordable Tax regime still favourable to sellers Valuations increasing after dip High activity/fragile financial arena.

5. reasons to sell Capitalise goodwill Retirement / health reasons Lack of capital / underperformance Challenge has faded- Executive downsizing / lifestyle Family succession has receded Lack of succession reasons to buy To increase shareholder value/profits Increase market share / product base 1+1=3 (synergies, economies of scale) Acquire growth potential Intellectual Property To buy a job (individuals) To buy, build and sell on Motivations

6. valuation techniques The value is what a purchaser will pay and a vendor sell for - the market decides Discounted cash flow Net asset value ROCE (Return On Capital Employed) P/E ratio (Price/Earnings ratio) Comparison yields (ROCE)

7. valuation contributing elements Profit yield (reflection of goodwill/trust) Property Fixed assets (vehicles, plant etc) Net current assets (stock, cash etc) Intellectual Property Profitability/volatility/sustainability WHAT MULTIPLE? High Risk low recurring revenue Low risk- high margin high recurring revenue

8. price earnings/ROCE calculation Operating profit (pre tax) + Adjustments/add on/backs (subjective) Sustainable/maintaniable xmultiple (subjective/comparative/deal structure) +Net asset value (enterprise value less surplus cash/freeholds etc)**** + freeholds _________________________________ =Subjective forecast > Market decides *** Use higher multiple if assets included. Lower if plus. No rule.

9. adjusting the sustainable net profit Cost in replacements for vendors Add back salaries/benefits of vendors Adjust appropriate costs for premises? Remove costs personal to the seller Is depreciation real? PBIT- Profit before interest tax EBITDA- Earnings before interest tax depreciation and amortisation

10. Example adjustment31/12/2010HIRE Business Turnover£3,250,000 Gross£1,346,97640.38% Operating Profit£327,725 Adjustments to net profitNotes on adjustments Directors pension£3,600 Wives salaries£21,859.00Not fulfilling ongoing operational roles Directors remuneration£78,005 Only requires 1 replacement Director- Must be justifiable NI On Directors£7,800 Additional rental-£15,000Under commercial rent Bank interest£639 Factoring£16,806Is financing essential cost? Hire purchase interest£3,542 Amortisation£21,600Depreciation of goodwill DepreciationReal cost as plant business Adjusted PBIT under management£466,576.00SUSTAINABLE???

11. Profit in £000’s Multiple pre tax 502505007501,0001,5002,000 10 9 8 7 6 5 4 3 2 1 Most likelyLeast likely Beware of newsPost tax if you want to make multiple sound bigger. multiple headlinesAnnounced multiples typically of non adjusted profit

12. deal structure Valuations also depend on deal structure as buyers hedge risks. Cash Earn out/Performance related payments (PRP) Deferred payments/loan notes Shares Secure the risks Reverse due diligence/Personal and bank Guarantees High earn-out deferred/higher multiple All cash lower multiple Deal structure- effects multiple

13. Valuations are an art not a science Comparison/double check Other investments Organic reinvestment in buyers own business Likelihood of buyer achieving organic growth Other deals done Would you pay it? Risk to return reflected? Vendors net income versus net capital sum What assets are included?

14. Enhancing Value Value Builder

15. Enhancing Value - rule 1 create a game plan well in advance Know where you want to be. Plan the journey Many ‘planning’ aspects are good business practice Frustration makes your game worse Shareholder value is more tax effective than profit

16. Enhancing Value - rule 2 work on your business, not in it Reduce dependency on owners / key personnel Housekeep – legal / financial / presentation Build a machine- systems / training / procedures Reduce risk- What’s the worst envelope that could land on your desk?

17. Enhancing Value - rule 3 look after the pennies Reduce expenditure – non core, review overheads Increase margins / pricing policy Seek tax advice A £ of profit multiplied

18. Enhancing Value - rule 4 financially engineer Repay Directors loans / remove personal guarantees Create stand alone venture / balance sheet Consider removing surplus cash Take out non-core assets such as freehold Check value of assets

19. Enhancing Value - rule 5 acquire Buy a company achieve economies and synergies fruits shareholder value Shareholder value is tax effective (exit tax cheaper by far than income/corporation tax) Route to real capital wealth

20. Synergy (extra sales) Economies of Scale (cost savings) Company A Company B Merged Company Enhancing Value - rule 5 Growing the Shareholder Fruit Tree- acquire Economies/synergy 1 + 1 = 3 Bigger profits = Higher Multiple? Shareholder Fruit

21. Enhancing Value - rule 6 stand out Market leader (or threat to) is the most valuable in a sector Invent a niche. What is your unique business proposition? What barriers to entry do you have on the competition? Recurring revenue/value multipliers Create a culture and brand Your best BUYER has ‘we need, we want’ motivation

22. Enhancing Value - rule 7 Know thyself - What changes do you need to make? The most important and influential person in a business is you – the leader. Due to this, it is likely that whatever is working well in the business is because: a.) You are good or enjoy that aspect b.)You put your time and energy into it Similarly, whatever is not working so well is probably because: a) That aspect is not one of your strengths or you don’t enjoy it. b) You do not put as much time and energy into it The most effective way to improve the business is for you to understand your own strengths and preferences.

23. Create road map to value Play to multiplier Influencers Prepare and present Value Builder Helping you create sustainable equity value Enhance profits/business model

24. change Take time out, prepare Little changes make the difference Most preparation changes are good business sense Value Builder – Avondale’s strategic growth planning service. Strategically enhancing multiplier influencers and profit It’s not the strongest that survive, or the most intelligent, but the one most responsive to change Charles Darwin