The typical journey we take our clients on

Sector: Facilities management

Annual revenue: £3m

Over the past 10 years the owner has reinvested most of the profits of the business back into the business, so hasn't created any significant personal wealth outside of the business

The result of this is that they are trapped in a job in the business they have built – they don't know how to grow it quickly and efficiently, yet they can't sell it because it won't generate enough personal wealth for them to be able to move to the next chapter of their lives.

They are stuck in the day-to-day of the business and don't have the time to focus on growing the business.

They have started to build a team but the team are not proficient enough to run the business without the founder's input on a daily basis.

Overview

The original business that is making £2m in revenue business has a valuation of 3x profits.

If the owner/founder acquires 4 more businesses making £2m revenue each in 3-5 years, their business/group will be making £10m revenue per year.

Even if they acquire the businesses and do nothing to improve them or realise synergies between them, the business/group makes £10m revenue per year, so can be sold for a valuation of 5-7x profits. i.e. the sum of the parts is larger when combined in a group than as standalone businesses – they can create value just by acquiring businesses, even if they make no changes to them.

By the time they have realised the synergies and benefits of bringing the businesses together under the same group, the valuation is likely to be closer to 10x the sum of the original businesses' profits.

Approximately 1 year before the owner would like to exit, it is time to start preparing the business and the owner's financial affairs so that they can obtain the largest valuation possible for the business, and minimise their tax bill upon the sale.

In order to obtain the highest valuation possible upon exit, there are many things that may need to be worked on. For example, the business must run by itself and have virtually no dependence on the current owner on a day-to-day basis. All processes must be systematised and no part of the business can be reliant on any particular employee.

When it comes to finding a buyer for the business, it is important that all financials are in order and the business is introduced and presented appropriately to the right investors.

The Process

Buy

Example of a business they acquired without risking their own capital:

We found a business within the specified search criteria making £1m revenue and £150k income per annum.

We agreed sale price for the business: 1.4x income. That's £150k x 1.4 = £210k

The buyer needed to find £210k from somewhere.

The seller agreed to take £70k in deferred consideration, paid over three years.

Which means the buyer needs to raise £140k for the day 1 payment.

A loan was sourced for £140k against assets on the seller's balance sheet, so £140k was raised for the payment to the seller on the day the deal closed, and the remaining £70k was paid to the seller over 3 years.

The result is that our client purchased a business making £150k profits without putting any of their own money into the deal.

The loans, or interest on the loans need to be repaid, but everything leftover after those payments is pure profit to our client.

Our client's business grew in size from £1m to £2m in revenue.

Now, instead of their business being worth 3x profits, it's worth 4x profits, so even without making any changes to the newly acquired business, they have created value for themselves.

By the time they have taken advantage of the potential synergies and cost savings across the businesses, they will likely increase profits, which will make their group worth even more.

Then they just needed to repeat the process.

Build

How they optimised their business

A key part of the process entails realising the synergies and opportunities to cross-sell between the businesses in the group, and making organisational changes so that the group is optimally positioned to scale. In this case, some of the duplicated accounting and marketing costs could be removed, and it was possible for one manager to manage both businesses.

In this case the client change their accountant, as some of the reporting was not up to a sufficient standard and there was a risk the client could fall short of the reporting requirements.

A fractional financial director was hired, the entire finance function was outsourced and a new accountant was hired – prior to this point, the director's assistant was managing the bookkeeping and chasing invoices, financial forecasts didn't exist the directors had to manually check their bank account to see how much cash they had available. Additionally, the accountant they were using was the cheapest they could find and was providing them with advice that could get them in trouble with HMRC.

A number of processes across the business could be systematised to reduce manual inputs and dependencies on any individual employees.

Once these changes had been made, the group was ready for its next acquisition

Exit

Preparation for, and execution of exit

Preparation to exit started around 1 year before it is planned to happen

The tragic fact on this is that only around 1 in 13 businesses listed for sale actually sells. The reason for this is due to the lack of planning, time and work required to prepare the business for sale.

There are several things that need to happen in order to prepare a business for the highest valuation possible, but the most common thing that needs to be worked on is the reorganisation of the business so that it is not dependent on the current directors in any way, and that all systems and process are in place.

We have links to over investors and private equity funds with assets of over £10bn, and will facilitate the sale of your business to these investors.

This business was successfully sold for £8m.