dealmaking roundtable 59


according to Thomson Reuters Deals Intelligence.)


Anstey: “Advisory is a very interesting space,” he agreed, exampling one firm that had increased its debt advisory team from six to 120 staff within the past few years. “There is real confusion in the market because of the greater choices available today, and SMEs are not aware or able to navigate this range of choice.”


Roberts: “We would never expect an entrepreneur to be an expert in every single business environment or discipline, or necessarily to have a high level of deals expertise within their business.”


Anstey viewed some alternative funding as truly disruptive. “Crowdfunding is at the small end of the market currently, but I can see this type of funding model becoming more sophisticated and moving up the food chain in the next few years and into the conventional lending territory. As an advisory company, we (BCMS) will certainly be aiming to be ahead of that curve and understanding this space much better.”


Norman: “The crowdfunding equity platform worries me personally as people are putting money in that will be tied up long-term, and may not understand the decisions they are making, and often don’t take a portfolio risk. I do wonder what will happen to public perception and confidence if there is a wobble in that market.”


Rolfe tended to agree. “There is little doubt that a wobble will happen in a crowdfunded business at some point, and at that time they often need a partner who can bring more than just money to assist and that is where the model may break down as a disparate set of silent shareholders will add little or no value.


Norman and Rolfe suggested the current crowdfunding ceiling was around £2m, unless there were celebrity attachments or tangible rewards (eg a free beer at ‘BrewDog’ outlets), which attracted more investors.


Thorburn pointed out that investors rarely put significant funds into crowdfunding. “It’s more of a speculative punt-basis investment, although you can get tax benefits.


It’s also a fantastic marketing tool for many businesses.”


However, investors should remember that crowdfunding is merely a brokerage platform, with the risks being borne solely by investors, and the valuations being marketed to attract.


Hunt highlighted that, unlike crowdfunding, trade and PE-supported transactions brought additional skillsets into dealmaking as well as finance.


THE BUSINESS MAGAZINE – THAMES VALLEY – OCTOBER 2015


Are we seeing more foreign investors?


Anstey: “About 30% of our deals are to foreign buyers, which is surprising with a lot of our deals being in the SME space. The USA is clearly out in front, but we are seeing more European interest, particularly French and German. Maybe they see the UK as a safe haven at the moment.”


Arnold echoed Anstey’s view, although noting a slight percentage decrease in foreign involvements this year versus domestic transactions against high activity in 2014.


Norman said much of the foreign investment was more about trade acquisition and building platforms to grow in the UK, rather than direct investment.


Rolfe added it wasn’t surprising that NVM’s exits have had a heavy bias towards international buyers a number of which gave us the impression that. “It’s cheaper to buy in the UK than the US.”


Deal values and multiples


Roberts suggested valuation multiples for a typical trading business could be five to six times EBITDA, but tech companies could be 10 times, mainly because of their opportunity for rapid global scalability.


Rolfe countered that 10 times multiple this year could be four to five times next year, but added: “There are businesses with certain growth journey trajectories with which you can comfort yourself that those high multiples are a fair price.”


“It can be very dependent upon the individual company you are looking at and how niche the business is,” explained Hunt, while exampling an agricultural concern that had been offered 14 times EBITDA, surprisingly high for that sector, but merited for the particular deal.


Andy Hunt


(100% plus) revenue growth per year. However, he warned: “Valuation multiples are very subjective.”


Arnold felt the media and sector markets in general helped stoke expectation by publicising the high multiples involved in deals, but not the average multiple levels, often leading to disappointment for clients involved in ‘normal’ deals.


Roberts highlighted an MBO process where the seller had not had the benefit of advisory support. “It was a lot more difficult to structure a deal, purely because of the vendor’s multiple expectation.”


Hunt: “The difficulty is that so many people view deals as all about multiples and everyone’s expectations are based on what they’ve heard or read. But, every business is completely unique and you can’t compare one with another. That’s another reason why we often get a massive spread of offers.”


Does due diligence help or hinder deal valuation?


The Roundtable view was that DD had become more robust and was a vital component of deals today, particularly in confirming true values and pricing within deals.


Arnold: “There is a common perception that people sign heads-of-terms on a deal and then DD knocks the valuation back and back. We don’t actually see that very often.”


Doug Lingafelter


Norman mentioned multiples “higher than 14” in specific areas of tech, for scaleable companies already achieving significant


Rolfe: “DD should be very much confirmatory, not a tool to reduce the price. In fact, it is in everyone’s interest for DD to confirm the price, because if it begins to undermine pricing, it raises the question of whether the business is what you thought you were getting, which can lead to questioning the deal rationale.”


Continued overleaf ... www.businessmag.co.uk


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