March 30th, 2013 Insights
Jonathan Massing gives his expert insight to Acquisition International Magazine
HOW DO YOU STAND OUT AS A LEADING PLAYER IN VALUATION SERVICES?
Kingswood provides independent commercial advice on the valuation of private businesses, primarily for commercial transactions, and the valuation of equity interests in SME Businesses.
WHO IS A TYPICAL CLIENT?
Kingswood typically acts for private entrepreneurial businesses and management teams, either seeking to effect a change of ownership, or who have been previously backed by financial investors and seeking to subsequently restructure the ownership of their business. Kingswood also act for corporate buyers and sellers.
HOW CAN YOU AND YOUR TEAM BE VITAL ASSETS TO BUYERS AND SELLERS IN ALL STAGES OF AN M&A TRANSACTION?
Kingswood has substantial experience in making transactions attractive, the preparatory work and execution.
HOW WOULD YOU DESCRIBE THE CURRENT ECONOMIC CLIMATE? WHAT IMPACT HAS THIS HAD ON THE DIFFICULTIES OF COMING TO AN AGREEABLE PURCHASE PRICE?
The current economic climate has opened a significant gap between pricing expectations by vendors and the perception of value to purchasers. The difficult funding climate has also created an environment where transaction values have to be driven by affordability and ability to fund, as opposed to meeting the “wish” expectations of vendors.
HOW CAN YOU ASSIST PROSPECTIVE ACQUIRERS AND/OR SELLERS IN COMING TO AN AGREEABLE FAIR PRICE FOR THE TARGET COMPANY?
Greater emphasis is required to bridge the valuation gap between acquirers and sellers. The use of mechanisms such as earn out; deferred consideration; and contingent payments is not new, and neither is the concept of vendor loans to be refinanced at some point in the future. Residual equity and anti-embarrassment clauses are important.
HAVE YOU ALTERED YOUR APPROACH TO VALUATIONS AND TRANSACTION PRICING IN LIGHT OF THE CURRENT ECONOMIC CLIMATE?
Transactions involving real businesses can no longer be driven by a financial model / spreadsheet approach. Vendors need to leave something on the table to make a transaction attractive. Fundamentally it is about establishing the willing buyer/willing seller position and recognising that transactions that are based on opportunistic ideas are unlikely to gain traction unless the vendor is in some distress.
HAVE YOU BEEN INVOLVED IN ANY RECENT TRANSACTIONS THAT DEMONSTRATE YOUR EXPERTISE THAT YOU WOULD LIKE TO COMMENT ON?
A recent transaction that Kingswood Corporate Finance was involved in related to a client acquiring the UK operations from a German listed company. The operations were no longer core to activities but nevertheless the vendors had considerably higher expectations of the value of the business they were selling before the transaction had got under way.
During due diligence the German owners of the business also found themselves on a steep learning curve finding out things about the entity that they had not fully understood. The transaction was completed at a substantially lower value and the other key drivers in the transaction such as transactional and reputational risk, which outweighed the need to maximise the cash value of the shares being sold.
DO YOU HAVE ANY PREDICTIONS RELATING TO BUSINESS VALUATIONS AND TRANSACTION PRICING FOR THE NEXT 12 MONTHS?
In our view business valuations and transaction pricing will continue to remain subdued for the next 2 to 3 years, partly driven by the non-availability of (cheap) debt finance but also due to the frequent low performance of vendor businesses where EBITDA performance has been subdued during the recession.
The above is an excerpt from an interview that Jonathan has given to Acquisition International.