Last year was busy – What does next year have in store?

It’s been a long time since I posted here. 

It’s been a busy year and we’ve been busy advising on some interesting transactions.  Here are some of the highlights

Sale of Young Calibration to NMi Certain BV. 

Another sale to an overseas buyer.    Young Calibration is based on the South coast near Brighton.  And this was a first for me in that the whole transaction was conducted virtually.   I’ve done deals substantially virtually, but in this case right from first meeting with the selling shareholder Adrian Young to the complete everything took place in Teams or Zoom.     Young Calibration has UKAS accredited labs and industry leading knowledge and experience in thermal fluid systems testing, cleaning and development. It works with a wide spectrum of industry sectors including automotive, aviation, medical, environmental, and pharmaceuticals.  The deal is strategic for NMi and should allow the companies to capitalise on opportunities in electric vehicles charging, and respond to new regulations in automotive and motorsport sectors.

MBO of Titan

Titan is a St Neots based engineering company.  It began in motorsport racing and having changed and broadened over the years is now at the forefront of manufacturing complex steering technologies for advanced vehicles.  This was an MBO lead by an experienced team who bought the business from its private shareholders.  These shareholders had had the foresight to bring in a professional management team to develop and grow the business, and it’s great to see that coming to fruition in a good exit for them, and a great opportunity for CEO George Lendrum and his team to continue to grow the business.

Sale of Cambridge Bioscience and Research Donors to Nordic BioSite Group


This deal sees three European life science distribution businesses coming together.  NMI’s plans to assemble a pan-European life science research distributor took a big step forward with thee acquisitor  gives them an entre into the market for high quality bio specimens.    Another international deal, and another conducted virtually.  I have at least met Mike Kerins the CEO since the deal was done over a glass of Champagne.

Sale of X-On to SOuthern Communications Group

Last but not least, completing within a couple of weeks of our firm’s financial year end we advised on the sale of X-On a cloud telephony business focussed on the UK primary care sector.   Approximately 11 million GP patients in the UK are now served by 1,400 GP practices using X-On’s Surgery Connect.  This is about 17.5% of the telephony market in primary care.   X-On was sold to Southern Communications Group and it should allow X-On to further capitalise on demand for its market leading product.   Again, a deal conducted largely virtually, but I had met CEO Paul Bensley and his co-Director Paul Heeren before the process kicked off.


What themes can one draw out from the last year.  Increased digitisaion of deal doing – which is oiling the wheels.  And that there’s plenty of activity still.  That strategic buyers and PE funds are still very active and there’s plenty of liquidity in the market.  From what I can see so far, it’s continuing into 2022/2023

What does the crystal ball say about M&A in 2022 going into 2023

This last section is an edited version of an article I wrote for Business in East Anglia

Crystal ball
Deal volume has held up well despite Brexit, and even global pandemic.  So how about the dual impacts of war and inflation?  Maybe better than you’d expect.   A recent Deloitte survey (admittedly done before Putin’s tanks started moving) found that 92% of businesses expected deal volume to increase.   Many owner managers are ready to sell because their businesses are doing well and yet after some difficult years they now feel they’d rather do something else and buyers are paying good prices as they have the means and the motive.

Here’s some 5 drivers of activity we’d expect to see:

  1. The private equity sector has record levels of cash which needs spending. This is driving activity and supporting prices, whether PE funds are buying directly or supporting their existing portfolio to buy.  I don’t see this lessening, and with the turmoil in the quoted market, and lack of returns to be made elsewhere I can see investors continuing to pile into Private Equity as an asset category.
  2. Deal making digitisation is increasing as the examples above show. This allows us to be more agile and to reach further from base to advise businesses – so if whether you’re based in Cornwall or Caithness I'd love to hear from you!
  3. Cross Border M&A is a strong driver with well funded overseas buyers finding the UK an attractive place to do business. As illustrated by the Cambridge Bioscience and Young Calibration deals above.
  4. The war for talent there’s been much talk about “the great resignation”, and we’re already seeing deals being done where the acquisition of a good team is the main driver. Expect to see more acquihires – acquisitions driven primarily by the desire to get hold of a team of people - particularly of knowledge led businesses such as consultants, agencies, and professional firms.
  5. Hot spot sectors driving activity - Tech deals remain buoyant– COVID led to an acceleration of the transformation of many areas of commerce to harness cloud based technologies. Healthcare also a hot spot, our recent deals underscore this trend.   We’re also seeing a lot of activity in Fintech particularly around London.


Just how much use is EBITDAC anyway?


At PEM Corporate Finance we live and breathe EBITDA – it’s the performance metric of choice for M&A advisers and valuers alike as, at least in simplistic terms, it’s a good proxy for cash flow. And ultimately it’s cash flow that a corporate purchaser, investor or valuer ought to be focused on.  That’s what they’re buying or valuing.


Of course EBITDA needs to be cleaned up before use, often adjusting for the true economic costs of the directors, and adding back any one offs costs. One might think it would be enough to consider the effects of Corona Virus on business, be it in reduced sales, margins, disrupted supply lines, or increased debt, as an add back. But in fact a new acronym has been coined: EBITDAC or earnings before interest tax depreciation and corona.

EBITDAC mug cropYou can even get it on a mug!

How might it help in practice. Well it will depend on how readily you can quantify and clearly identify the effects of Corona. That might not be altogether straightforward. It might hit the business in many ways, some of which won’t become apparent until later. It is also likely that the Corona effect will vary over time, and by sector. So for example we’ve found that some businesses are picking up slowly after an initial hit, and some sectors particularly in tech weren’t much impacted.
I do think it’s worth trying to isolate EBITDAC. It’s going to be an ongoing difficulty for business valuers. But in M&A there are some immediate impacts:-

Price expectations

Coming out of the recession that followed the financial crash in 2008/9 one of the issues was a big gap that had opened between vendors and purchasers expectations as to price. This could be an issue in the short term now. Vendors will want to sell on the back of the EBITDAC profit metric and on pre-Corona multiples. Buyers will want to back off some of the risk that the current reported EBITDA is the new normal through a reduced price. In practice we’re already seeing the use of earnouts, convertible instruments and ratcheted deals to bridge this gap. Creative deal structuring is going to be needed.

Locked box v Completion accounts

The locked box has become quite common and is especially popular with private equity buyers as it gives them certainly as to price/structure and their funding requirements to allow them to draw down funds if needed. However in a fast moving situation where there’s ongoing uncertainty as to how Corona Virus will impact it may now suit both buyer and seller to move to Completion Accounts where the final deal structure is established on completion. It’s quite likely that deals will progress slowly over the summer as buyers and funders are cautious with their diligence – that further emphasises the need to see what the world looks like on completion if that’s going to take to the autumn.

Normalised working capital

Upon closing an M&A transaction there is always a debate around the normal level of working capital, and what are the debt like items are in the target. And from that just how much surplus cash can be taken off the table by the Sellers. Of course short term there’s a good chance that working capital will not be normal, with a build up of creditors on stretched terms quite likely – and so that needs to be dealt with.

Just how much use is EBITDAC anyway?

Short term I’d say it’s interesting, we must use it, but as a proxy for cash flow it’s useless and that will ultimately limit its applicability in M&A without consideration of other factors such as the fundamental value drivers of the business, it’s forecasts and scenario planning for 2021. As far as valuation opinions are concerned 2020 EBITDAC can only really be used alongside consideration of 2019 results, and a detailed scrutiny of the business fundamentals and prospects for 2021.  It really underscores the need to start planning now for the recovery, as it will be all about having a credible view of 2021 and beyond.   

For more on business valuations and corona have a look at our valuations site or this article on the PEM Corporate Finance site 

There are still deals to be done even in "difficult" sectors

Its often said that the reason lots of deals are still happening in uncertain times is down to the liquidity in the system, and those companies being in good sectors. Conversely if asked many investors and advisors will tell you the retail and construction are "difficult". So it's heartening to report that there's always cream at the top of the milk bottle and that deals are still to be done in "difficult" sectors provided you're working with really good businesses.

Specifically I'm pleased to look back on two recent deals we've completed over the summer at PEM Corporate Finance, the sale of English Architectural Glazing and the sale of ATP Architects + Surveyors.

We acted as lead advisers to the shareholders of English Architectural Glazing.  Based in Mildenhall in Suffolk and Attleborough in Norfolk, this is one of the UK's leading contracting businesses providing envelope cladding packages for project such as Great Ormond Street Hospital, Wimbledon Centre Court, DLR Station City Airport and the BBC TV Centre conversion. Their clients include the great and the good of UK construction such as Kier, BAM and Skanska. The business was sold to Irish Private Equity Fund Elaghmore LLP. This deal closed in August.

A couple of months later we were pleased to announce the sale of ATP Architects + Surveyors to RSK. ATP, which is based in Ilford in Greater London,  is a multi-disciplinary professional consulting firm, and its purchase was RSK's 7th deal so far this year. ATK, which was established in 1966 provides the complementary services of landscape design, interior design, space planning, employers’ agent, and health and safety. It works with a broad range of clients such as Barratt London, Sanctuary Housing Association and Hollybrook Homes.

We've not done anything in retail recently - but are always keen to speak with good businesses and to help shape their exit plans.

More on our website  about the EAG and ATP transactions.



Is this the end for Entrepreneurs' Relief?

There is a growing chorus of voices urging the government to scrap Entrepreneurs' Relief.  The Institute for Fiscal Studies which suggested that business owners respond more to changes in taxes by adjusting how and when they take money out of their companies rather than by changing their investment plans.  It also claimed that many owner managers hold significant sums of cash in their companies in order to access lower CGT rates and to save tax - no sh*t Sherlock!   IFS issue with the system is that while higher income tax rates encouraged lower income take from companies, especially if it kept owner managers just below the next tax threshold, but that the cash retained wasn't invested just squirreled away.

Now the former head of HMRC has called for ER to be scrapped, as it costs the country c£2bn a year in lost tax but with "no real incentive for entrepreneurship"

An earlier HMRC research paper by IFF, found that in most cases ER was not the primary motivating factor for entrepreneurs when making decisions about investing in assets, or disposing of them.   But it did find that those most likely to be influenced by ER at the point of making their initial investment were those most likely to planning to set up a new company.  Perhaps it's motivating serial investors - and so perhaps this is a driver for enterprise?

It's difficult to predict anything in British politics, and that's also true about the future of ER.   Phillip Hammond tinkered with it in his 2018 budget but resisted calls at that time for it's abolition.  So perhaps more tinkering is the likely outcome post election?

Whether or not a transaction will qualify for ER is always an agenda item in exit planning discussions.   And it's relevant in any M&A activity, whether you're selling your business, doing a management buyout, or even if you're buying business (because it will influence the seller).  But we're now finding, in discussions with entrepreneurs around Cambridge and East Anglia, that the availability of ER is becoming a factor for some in accelerating their exit plans before possible tax regime changes.  It's certainly true to say that it's unlikely to get any more benign.  

Ultimately exit decisions are driven by personal factors such as age, and a desire to do something else in life.  Or by business factors such as the value of the company, and it's strategic plans.  So the tax tail actually doesn't often wag the dog, but it would be helpful to have some certainty on how capital gains on the sale of businesses are going to be taxed.

In the short term the best way for business owners to wrest back some control from the politicians is to have some exit planning discussions, work out a range of dates and values for you exit, and what needs to happen to deliver that.    We're always happy to have this kind of discussion, because it makes it easier for business owner and adviser to act swiftly when opportunity arises.  If you'd like to read more about exit planning and selling your business have a look at the PEM Corporate Finance website

Valuation and pricing lessons from the battle for Sky

Valuation is art not science

A recent finance editorial in The Guardian on the 21st Century Fox v Comcast battle for Sky was critical of the Sky independent directors.  It felt they should be embarrassed at recent events and should realise that valuation is art not science.

Sky-logo-b90e8c9Too good to miss?

Paraphrasing the argument - in 2016 the independent directors felt a £10.75 per share cash offer was too good to miss.  Surely offers 40% above the previous weeks share price don’t come a long too often.    In fairness at that time the share price had fallen from £11 in April 2016 to 769p as the market fretted about Netflix and BT.  And you can be sure that Brexit fears didn’t help either.  But at the same time based on the fundamentals including the benefits to be derived from getting Sky Italia and Sky Deutschland motoring properly UBS analysts reckoned a fair price for Sky was £13.70.   So they’d not have been sellers at that price.

Today in 2018, with the political and regulatory issues behind them the real bidding has begun and the action is around the £14.00 to £14.75 range - so far.

Price v Valuation

This is all about price v valuation.  So what are the lessons?  Well the discussions at the board are of course mostly about price.  First time around in a jittery market, amidst fears about market trends (the threat from streaming), and with a one horse race the independent directors view on price wasn’t too bullish.  They obviously weren’t feeling too confident.  Either that the value was light, nor were they sufficiently robust to turn it down and take and flak from further share price decline afterwards.  So that was all about what price to accept. 

But back in 2016 UBS valuation opinion based on fundamentals was clearly suggesting something much higher – I’d be surprised if that wasn’t also the view in the Murdoch’s camp.

Now it looks so different.  Better performance, better market sentiment, and true competitive bidding is driving a value c£7Bn higher than before!  No wonder Sky shareholders were angry in 2016.

The above is all about how it felt for the sellers, for some insight into how it might have felt on for the purchasers have a look at this blog post on the PEM Corporate Finance website on how to pitch an acquisition offer.

The need for competition to get the best price

Taking the lesson a step further this really underscores the need to sell your business at a time of your choosing and to get a competitive process going.  It also demonstrates graphically how much higher a price you might get as a result of real competitive tension between strategic buyers.

A good time for business exit or succesion - high company multiples and before any scary tax changes?!

The latest Argos Mid-Market Index which shows movements in private company prices has just been published. It shows data up to Q3 2017 and indicates a record high of 9.5x.  As you can see from the graph it has been steadily climbing since 2009.   So if you're a business owner it's a good time to think about exit.  Or at any rate to make sure you have a credible exit or succession plan in place.   Many owners of private companies have much of their wealth locked up in their shareholding and so even an equity release transaction - perhaps by selling shares to a third party like a private equity house can help balance their personal portfolio.

ArgosThe other factor I now start to hear in conversation with business owners is concern about the tax regime that a new government might bring.    The capital taxes regime re the sale of company shares is particularly benign with Entrepreneurs' Relief effectively reducing the rate to 10% on the first £10M of lifetime gains.  Whilst Entrepreneurs' Relief was brought in by a Labour government there is an up swell of concern that a Corbyn led government might change things.

None of this may happen of course but it does underscore the need for every business owner to have a plan for exit and succession - even if it is explicitly not intended to happen for some time.

We're running our Business Exit Strategies Seminar in Stevenage on 23 November the day after the Chancellor Philip Hammond's budget speech.  So we should have clarity at least on his short term tax plans.

Our event, which is free, gives useful insights into a range of topics:-

  • The current M&A market
  • Strategic planning
  • How to build value in your business
  • Business valuation
  • How to achieve succession through a management buyout
  • Tax - how to mitigate and also how to use your tax affairs to build value in your company
  • Company sales - how to sell your business, pitfalls, why some companies don't sell

There are a few places still available - and the venue (Novotel just off the A1M) is easy to get to from Hertfordshire, Bedfordshire, Northamptonshire, Cambridgeshire, Essex and North London.  So have a look at our website for the full program and booking.





Cambridge and East Anglia Businesses asked to think strategically about growth

Flyer_front_cover_Cambs_Oct15With the Cambridge and the East of England economy continuing to perform strongly we're hosting a free educational morning seminar targeted at local small and medium size business owners (in the £1m-£100m turnover band).

Alongside our own corporate finance, and tax specialists we have speakers from our joint event hosts Barclays and Business Growth Fund who will give insights into raising debt and equity finance.   The whole event is designed to give business owners practical ideas on developing a strategy for growth.

Any acquisition should have a sound strategy underpinning it.   And it should look not only at the why and how, but also at the long term implications – when will you see benefits? Will it make your business more attractive to buyers?”

As well as giving advice on acquisition, we'll cover using strategic growth to maximise the value of a business.  The event is going to be comprehensive, guiding attendees from growth right through to succession or trade sale.

The seminar will run from 8.30am to 12.30pm at The Trinity Centre in Cambridge on 22 October. Registration is free; for more details or to book, please visit

Why revenue multiples aren't very helpful

In some industries people talk about multiples of revenue when working out what their business could be worth.  It has some relevance in some industries which use it as a metric (financial services/advisory for example) and in early stage businesses where profit is an alien concept.

However for the most part it needs to be used with care as a secondary measure - and here's why.

Revenue is generally a poor indicator of value.   Its rather like focussing on cost per square foot of an office building.   But assessing the price for accommodation as rental/square foot will be driven by other factors, including quality but above all by location.  Or location location location.   So office space in a fenland village, for example, is going to be less per square foot than in Station Road Cambridge.

When we're selling a business potential buyers look at a number of financial metrics of which revenue is one.  But of course its not the only one, and as you'd expect profit is usually most important.  Specifically EBITDA as it can be a good proxy for cash generation.   A buyer will also be looking at qualitative aspects of the business or value drivers, that will influence its price/valuation.  These might include perceived weaknesses such as customer concentration or over dependence on the vendor.  In contrast positive value drivers could include having a strong intellectual property portfolio or significant market share/quality customers.

Business typically don't sell for multiples of revenue but for fractions of revenue as the chart (of US data) below shows

What this does show clearly is that revenue multiples vary over time and by sector.  

So when a company sale is reported as being an impressive multiple of revenue its probably because it has some other factor driving the sale - technology and intellectual property for example.

If you need a business valuation for whatever reason visit PEM Business Valuations to read more.




Process makes perfect

Last year I met with the owners of an engineering business because they had had an approach from a possible buyer for their company. It was a good business, and the owners liked the people who had approached them. At the same time they were wary of business brokers (having previously signed up a big company which had charged up front fees yet achieved nothing) and of the perceived disruption of a sale process. They also felt that their business had an intrinsic value that the buyer was bound to appreciate and to pay.

I can understand their reservations – but the idea that a buyer would blithely cough up the “business value” – even if it could be known – is dangerous. This ignores the huge amount of the exit value which is down to a good exit process.

How a business is sold has as much to do with the eventual value obtained as the characteristics of the business itself. If you are selling a house you can get a good idea of what it’ll go for based on the other houses on the street, you can even do this yourself using Zoopla. That makes selling a house much more about finding the buyer rather than extracting the value. And yet some business owners believe their business has given value and once the right buyer comes along, a deal will get done at their price. Alas nothing could be further from the truth, for a number of reasons:-

  1. Business value is much more subjective than property and other assets. You can’t go and get Short-sale-processdefinitive comparables for businesses. The packaging and process play much more critical roles when selling a business.
  2. The “best” buyer for your business might not be “on your doorstep” nor a close trading partner or competitor. If you have a decent sized business the best buyers might be scattered all over the world. Appreciation of business value is pretty subjective and so you will need to court multiple motivated buyers. This takes a lot of specialised knowledge, skill and perspiration.
  3. The devil is in the detail in most M&A deals. Many companies for sale will have amongst their circumstances a few potential deal killers. A skilled advisor is essential for avoiding these “unexploded bombs” and getting the deal done.
  4. Selling a business is a sales process. Without good comparable sales data (i.e. competing offers), it becomes a negotiated process.
  5. Most business buyers know what they’re doing and are intent on buying low and out-negotiating their adversary on the deal terms. You need to at least match their knowledge of the art of the deal to can maximise value for the seller.

Alas some folk, like the owners of the business I spoke to last year, try to do it themselves or delegate it to their lawyers or to the local accountants. Even if the seller thinks he’s done well, money has probably been “left on the table”. Selling a business is complex. There are a lot of moving parts and many business owners and, and especially accountants, don’t quite realize it. They think that because they’ve been tangentially involved in a few deals they can run a process and manage it effectively.

Selling a business for maximum value is the realm of the specialist. Company owners fail to hire one at their own risk.

Business sale value upon exit is made up as follows:

What you get for your business = Enterprise Value + Packaging + Process + Deal-Maker Skill

Enterprise value is the intrinsic value of the business. In theory this might be obtained by the DIY business owner/seller or the novice business broker (if they can sell it at all).

Packaging is putting together the Information Memorandum. Skilled packaging can in itself make the difference between a sale and no sale.

Process includes both process design and execution, and it’s about locating the highest and best buyers and working them all at the same time.

Deal-maker skill is the secret recipe. It’s the skill, knowledge and experience of the individual (or team) running the process through to closing.

In short, there is real benefit to be had from working with a specialist M&A adviser, a specialist in company sales. Look for someone with demonstrable experience, plenty of credentials to be found on the internet, and someone who will help you get the deal across the line. Ask your peers for references, talk to your existing lawyer or accountant, search the Internet.

If y ou are thinking of selling, which you will surely have invested lots of personal and financial capital into, then its worth getting the right people working alongside you to make it happen.

Business Valuation Basics: Four Key Questions

Business valuation can be complex but the underpinning of any good valuation assessment is the answers to four simple questions:

What is being valued?FourQuestions

The first step is to clearly define what is being valued. If it’s a going concern – i.e. an ongoing trading business - then it is the income stream of the business that is being valued.

A business is nothing more than a group of assets – people, ideas, processes, products, intellectual property (especially in technology companies), and equipment that together produce an income stream.  If there are any assets not used in the generation of profits, they get excluded from the valuation (and added back separately if you’re valuing the shares of a company for example).  A good example might be a surplus investment property held in a company.  Conversely if there are assets not owned by the business but used in generating profits, they must be contributed to the business by the owner or the cost of acquiring the assets needs to be taken off the valuation.

You also need to clarify if you’re valuating the assets or the equity of the business. An assets valuation assumes the seller retains all non-working/non-interest bearing liabilities of the business and, in a hypothetical sale, pay them off with cash received from the purchaser of the business. If the equity of the business is being valued, it is assumed the hypothetical buyer would get all assets of the business and assume all liabilities as well.

Value to Whom?

The answer can be an individual, investment group or another company. Once this question is answered, all the factors adding to or detracting from the valuation need to be factored in.   So a strategic buyer who sees potential in the business will value it at more than a similar buyer without any special reason to be interested in it.   I’ve seen some Cambridge technology businesses valued for well above their asset value, or any reasonable assessment of an income multiple – simply because their technology had true strategic value to the purchaser.   For example we advised on the sale of a pre-revenue business where the North American purchaser had decided to invest in a particular area, and purchasing my client meant that they would save around 2 years “time to market” over developing the technology in-house.   They thus had a pretty well developed idea of what they were prepared to pay for it.

What Definition of Value?

An alternate value definition is fair market value. Selling a business for maximum value can be a frustrating task. First, what is the maximum value of a business? Actually nobody knows – and any broker, corporate finance house, or M&A adviser who offers you a guaranteed price needs to be challenged.  How will the seller know if a particular offer he receives is the best he can get?  And would he get more if he waited?

This can be a difficult judgement for business owners who are thinking of selling – and it really helps to have an experienced M&A adviser giving input to what would be a realistic price given the nature of buyer, seller and the market.  Add the possibility that the maximum value might include some vendor financing, in some form of earnout perhaps, then the seller needs to consider, assuming the buyer’s ability to pay will in part come from future profits of the business, whether the buyer will do a good job of running the business once he takes over.  Faced with the “what is maximum value” dilemma, in practice sellers need to make a reasoned assessment of fair market value before embarking on a sales process.  We always invest time and resource in helping business owners to reach a thoughtful assessment of what would be a realistic “price expectation” ahead of a sale process.

Fair Market Value

What is “Fair Market Value”?  It’s the price at which an asset would change hands between a willing buyer and willing seller, both of whom are suitably knowledgeable of the facts and neither are forced to do the deal.  It’s a simple definition, but of course the technical process for estimating fair market value can be pretty complex – it’s an art AND a science.  

Value as of What Date?

The fourth question to be answered before a business can be valued is “value as of what date?” And it’s not always “valuation as of today” that’s relevant.  In litigation or tax driven valuations we’re often asked to produce a valuation opinion as at a particular date in the past. Conversely, in finance it’s often a requirement to predict what the value will be at some date in the future, perhaps as part of a strategic planning exercise.

If you'd like to know more about business valuations have a look at PEM Corporate Finance Business Valuations - valuing businesses in Cambridge, East Anglia, London and beyond.