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M&A in the recruitment sector – An adviser’s perspective

M&A in the recruitment sector – An adviser’s perspective. Kieran lawton & james fieldhouse OCTOBER 2012. What we will cover. DEAL METRICS. UK deals in 2012. Who were the buyers. Who were the sellers. Population of 28 deals. Spread of deals by sector. UK deals in 2012.

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M&A in the recruitment sector – An adviser’s perspective

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  1. M&A in the recruitment sector – An adviser’s perspective Kieran lawton & jamesfieldhouse OCTOBER 2012

  2. What we will cover M&A in the recruitment sector – an advisors perspective

  3. DEAL METRICS • UK deals in 2012 Who were the buyers Who were the sellers Population of 28 deals M&A in the recruitment sector – an advisors perspective

  4. Spread of deals by sector UK deals in 2012 M&A in the recruitment sector – an advisors perspective

  5. KEY DEALS in 2012 £15mJuly 2012 Management buyout of backed by Key Capital Partners £23mMay 2012 Management buyout of • by MMGG Acquisition £140mJune 2012 Acquisition of • by Equistone Partners Europe £234mOctober 2012 • Sale of by Graphite Capital to AEA Investors £n/dOctober 2012 • Sale of by Palatine Private Equity to LGV Capital • Management buyout backed by Key Capital Partners • EBITDA to March 2012 was £2.4m so historic multiple of 6.3x. • Debt financing provided by the Co-operative Bank. • Management buyout and de-listing from AIM • The transaction represents an EBITDA multiple of 4.1x • Debt financing was provided by Barclays. • Sale by a UK private vendor to UK Private Equity • EBITDA to August 2011 was £14.2m so historic multiple of 9.8x. • Graphite backed the £86m management buyout in 2006 • The transaction represents an estimated EBITDA multiple of 12.4x • Palatine backed the £30m management buyout in 2009 • Debt financing of £61.5m was provided by HSBC. M&A in the recruitment sector – an advisors perspective

  6. SIMPLE VALUATION OF YOUR BUSINESS • In 'asset light' companies, valuation focuses on the earnings/cash generation potential EARNINGS MULTIPLE ENTERPRISE VALUE • x • = EnterpriseValue plus cash less debt (includes invoice discounting) = Equity value M&A in the recruitment sector – an advisors perspective

  7. MAXIMISING THE VALUE DRIVERS EARNINGS MULTIPLE CASH GENERATION • Presentation is key • ‘Quality’ of the earnings: • Sustainable • Contract element. • Cost of investment: • In branches • In new teams • New consultants • New systems • Run-rate of earnings/growth prospects. • Recruitment sector valuations • Quoted multiples • Other transactions • M&A activity in the sector • Sector dynamics − high growth, niche etc • Scale − Not dependent on key individuals, breadth of management. • Business sold on a debt free/cash free basis • Balance between investing for future growth and short-term cash generation • Efficient tax planning − corporation tax, indirect taxes, employee tax. M&A in the recruitment sector – an advisors perspective

  8. ESSENTIAL STEPS • Planned sale process • Competitive tension • Targeted buyers. • Business Plan • Add backs/exceptionals • EBITDA bridge historic to forecast. Buyers and saleprocess Profitability/growth VALUEMAXIMISATION • Exit − personal/ strategic • Partial exit. • Withstand sale process • Anticipate buyers needs • Create confidence • Systems − robust and scalable. Rationale Information Cashgeneration People • Succession • Aligned • Incentivisation. • Working capital • Taxation • Contingent liabilities. M&A in the recruitment sector – an advisors perspective

  9. summary • Buyers • Know your market and targets • Understand the people agenda – you’ve bought the company, how about the people? • What do you bring that will enhance your chances of success • Can the synergies really be achieved and enhance value? • Sellers • When do you want to sell? • Plan your strategy for the business accordingly • Be realistic in your expectations • A growth company is more valuable than a lifestyle company • Exit or retirement sales can be difficult to achieve without sales and succession planning • A lot of businesses have three year exit plans. M&A in the recruitment sector – an advisors perspective

  10. APPENDIX: Listed company multiples M&A in the recruitment sector – an advisors perspective

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