AcquisitionsHow Private Equity can help

Chris AllnerOctopus Ventures

Contents of Presentation

Introduction The PE Buy & Build model Market Backdrop Key areas More specifics on PE Conclusion

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Introduction

Octopus Ventures One of most active investors in SME space Portfolio of over 60 Companies Over 25 acquisitions across later stage portfolio Venture Partners network £300m in Ventures space (£2.5bn across all Octopus activities)

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PE model: Buy & Build

Accelerate growth and upside potential Synergies: Spread fixed costs over higher revenues Market share gain Acquire skills and/or IPR Defensive move Utilise top quality management team

Enhance returns Improve Exit potential

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EXAMPLES OF PORTFOLIO BUSINESSES

T/O

Market Backdrop

Conflicting factors: Massive market upheaval /Uncertainty of where economy is going Little debt available from banks / PE very cautious Reluctant vendors expect bottom of market valuations

But... Opportunity to buy distressed businesses

• Financial or structural distress? Organic growth difficult to find Valuations low and consideration can be non cash Some sectors are consolidating

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Key areas to consider

Do’s and Don’ts

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Strategic and Financial goals

Fit with long term strategy and financial goals Not an Ego trip for CEO 2+2=5 (or 6) Not just buying revenue Sales/ Margin/ Cost improvements Does it enhance exit potential

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Execution

Identification Negotiation Pricing Funding Due Diligence Planning post completion Problem solving

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It’s ALL about the People

Biggest reason for an acquisition not working Culture clash Know WHO you are buying (as well as what) Plan meticulously up front ‘Beware the vendor’

Do not underestimate people’s ability to cock it up!10

Resource

Acquisitions stretch management (usually underestimated) Watch core business carefully to avoid dip in performance Project management: allocate roles across team Get third party support (Interims/consultants) Consider a plan B

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Thoughts on Price and Funding

Do not overpay for synergies that you will have to achieve Do not bet the business Don’t underestimate bargaining position Avoid poison pill structures such as unconditional vendor loan

notes Use flexible funding to suit risk

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Watch out....

Companies preened (or pruned) for sale Costs reduced in marketing, CapEx, sales team, development Pay rises not made Vacancies left open

Vendor presented as unimportant Key relationships Decision making Staff loyalty

Property issues Inability to get out of lease

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What does Private Equity bring?

As a new or existing investor it is not just about funding. Massive experience – learned by mistakes!! Objective view of opportunity and pricing Challenge to evaluation and assumptions Insistence on planning Flexible funding (but equity) Clarity of end game

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Conclusion

There are exciting opportunities around for the bold Think strategically Plan in detail It’s about people as well as numbers and markets Private Equity can help in a multitude of ways

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Thank You.

Questions?

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