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AcquisitionsHow Private Equity can help
Chris AllnerOctopus Ventures
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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
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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
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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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