What’s in a value?

Buyers are always after the best price, but what does the current market mean for bidders?

Buyers are always after the best price, but what does the current market mean for bidders?

Buyers are always after the best price, but what does the current state of the market mean for bidders?

Inevitably, before any acquisition can be completed a middle ground must be struck between bidder and vendor – a compromise of expectations.

In the years since the financial crisis, bidders have had the lion’s share of influence, with the lack of businesses in the market spending money meaning that those that are in the privileged position to be doing so have the power to affect values.

Steve Smith, director of M&A at telecoms business Daisy Group, has experience of being in the position to take an acquisition war chest into the market looking for potential targets.

When the business joined the Alternative Investment Market (AIM) in 2009, it embarked on a consolidation of its sector niche.

Smith adds, ‘It was pretty clear that the power was with us, particularly when we were looking to buy distressed targets as those companies didn’t have anywhere to go.’

Examining the situation now, Smith says that there is now an availability of other forms of finance, which opens the door to new options.

Thus far in 2011, Daisy Group has completed the acquisition of Outsourcery Group’s Vodafone mobile service business for £12 million, in a deal that was described as a ‘strategic fit’ aimed at boosting the business’s cross-selling capabilities, and bought certain assets of Telinet and Ipitomi, for £15.4 million.

‘The motivation behind a number of recent sales is the realisation that prospects are looking positive’

Smith points back to a few years ago when Daisy was in the enviable position of being the only cash trade buyer available for businesses in its sector. He adds that private equity generally had got its fingers burnt by purchasing companies in the sector and over-leveraging them.

With the banking market now improving, Smith believes that private equity has re-entered the market, as demonstrated by the buy-out of telecoms business XLN by ECI and the sale of Unicom to Vitruvian in April.

‘In both of those cases it was probably unquestionable that the value that they could achieve for the business was substantially greater than they would have been able to two years ago,’ Smith explains.


Laurence Dean, investment director at NBGI Private Equity, says that the motivation behind a number of recent sales is the realisation that prospects are looking positive and that, after waiting a long time, they are now in a position to come to market.

Dean adds, ‘I think that generally, when you are in a period of rampant M&A activity, valuations do tend to be driven by what everyone else is paying in terms of a multiple and profits for that year. It’s now more about a story going forward.

‘Seasoned buyers, whether they be in the financial sponsor world, private individuals or trade, are always looking for something with substance. These are the types of deals that are getting done.’

Dean is slightly surprised by the high valuations that have been paid for businesses in the retail sector, with big valuations being paid by trade and private equity ‘time-and-time again’ for companies that are in a turbulent environment. The real challenge, Dean adds, is getting deals done. Looking past valuations, he says that transactions are taking ever longer to push through.

One AIM company that has been particularly busy in 2011 is online dating business Cupid, which joined the junior market in June 2010 and has since undergone an acquisition drive on the back of its strategy to generate more than half of its revenues through overseas growth.

The deals for dating businesses in India, Germany and Brazil has taken Cupid into uncharted waters and take its tally up to seven ‘core’ international regions.


Cupid chief executive officer Bill Dobbie says he feels the power is with the bidder in today’s climes – a position that Cupid has been exploiting as it looks to grow.

Dobbie explains, ‘We have only done smaller deals but there has not been a huge amount of competition to do them. We have the resources to do them and will be in a minority position to do that.

‘In a sector that in general has no lending available, equity is very hard to raise. Those companies that have got the resources will be able to get deals done at favourable prices.’

In continuing the acquisition drive, Dobbie is confident that there are still a number of attractive targets on the horizon.

‘Those companies that have got the resources will be able to get deals done at favourable prices’

With the UK market showing only slow progress, the emerging markets offer an alternative route for interested parties.

Martin Robinson, head of corporate finance for South-East Asia at financial services business Religare, says that issues in the UK, Europe and the US are making businesses in those regions less acquisitive than usual.

Robinson says that value can be found in the UK, with the state of the Western markets playing into the hands of bidding emerging nation companies. ‘Values have come down to reflect the way the markets are, and emerging market companies would be interested in companies in the UK as pricing is down compared with that of targets local to themselves,’ he adds.

‘They are looking to the Western markets for technology or some kind of knowledge transfer, such as successful management teams, which can be used to leverage their route to the next level.’

From a valuation perspective, muted growth on the domestic front is driving down the values of British targets.

Factors such as scale and boosting a business’s international brand are other factors that Robinson believes contribute to emerging market interest in markets such as the UK.

Todd Cardy

Adelbert Swaniawski

Todd was Editor of GrowthBusiness.co.uk between 2010 and 2011 as well as being responsible for publishing our digital and printed magazines focusing on private equity and venture capital. Connect with...

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