Acquisitions How Private Equity can help Chris Allner Octopus Ventures

Contents of Presentation Introduction The PE Buy & Build model Market Backdrop Key areas More specifics on PE Conclusion 2

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) 3

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 4

5 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 6

Key areas to consider Do’s and Don’ts 7

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 8

Execution Identification Negotiation Pricing Funding Due Diligence Planning post completion Problem solving 9

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 11

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 12

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 13

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 14

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 15

Thank You. Questions? 16