1. The Market Today and Business Valuation

2. 2 ● 2011 Global economy worth 69,659,626 million US dollars. ● The United Kingdom is world’s 7th largest economy. ● Over 300,000 companies in UK employ more than 6 people. Advanced economies no longer driving global GDP growth Source: IMF, Global market

3. The UK M&A market 0 1 2 3 4 5 6 7 8 9 1234567891011 1981 1992 2011 Sources: data stream- merger market Spare capacity increases competitive factors and creates driver for consolidation and Mergers and Acquisitions (M&A) activity. Interest rates low to 2015? UK output- Recovery lagging last two recessions and volatile Weak credit arena/volatility creating drag. Overall 2011 M&A activity (by value) increased on 2010 with Europe most active due to consolidation. Activity down 30% on 2007 but down only 10% in sub £250m arena. 1 st qtr 2012 on a par 2011.

4. Reasons to buy Drive shareholder value Buy, build and sell Interest rates low Organic slow down Business drivers Quality with sustainable earning Increase market share/ product base/ skills 1+1+1 = 6 Reasons to sell Retirement/health Lifestyle changes Capitalise on assets Business drivers Lack of succession Underperformance Investment Entrepreneur’s Relief 10%- £10m Leap of faith Transaction Drivers Buyer and seller drivers.

5. Valuation methods Discounted cash-flow IP/capital projects/Start ups Price Earnings Ratio (multiples) PBIT/EBITDA What profits? Sustainable/art Revalue What assets? Include net assets Debt free/cash free/

6. Value Influencers Key Drivers Recurring revenue/loyalty clients Company positioning (Brand) Scale-ability Intellectual property Management track record/skills Capital requirements Economies and synergy Sale Process employed (strategic buyer) Risk, certainty and return on investment

7. P/E Multiples Multiples (years earnings) 50k250k500k750k1,500k2,500k3,500k 10 9 8 7 6 5 4 3 2 1 Most likelyLeast likely PBIT/EBITDA £000’s Financial Buyer Strategic Buyer

8. Adjusted Profits- example Example hire business31/12/2010Multiple Influencers Turnover£1,850,000 Gross£746,976 Operating Profit£177,725 Adjustments to net profit Directors pension£3,600 Spouse salary (non operational)£21,859.00 Directors remuneration (part- time/strategic role)£78,005In top 5 brands in UK NI On Directors£7,800Scalable/expanding niche Additional rental-£15,000Strong systems Bank interest£639 Balance sheet with surplus removed £220,000 Factoring£16,806Good forecast/client list Hire purchase interest£3,542 Amortisation (of goodwill)£21,600 Depreciation real cost hire co Adjusted PBIT under management£316,576.00X pre-tax multiple 4 =£1. 26 ml

9. Forecast Value- example Calculation Net x multiple = £_______ (debt free cash free) £316,576 x 4 = £1.26 mil (debt free cash free) Actual 2011 Marketed on Offers 5 Offers Offer achieved £1.7 million All cash strategic deal Dutch co seeking UK base.

10. Deal Structure Deals Structure effects multiples Earn-outs common Rules Avoid profit related Gross Profit easier to calculate Reverse Non Compete clause Performance related payments Can help buyers hedge risk Multiple Influencer Secure the Risks Guarantees/Debentures/Charges Access to Records Materially same as present Escrow

11. Valuation an art not science