OCTOBER 2004 MEETING - Your Company. What's it Worth?

---

The second event in the Club’s 2004/05 calendar, “Your Company – What’s It Worth”, addressed the issue of business valuations.  We enjoyed a large turnout of over 50 in the audience – perhaps this means that there is considerable interest on behalf of Cambridge entrepreneurs in realising their investments in their businesses and that the days of M&A activity are returning? The event was chaired by CETC committee member Simon Kite, who introduced three complementary speakers, each with experience at the sharp end of selling technology businesses in Cambridge:

 

Laurence Garrett is responsible for a portfolio of exciting local businesses in his role as head of 3i in Cambridge. Laurence has sat on the boards of Cambridge Silicon Radio, Ubinetics, Trigenix and Elixent Holdings and has 10 years of experience as a VC during which time he has been instrumental in 40 trade sales and 5 IPOs. Laurence spoke about how it was important to review your business each year with a view to planning an exit, and how money is not necessarily the most important factor in a sale… though a high offer helps! Stakeholders to consider during an exit include the shareholders, but also the employees, the acquirer, and customers and suppliers – how will the latter to react to the transaction and how will employees remain focused? Bonuses, and staff incentives post IPO are important. Timing is also key – the time to exit a business or seek more investment is when you don’t need to – not when you are short of cash. Laurence also stated that an IPO is not an exit – it is just another fund raising round – and brings the expense and complexity of listing to the company.

 

Stephen Fenby, a Corporate Finance Director at Deloitte in Cambridge, has successfully facilitated many company disposals over the last few years in what has at times been a difficult economic climate. Stephen spoke about valuation methodologies and some of the other things that need to be considered in reaching a deal with a purchaser including minimising post acquisition ties. He spoke of how it is important not just to think about how the seller values his company, but also to consider the way that an acquirer thinks about the purchase – there may be synergies or strategic reasons for the proposed acquisition. A quick tour through the various valuation models was given, and the importance was stressed that the acquirer must be looking at the most accurate and recent business performance data. The sales process for selling a business is like any other sales pitch – with a need to identify the best potential buyers and to generate interest and excitement though presentation and via good channels to prospective buyers. Throughout the sales process, it was stressed how important it is to maintain control of the business, and to make sure financial targets were met.

 

Finally, Martin Davies provided details of his first-hand experience of selling his business, BioRobotics, in 2001. Martin’s story is in many respects a success story, the final sales price exceeding initial expectations. However, as ever, there were many important lessons learnt along the way. The importance of knowing your market and timing is important – after the sale the bio-tech sector retreated leaving Martin’s company with reducing sales rather than continued exponential growth. Martin spoke of why the owners sold the business – important reasons including the owners having an investment portfolio of one item, impending industry consolidation and a trend towards litigious activity in the sector. In BioRobotics case, 20 companies were approached and three stayed to fight for the company – resulting in a good final price. On a more pragmatic note, the CEO of the company left after 11 months, the company was aggressively integrated into the parent – despite assurances to the contrary, and the operation no longer exists! 70% of acquisitions fail one way or another!

 

All the speakers stressed the value of involving knowledgeable advisers – both legal and financial during the sales process – entrepreneurs encounter this situation occasionally whereas it is the day to day business of the advisors.

---

The Club is very fortunate in benefiting from the sponsorship of the following organisations:-