United Capital CEO Graeme Carling discusses how the board identify and qualify opportunities for acquisition.
The Covid pandemic has thrown up many unforeseen challenges for UK building services businesses. United Capital CEO Graeme Carling outlines the role of United Capital as the parent company throughout the crisis and explains how the experienced board of Directors were able to support our subsidiary teams to ensure strong performance.
Listen to expert Mergers & Acquisitions Director, Leanne Carling outline the acquisition process and what sellers can expect when dealing with United Capital.
United Capital CEO Graeme Carling discusses the numerous ways that companies benefit when joining the United Capital group.
n this video United Capital Mergers & Acquisition Director Leanne Carling discusses some of the concerns that sellers have when considering an exit from their business.
United Capital’s Mergers & Acquisitions Director, Leanne Carling, discusses why the board have such strict criteria and why she is responsible for holding the board to it.
Scottish-based investment company United Capital’s CEO, Graeme Carling, discusses the changing landscape and why many companies simply cannot afford to wait to discuss a potential sale to a larger group.
Our CEO discusses United Capital’s pragmatic approach to business acquisition and how the company identifies when it’s time to move on and walk away from a potential opportunity.
People are approaching United Capital to see if we’re interested in acquiring their business for a number of reasons. A lot of them are very sensible and valid reasons for doing so.
Some want to be a part of something bigger, a lot of people are quite excited about what we’re doing. They see where we’re heading and the team that we’ve got in place. We’ve got a real credible team of directors, we’ve also got a credible supply of outside professional advisors, legal and accounting, HR professionals. What we have and offer to these businesses owners is access to real quality information, assistance and support to allow them to grow their businesses.
They can sell their business to us and we’re not going to go in and make it all ‘United Capital’ or anything like that. We’re going to let them be, we’re looking at good-quality regional operators that have built their businesses and brand name within their locale over a number of years, and they’ll become part of the United Capital family. They’ll continue trading under the name of the company, and for all intent and purposes they’ll continue to manage the business pretty much un-hindered on a daily basis. Clearly where there are synergies, we’ll expect to realise them where we can.
On day one, these companies are able to use our centralised services, the likes of HR. Some of these companies have never done anything from a marketing point of view, some are spending half their life tied up in HR issues. They’ve maybe got problems with the accounting not being quite right, or possibly some legal issues. We’ve got experts in all of these fields and can take that headache away.
We’re not one of these private equity companies that are going to go in and just transfer the world or going to be in and out of the business all the time – that’s not what we do. We’re buying well run businesses now where they can quickly add value to the group, and we can immediately give them the platform that will allow them to grow their revenue, without the substantial risk of central overheads.
A number of these companies can do so much more, if they had more working capital, more resource. They’ve got the business there, they know what they’re doing, but they’re just stuck. We take the brakes off there, and give them the platform to go and see how good they really are.
For a business owner currently, they get to take some money off the table, keep a wee bit of skin in the game possibly, and they get the chance to run their business as if they had nothing holding them back to a certain extent. They also tap in to a bigger network of operators throughout the country.
The options, who we’re up against, these private equity guys. Well, everybody knows the stories about the private equity guys, what their plans and intentions are. That’s not what we do. Also management buyouts, a lot of these companies are not making any sense. Management buyout might get the owner an exit, but where is the company going to end up? If the company has problems, where is the longevity in management buyout?
We’re a real attractive acquirer of businesses. Of the businesses we’ve purchased already, we leave them alone. Already we’ve assisted some of these businesses in making their own acquisitions which they’ve never done before. But that’s because we bring that expertise. The team we have, our directors, we’ve pretty much been through most situations, both good and bad, and I think with the class of external advisors that we’ve got, it allows business owners to access these at a fraction of the cost.
Valuing businesses post-Covid has changed pretty dramatically really. There is no business that’s not been affected by it. Certainly within the sectors that we operate in. All businesses are down about 25% in value, purely based on numbers. We’ve done nothing for a quarter of the year, which means the business’ income has gone down for the first quarter of this financial year. Certainly from April to June, and the longer that goes on and the slower it takes for some of the companies to get back on top, that number will continue reducing. This means the valuation of a company keeps going down.
Pre-Covid numbers were dead straight forward, they’re a multiple of EBITDA which is standard in the industry and a common way of valuing the businesses. You take the multiples of EBITDA and you kind of align it to the asset value of the business, and you come up with a number that is generally accepted as a fair value and a fair price for the business.
What we’re seeing now and my genuine advice for anyone looking to sell, is do it sooner rather than later. It will take at least three years to recover and get back to the pre-Covid numbers for most companies. During that time, what you can expect to see is that the pre-Covid valuation, and let’s say it was good, it’s going to take most companies about three years to get back up there. The further along this goes we’ll be looking at figures from this year and we’ve lost half of the year. We’ll be valuing the business based on the sets of numbers throughout Covid, as that’s the new normal.
The sooner you’re looking to sell, the better as far as I’m concerned because you can still pretty heavily rely on last year’s figures. The multiples have dropped, there’s no doubt about that, but they won’t be going anywhere for the next few years. I’ve seen this before in the property business where people chase the market down, they’re still looking for this number way up here, but it’s moved and that’s it.
Covid’s caught everyone. You’re either going to sell, or you’re going to have to wait a long time to try and reinstate the same value that you might not even get back to. Any credible buyer like us is going to take into account last year’s numbers as pretty up to date. But, in six, nine, 12 months’ time, we’re going to take into account this years’ numbers, so it’s not going to get any better. When you fast-forward this, values are not going up in the short term. We would be in the same position if we were looking to sell our businesses, we’ve all been affected by it.
We’re seeing opportunities now that weren’t there before Covid-19, or are greater than they were previously. We are now being chased by a number of business owners that weren’t looking to sell. They were maybe in a strong position or hadn’t really thought about it, but the whole Covid situation has forced them to take a look at their business.
We’re now being chased by these businesses that have found themselves in a weaker position, but also by some smaller businesses where it just makes absolute sense for them. They’re approaching us to become part of something bigger and give them the opportunity to grow their business with the resources we provide, whether that be funding or through our team of people that we have – our directors, contacts and the opportunities we can bring in terms of business growth development.
We’ve never previously done a deal through business brokers because of their business model where they over-value businesses. They’re all about listings, they work on a long term program where they over value businesses to get these listings and then it’s a slow burner while they manage the business owner’s expectations until they get to the real market value of that company. We’re seeing a change in their approach now and we’re getting way more business brokers approaching us. This has resulted in a situation where we’ve now got more potentials in our pipeline than we’ve ever had before.
We’re at around £400million of revenue with real potential businesses that we’re really looking at, and that’s after having filtered it heavily to get down to that number. We’re actively involved with around five companies that are either at legal or head of terms level. The activity is there, Covid for us has been really busy. We’ve been non-stop and the opportunities have been great. The big difference that I’m seeing is that everyone is now sitting up and paying attention. If there was ever a thought in a business owner’s mind to exit, now would just about be the right time to do it.
But there’s no doubt about it, the numbers and the valuations have been affected, and what we’re seeing is that some of the smaller companies that don’t really fit out criteria for acquisition at group level, are approaching our subsidiary businesses. In these cases it would make sense for them to consolidate their business with one of our smaller businesses. They might not have the £10million revenue that United Capital requires, but they might work for McGill, Alliance or Saltire where it would make strategic and geographical sense for these companies.
I think there’s going to be way more of that, but our focus is on the larger businesses with 10, 15 up to £30million in revenue, and there’s plenty of activity going on there, a lot more than we’ve seen pre-Covid.
I believe that Covid-19 has changed the mergers and acquisitions market pretty significantly, and in particular within our sector. A number of sectors have been greatly affected by the Covid situation, there’s also some sectors that are thriving throughout, but most have been effected substantially by it.
What we’re seeing is that where there were some business owners that weren’t at the stage where they were looking to sell or exit their businesses pre-Covid, these people have had to look at their business, because of the crisis, and a number of them are looking in terms of purely survival. They’re seeing that an exit to a larger business is really the only choice that they have because of the circumstances that we find ourselves in with the Coronavirus.
I think that’s certainly changed the market, we’re seeing more activity. Where we’ve made contact directly to sellers or business owners that previously weren’t interested in selling, they’re now chasing us. We’re seeing a lot of activity where they’re coming back and saying ‘look, can we have a conversation’.
The other key thing, but also where the difficulties or challenges are, is that the EBITDA multiples have reduced because every business has been affected by Covid-19. So multiples have been affected, the multiples that were there pre-Covid are not there in the marketplace, they’ve gone down at least 25 – 30% as a minimum. It’s also affected our businesses that we own. If we were to sell we’d be in the exact same situation really.
What we’re seeing is that people have still got pre-Covid valuations in their mind-set. Valuations on multiples and numbers that were only up to even the end of March. But of course, most companies and most businesses have done bugger all, nothing, zero pretty much during the last three months. So when you fast forward these numbers into this financial year, every single business is going to have a reduction because they’ve effectively lost three to four months of the year. Then it’s a slow burner on the ramp up, so you can effectively almost rule out five to six months of this year. People are still overvaluing their companies based on last years’ numbers, but any credible buyer will want to know where you are today. We have to factor in Covid and the effects it’s had on each of these businesses.
Its affected multiples, they’ve gone down purely because of Covid, which means the value of the companies have gone down. So in actual fact, we’ve seen people cotton on to this and the penny’s dropped, where they see it’s more beneficial to sell the businesses now because you can take into account the figures up to the end of March which is reasonable, but the longer this goes on, any credible buyer is going to take into account the full effects, and that will have a negative effect on any valuation put on the business. How long it takes to come out of this is the unknown, so anyone looking to sell their business, it would make sense to do so sooner rather than later.
United Capital Advisers
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