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| Re: Valuing company? |
| Author: | Ben Fawcett |
| Date: | Monday, 21st Jan 2008 08:30 |
| Views: | 234 (excluding Digests and RSS feeds) |
| Category: | Other | | URL: | http://web.ukrecruiter.co.uk/forum/Forum/read.php?i=54314 |
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Hi Simon,
Great question and I only wish there were more interesting answers or experiences being shard in reply.
I did see 2 good suppliers on the REC website the other day that specialise in M&Z work in the sector. Not sure how much they'd be willing to share but I'd have thought they could give you a ball park range.
I can tell you recruitment software business we look at 10 x Profit, approx 3 x Revenue. Then you have to factor in things such as replacement value and goodwill, so if you are in a niche market and your staff are specialist or hard to replace, then you could increase the multiple or add some value. Same with goodwill, although I don't know what effect being sold would have on your client base, so that could be tricky to argue. You could also look at what % of your costs are covered going forward by revenue or order book, as investors would value that.
I have seen another argument used for a rec firm in the past which seems logical. If you've got costs of 200K a year and have had to run for 5 years to get to where you are today, it's fair to assume an investor would have to invest 1M to replace or replicate your business. If they just bought you for 1M, with less risk, immediate returns, goodwill etc - then surely a Replacement value of 1.2-1.5 would be a fair valuation. They would also have the added ROI of taking you out of the market as a threat, so again if you're niche then replacement value base on costs of 200K could see a price of around 1.5M
Typically you'd expect to select 2-4 valuation methods and then use them as a basket, so an average or weighted average of the figures your 2,3 or 4 valuation methods give you.
I think if more firms looked at how businesses are valued, we might see more focus, more barriers to entry, more patents and better staff retention in place.
Good luck, Ben. |
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| Reply To This Thread |
| Re: Valuing company? |
| Author: | Tom Atkinson. |
| Date: | Monday, 21st Jan 2008 12:43 |
| Views: | 262 (excluding Digests and RSS feeds) |
| Category: | Other | | URL: | http://web.ukrecruiter.co.uk/forum/Forum/read.php?i=54314 |
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Hi Simon,
Great advice from Ben. All I would add are two things.
Firstly many recruitment compnaies only succeed because of the owner. If you can step back and show it can be run by employees, you will get a bette price.
Secondly. I think the compouting sector comamands higher than average prices. Whilst location and sector for strategic purchases are very important factors, beacuse recruitemnt can be fickle, a bog standard sucessful recruitment business, with progressive growth not being purchased for startegic reasons, would - in my limited experience - be unlikely to exceed 5 times net profit and maybe even as low as 3 times.
Finally though, as Simon indicates, it all depends on what the buyer will pay. I hope you can do a lot better. Tom. |
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| Re: Valuing company? |
| Author: | John Toppin |
| Date: | Wednesday, 23rd Jan 2008 13:39 |
| Views: | 309 (excluding Digests and RSS feeds) |
| Category: | Other | | URL: | http://web.ukrecruiter.co.uk/forum/Forum/read.php?i=54314 |
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Tip tips:
You need to speak to someone who knows the sector if you are paying for a valuation or thinking of buying or selling a recruitment business.
Here are some guidlelines:
1. Buyer or seller perspective:
The value will depend on whether you are buying (where you will tend to look for low value) or selling (higher value).
2. Type of recruitment business:
a) Permanent versus interim/temp
b) Contingent versus retained
c) Sector specialist or generalist
d) Job function specialist or generalist
e) Bricks or clicks
3. Scale and growth factors:
a) Scale in terms of fees and profits
b) Recent track record of fees and profits
c) Margins in a) and b)
d) Growth prospects
e) What stage the business is at - start up through to maturity.
4. Risk:
a) Dependancy on few clients
b) Dependancy on few key empoyees/directors
c) Cost base
d) General economic and sector issues
e) Bad debt/litigation history
5. How well you run the business:
a) Client longevity, contracting
b) Staff engagement and goodwill - especially senior staff
c) Ability to deliver on business plans
d) Quality of financial management
6 The sellers:
a) Age and ambition
b) Future involvement
c) Second tier of management
7 The form of payment
Payment can be in a vaiety of forms includng cash or the buyer's shares. It can be one payment up front or a series of payments over time - often linked to future profits. This can also affect the valuation as you may get less if you want cash up front as the risk to the buyer is higher than if payment is in their shares and linked to future performance.
The value will also depend on what % of your shares you are thinking of selling as a 5% stake will not simply be 5% of what a 100% stake would be worth.
8. Formulae
There are rules of thumb that are used to value recruitment companies and they are usually dependant upon a multiple of either fees or profits. The normal ranges are then flexed up or down based on the elements in 1 to 6 above.
John Toppin
www.nomizon.co.uk
If you are seeking cash from an investor and hence looking for valuation advice then check out my article in UK Recruiter newsletter 341 out first. |
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