Mid-Tier Advisory Firm Identifies Potential Buyers Through Evalueserve’s Comprehensive Assessments

The client, a mid-tier advisory firm, approached Evalueserve to conduct a buyer identification study for their client (hereon referred to as ‘end-client’). The end-client is an outsourced print management and document fulfilment services provider. The end-client was looking to divest its business due to various operational challenges. Some of the key challenges faced by the client were as follows:

Competition

• Large diversified players were capturing the market quickly, making it difficult for small players with limited service offerings to survive and retain market share. 
• The company’s customer base was shifting to its competitors. 

Liquidity Issues

• The company’s waning revenue and market shared posed challenges in generating adequate liquidity for smoothly running operations.

High Debt

• The company was finding it difficult to service its debt obligations. 
• The accrued interest was piling up and increasing the outstanding amount payable. 

Our team hosted a kick-off call with the client in order to understand their issues and end objectives. The client shared information regarding their revenue, EBITDA, and number of employees. We offered a comprehensive view of the best way forward to the end-client to unlock the maximum value out of their business. Our team recommended for the end-client to either sell the business to an interested party or re-organize it.

In order to arrive at a plausible conclusion, we created a detailed research plan to perform a deep-dive analysis of the market, valuation, and potential buyers.

Market Assessment 

We conducted a market sizing exercise to analyze the key trends, drivers, and challenges. The client was then benchmarked against the competition on various KPIs such as revenue growth, margins, employee strength and business segments. We also curated industry reports from reputed research houses, industry associations and market databases, as well as conducted direct interviews with industry participants to develop a comprehensive understanding of the market.

Valuation Assessment 

We conducted a fair value assessment of the end-client’s business and derived its median value from a range of values computed from trading comps and transaction comps. We used relevant market databases to synthetize the required information on transactions and trading comps. We used the following methodology below:

• Analyzed the key M&A transactions in this space (last 5 years in the UK and Europe) and their valuation multiples. We also evaluated the industry sentiment around these transactions. We also assessed the trading comparable of companies (in the UK and Europe) in terms of annual growth, operating margins, and valuation multiples to ascertain the level and value in which they are trading. 
• We derived the valuation range from the average valuation multiples obtained from the trading and transaction multiples. We then applied an appropriate COVID-19 discount to these multiples based on the prevalent market conditions. The valuation range was then graphically depicted on a football field chart to showcase the value derived from different valuation multiples. 

Potential Buyers 

We identified and shared a list of relevant/potential buyers with the client. Since the end-client was operating in a niche industry, we considered players in the peripheral industries as well. We shortlisted buyers based on the following parameters: 

• Financial Strength: Cash and debt position, revenue and margins, and PE backing to assess the buyers’ financial strength 
• Operation Fitment: Relevance of the end-client’s products in the acquirer’s portfolio in order to understand if the acquirer’s  would generate synergies in the future 
• Expansion Strategy: Historical M&A track record of the potential buyer to gauge their interest in this deal 

Our team’s findings provided the client with the insights needed to guide the end-client in the direction of selling off their business, since sustaining the business would require substantial capital outlay. Our independent valuation analysis helped the client identify the maximum potential value for the end-client’s business, which guided them in realizing solid returns. The potential buyer list helped the client approach the most suitable acquirers with a viable sales pitch and helped them save a substantial amount of time.