1. A quick guide to consulting company valuations and the levers you can pull to add more profit and equity value to your business Equiteq LLP

2. Your big questionWhat is my firm worth?In very simple terms your consulting firm is worth a multiple of the last 12 months profit (technically called the EBIT Multiple). However Just like selling your home, its saleability and the finalprice paid will be dependent on how its face value is impaired or enhanced by things like structural issues and other risks, market demand and just how hungry any one particular buyer is to get their hands on your company for reasons personal to them! www.equiteq.com2 3. Your firm could be worth anything from 0, to the average 7-10 times profit in todays market, up to 30 at the top end Think of your profit and apply a multiple. You would like the multiple to be bigger wouldntyou?You can achieve a higher equity valueby using the things within your control,so lets take a look at the valuation process and identify the 8 levers youcan pull to enhance the saleability andvalue of your firm www.equiteq.com3 4. There are FOUR independent, variable factors in the equity valuation of a consulting businessGrowthThe profitability and growth trackHistory record of your business FutureWill profit growth continue into theRiskfuture? The mission critical factor MarketThe current M&A market demand forPremium firms in your sector of consultingSynergyHow important the acquisition of your Premiumfirm is to any one particular buyer www.equiteq.com4 5. These factors are used in a formula to arrive at a profit multiple (worked example for the average firm sold on the M&A market today with say $450k of EBIT)Growth HistoryFace Value 7 RESULT Profit Multiple Futurex 0 to 1.0 0.89.24 RiskMISSION CRITICAL ValuationMarketx 1.0 to 1.4Premium 1.1 $4.158m Synergy x 1.0 to 2.01.5Premiumwww.equiteq.com 5 6. What can you do to increase equity value?GrowthWhats done is done, good or bad! IfHistory bad, build for the future! FutureIt is upon this that almost everythingRiskridessee next slide for 8 leversMarket Sell now or later trade-off, plus Premiummarket knowledge for your segmentSynergyCareful targeting of many buyers plus Premiumquality presentation of value to each www.equiteq.com6 7. Future Risk The 8 Levers of Equity ValueThere are 8 key areas of riskthat a knowledgeable buyerwill evaluate, we call them the8 Levers of Equity Value. Ifyou know where you stand,you can either mitigate therisks or build each lever forthe futureEach incrementalimprovement reduces risk,increases profit potential andequity valueHigh Quality/Low RiskImproving Low Quality/High Risk www.equiteq.com7 8. This company achieved a compound annual growth rate of 67% and increased its equity value from 3.3 times profit to a multiple of 12 upon sale in 2008Initial Valuation Within 3 Years By working on each lever to reduce risk and increase profitswww.equiteq.com8 9. In summaryYour firm is worth a multiple of the last 12 months profit,something between 0 and 30 times EBIT The mission critical factor to the multiplier is the riskassessment on whether profit growth will continue Using the 8 levers model for growth planning, you canestablish an exit strategy, build higher profits, reliable cashflow, and more equity if you plan to sell in the future If you plan to sell sooner rather than later, then an 8 leverassessment can bolster your negotiating position and helpyou to mitigate the risks of buyers walking awaywww.equiteq.com 9 10. Further Resources The European More on the 8Consultinglever benchmark M&A Report and how it helps profit growth &sale www.equiteq.com/reportwww.equiteq.com/egaFree advice and For general information onenquiries contact growth and exitTony on: Tony Rice +44 (0)1252 724264www.equiteq.com/equiteq-equity-clubtony.rice@equiteq.com www.equiteq.com 10