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Next Wave Partners LLP Growth Capital Investors February 2010
Next Wave Partners LLPGrowth Capital Investors
February 2010
• My background
• The nature of the market at the moment
• Who we are (and why we are interesting)
• What we are looking for
• Why bother?
– Or how to maximise shareholder value despite the above
DISCLAIMERThis financial promotion is issued by Next Wave Partners LLP which is authorised and regulated by the Financial Services Authority (“FSA”). The Next Wave Ventures Fund 1 LP (the “Fund”) is defined as an “Unregulated Collective Investment Scheme” (“UCIS”) and the promotion of an UCIS either within the UK or from the UK is severely restricted by statute. Consequently, this document is only made available to professional clients and eligible counterparties as defined by the FSA. Shares in the Fund should only be purchased by persons with professional experience of participating in unregulated schemes and any other person who receives this document should not rely upon it.
Next Wave Partners LLP is regulated by the FSA and a full member of the BVCA Registered company number: OC322169
Introduction
DISCLAIMERThis financial promotion is issued by Next Wave Partners LLP which is authorised and regulated by the Financial Services Authority (“FSA”). The Next Wave Ventures Fund 1 LP (the “Fund”) is defined as an “Unregulated Collective Investment Scheme” (“UCIS”) and the promotion of an UCIS either within the UK or from the UK is severely restricted by statute. Consequently, this document is only made available to professional clients and eligible counterparties as defined by the FSA. Shares in the Fund should only be purchased by persons with professional experience of participating in unregulated schemes and any other person who receives this document should not rely upon it.
Next Wave Partners LLP is regulated by the FSA and a full member of the BVCA Registered company number: OC322169
My background
1995 to 2002
Close Brothers Corporate Finance
Completed £1,500,000,000 of M&A
Mainly for private equity
Strategic reviews advising on maximising shareholder value
Jonathan Brod: Next Wave Partners
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Why am I here?
2002 to present
Next Wave Ventures and Next Wave Partners
£600,000,000 of M&A
Financier, Entrepreneur and Investor
Identification and exploitation of a niche
Took a measured risk starting up own businesses and raising capital and generated significant return
Replicated process in setting up the private equity business and raising £25,000,000 for our first fund
Jonathan Brod: Next Wave Partners
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Why am I here?
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Putting it into context
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FTSE 100 vs Jonathan Brod CV
School Oxford Close Brothers Entrepreneur Private Equity
DISCLAIMERThis financial promotion is issued by Next Wave Partners LLP which is authorised and regulated by the Financial Services Authority (“FSA”). The Next Wave Ventures Fund 1 LP (the “Fund”) is defined as an “Unregulated Collective Investment Scheme” (“UCIS”) and the promotion of an UCIS either within the UK or from the UK is severely restricted by statute. Consequently, this document is only made available to professional clients and eligible counterparties as defined by the FSA. Shares in the Fund should only be purchased by persons with professional experience of participating in unregulated schemes and any other person who receives this document should not rely upon it.
Next Wave Partners LLP is regulated by the FSA and a full member of the BVCA Registered company number: OC322169
Who we are (and why we are interesting)
Next Wave Partners LLP
• Growth Capital investors with £25 million under management across 3 Funds
• Strong market position in £2-5 million Growth Capital equity investment
• Focus on quality investments where we can add value
• Primarily business and consumer services sectors
• UK / European positioning
• Not leverage dependent, true growth capital investors
• Our investors, management teams and stakeholders make money in our deals
• Very strong Family Office / HNW investor base provides stability and network
• Looking to invest £10 million in 2010 across 2-3 new investments, potentially more
Who we are (and why we are interesting)
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Massive network – 50 years of networking across the team
Plugged into the Zeitgeist
Who we are (and why we are interesting)
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Then you are plugged in too
Get professional advice
YOU HIM
HERBENBILL
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Who we are (and why we are interesting)
Advised opportunities have the greatest probability of success
NWV Fund 1 - Deals by sourceCorporate Finance Direct
Industry Investor
Non CF intermediary NWV
VC
DISCLAIMERThis financial promotion is issued by Next Wave Partners LLP which is authorised and regulated by the Financial Services Authority (“FSA”). The Next Wave Ventures Fund 1 LP (the “Fund”) is defined as an “Unregulated Collective Investment Scheme” (“UCIS”) and the promotion of an UCIS either within the UK or from the UK is severely restricted by statute. Consequently, this document is only made available to professional clients and eligible counterparties as defined by the FSA. Shares in the Fund should only be purchased by persons with professional experience of participating in unregulated schemes and any other person who receives this document should not rely upon it.
Next Wave Partners LLP is regulated by the FSA and a full member of the BVCA Registered company number: OC322169
The nature of the market
In boom times… credit was cheap & easy
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…few thought through the consequences
Cheap, easy credit fuelled speculation
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…prices rose across asset classes
A seller’s market
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…resulted in a huge volume of deals
Due diligence became “light touch”
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…mistakes were made
Credit disappeared and deals dried up
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…it became a buyer’s market
Fear replaced greed
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2008-2009
Our deal flow ebbed and flowed with macro market forces
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Deal flow drivers CGT changePost CGT hangover
Credit crunch driving increase in consumer deal flow
Recession bottleneck
release
We saw rising deal flow: several drivers
Deals are getting done again
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Better deal environment? Which way the market?
The nature of the market at the moment
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Fear is declining but still in the ascendancy
2008-2009
2010
The nature of the market at the moment
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Once bitten, twice shy...
So now we’ve been twice bitten...
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We’ve seen it all before
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The nature of the market at the moment
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We’ve seen it all before
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2010 General Election: Impact on CGT!
12.5%
18.0%
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28.2%
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30.1%
45.0%
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Italy
UK
US
Spain
Germany
Sweden
France
Denmark
Canada
Portugal
Gapital Gains Tax
Capital Gains Tax Rates
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?
What we are looking for
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What we are looking for
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Well conceived deals can be completed
Greater focus on “reasons for the deal”
Thorough due diligence and extensive referencing
Greater focus on protecting the downside
Vendor’s should leave skin in the game - win:win strategies
A world with lower or little leverage means lower company valuations
Prices no longer boosted by access to cheap debt
De-leveraged returns (real earnings growth required to drive returns)
Unattractive:
Retirement sales, MBIs, ex-growth and cash-stripped companies
Attractive
Expansion/development (GROWTH) capital, MBOs, growing businesses
What we are looking for
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A word on valuation
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Sustainable, underlying, maintainable, real EBITDA – challenge adjustments
Make our own adjustments to include operating expenses that we need to deliver the real EBITDA
Run sensitivities and check for robustness of forecasts
Apply a TEV/EBITDA multiple:
reflects the quality, and projected growth in earnings
take into account who is going to be growing those earnings
do not pay a premium for value we bring to the table
Take into account comparable companies and comparable transactions – but not that much
Take into account the possible exit routes and ensure there are adequate returns for the next owner
Valuation does not equal price or consideration: “cash out” is more expensive than “cash in”
A word on timing
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Prepare in advance:
Information Memorandum
Business Plan
Vendor due diligence pack ideally
Data room, contracts, customers & suppliers available to be referenced
Visibility of budget and forecasts and proximity to financial year end
Availability of recent audited accounts otherwise an audited required
Impact of seasonality on the business
Effects of economic and political forces, e.g. The Budget, Election Years, Market Crashes
Bigger picture: the maturity of management and experience of second tier management
Final tips
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Prepare in detail
Get a good adviser and take references on them
If you aren’t likely to be of interest to multiple buyers, don’t run an auction it will waste your time and
money
Rifle shot highly targeted approaches to a handful of most likely strategic buyers generally works best
If you want to target Private Equity, do your homework and take references on them, choose the two or
three most likely to want to invest – read their website, ask around, ask their portfolio company CEOs for a
view, get the inside steer. If we feel we have been specifically chosen we are more likely to reciprocate
Don’t expect to strip out cash, not invest in the business, leave no cash in the tills, no energy, vision or drive
in your people and no growth prospects, and expect anyone to pay you for the privilege
Don’t be greedy, it usually backfires
... Unless the buyer is really stupid then that’s fine
Why bother?
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Edward Atkin and familyRESULTS FOR 2009 [TIMES RICH LIST]Ranking: 242 Worth: £232mSource of wealth: Babycare products Atkin, 64, has been busy with ventures such as mydeco.com, an interior design website, since making about £212m from the sale of his Suffolk-based Cannon Avent babycare operation in 2005. Property and shrewd investments keep the family’s wealth at last year’s figure. RESULTS FOR 2008Ranking: 356Worth: £232mSource of wealth: Babycare products
1995Growth capital investmentc.£5 million for 30%Lowered leverageFocussed on international growthIf sold then, made £10-15m?
Founded by Edward AtkinHigh quality managementClear vision for growthMet 3i in 1989
2005Sold to Charterhouse PE c.£300 million, took 4 months3i made £95 millionAtkin Family made £225m
2006Sold to Philips£460 million CASH
Moral:Win:win deals leave value on the table for the next player
“You must be passionate about your product or service. If you do not really believe what you are offering is the best in the world, then it is most unlikely that anyone else will. Only make or sell what you yourself would want to buy or use and never, ever use the phrase ‘good enough’.” Edward Atkin
Stephen Walls, [email protected]
0203 005 7542
NWV Contacts:
Jonathan Brod, [email protected]
0203 005 7544
Peter [email protected]
0203 005 7536
07782 168 669
Address:
Next Wave Partners LLP
71 Wimpole Street
London, W1G 8AY
Website:
www.nextwave-ventures.com
Next Wave Partners LLP is regulated by the FSA and a full member of the BVCA Registered company number: OC322169
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