M&A in the recruitment sector – An adviser’s perspective

1. M&A in the recruitment sector – An adviser’s perspective Kieran lawton & jamesfieldhouse OCTOBER 2012

2. What we will cover M&A in the recruitment sector – an advisors perspective

3. DEAL METRICS • UK deals in 2012 Who were the buyers Who were the sellers Population of 28 deals M&A in the recruitment sector – an advisors perspective

4. Spread of deals by sector UK deals in 2012 M&A in the recruitment sector – an advisors perspective

5. KEY DEALS in 2012 £15mJuly 2012 Management buyout of backed by Key Capital Partners £23mMay 2012 Management buyout of • by MMGG Acquisition £140mJune 2012 Acquisition of • by Equistone Partners Europe £234mOctober 2012 • Sale of by Graphite Capital to AEA Investors £n/dOctober 2012 • Sale of by Palatine Private Equity to LGV Capital • Management buyout backed by Key Capital Partners • EBITDA to March 2012 was £2.4m so historic multiple of 6.3x. • Debt financing provided by the Co-operative Bank. • Management buyout and de-listing from AIM • The transaction represents an EBITDA multiple of 4.1x • Debt financing was provided by Barclays. • Sale by a UK private vendor to UK Private Equity • EBITDA to August 2011 was £14.2m so historic multiple of 9.8x. • Graphite backed the £86m management buyout in 2006 • The transaction represents an estimated EBITDA multiple of 12.4x • Palatine backed the £30m management buyout in 2009 • Debt financing of £61.5m was provided by HSBC. M&A in the recruitment sector – an advisors perspective

6. SIMPLE VALUATION OF YOUR BUSINESS • In 'asset light' companies, valuation focuses on the earnings/cash generation potential EARNINGS MULTIPLE ENTERPRISE VALUE • x • = EnterpriseValue plus cash less debt (includes invoice discounting) = Equity value M&A in the recruitment sector – an advisors perspective

7. MAXIMISING THE VALUE DRIVERS EARNINGS MULTIPLE CASH GENERATION • Presentation is key • ‘Quality’ of the earnings: • Sustainable • Contract element. • Cost of investment: • In branches • In new teams • New consultants • New systems • Run-rate of earnings/growth prospects. • Recruitment sector valuations • Quoted multiples • Other transactions • M&A activity in the sector • Sector dynamics − high growth, niche etc • Scale − Not dependent on key individuals, breadth of management. • Business sold on a debt free/cash free basis • Balance between investing for future growth and short-term cash generation • Efficient tax planning − corporation tax, indirect taxes, employee tax. M&A in the recruitment sector – an advisors perspective

8. ESSENTIAL STEPS • Planned sale process • Competitive tension • Targeted buyers. • Business Plan • Add backs/exceptionals • EBITDA bridge historic to forecast. Buyers and saleprocess Profitability/growth VALUEMAXIMISATION • Exit − personal/ strategic • Partial exit. • Withstand sale process • Anticipate buyers needs • Create confidence • Systems − robust and scalable. Rationale Information Cashgeneration People • Succession • Aligned • Incentivisation. • Working capital • Taxation • Contingent liabilities. M&A in the recruitment sector – an advisors perspective

9. summary • Buyers • Know your market and targets • Understand the people agenda – you’ve bought the company, how about the people? • What do you bring that will enhance your chances of success • Can the synergies really be achieved and enhance value? • Sellers • When do you want to sell? • Plan your strategy for the business accordingly • Be realistic in your expectations • A growth company is more valuable than a lifestyle company • Exit or retirement sales can be difficult to achieve without sales and succession planning • A lot of businesses have three year exit plans. M&A in the recruitment sector – an advisors perspective

10. APPENDIX: Listed company multiples M&A in the recruitment sector – an advisors perspective