Question 1

How Do We Value a Business?

Accepted Answer

At Firebird Capital, our approach to valuing a business is rooted in its earnings. We use an earnings-based methodology, specifically a multiple of profits, to determine the business's value. This involves assessing its financial performance, growth potential, market trends, and industry benchmarks.

By applying a multiple to the profits, we arrive at a valuation that accurately reflects the business' ongoing worth.

Our valuation process is transparent, meticulous, and takes into account various factors to ensure fairness and accuracy.

Firebird tends to value a business at 2.0-6.0 times earnings

Question 2

How Much Will You Pay for my Business?

Accepted Answer

You can get an initial estimate using our Business Valuation tool.

Firebird typically acquires businesses with EBITDA ranging from £0.75 million to £1.5 million at multiples spanning from 2.0x to 6.0x. This translates to a valuation range of £1.8 million to £9.0 million.

Keep in mind that various factors influence valuation. To obtain a more precise valuation, we invite you to schedule a meeting with one of our Directors.

Question 3

How Much of the Value Will I Get Upfront?

Accepted Answer

We understand the importance of providing a substantial upfront payment to business owners during the acquisition process. Typically, we offer up to 67% of the total value as an upfront payment.

Firebird defers a portion of the value to align the interests of both the selling business owner and Firebird itself.

Deferred consideration, also known as an earn-out, is a payment arrangement where a portion of the sale price is paid over time, contingent upon the business achieving certain performance targets or milestones after the acquisition.

There are a few reasons why Firebird uses deferred consideration:

Accurate Valuation: Some businesses might have uncertain future earnings potential due to market volatility, industry changes, or other factors. Deferred consideration allows Firebird to better assess the actual value of the business based on its post-acquisition performance, rather than relying solely on historical financials. This often allows Firebird to offer a higher valuation, despite uncertainty, as if the business continues to thrive and grow post acquisition, a higher value is justified.
Mitigating Overpayment: Deferred consideration can help prevent overpaying for a business that appears successful at the time of acquisition but might not sustain its performance in the long term. By tying a portion of the payment to future performance, Firebird can avoid potential losses if the business does not meet expectations.
Business Transition: Firebird facilitates succession by acquiring businesses from retiring owners and incentivising remaining management teams with shares. This level of change can bring uncertainty if not managed well. By deferring some portion of consideration, all parties are incentivised to ensure a smooth transition.

The level of value that is paid upfront versus deferred will vary widely based on the business' and seller's circumstances. Both Firebird and the business owner will negotiate and agree upon the terms of the deferred consideration to ensure a fair and mutually beneficial arrangement

Question 4

What Percentage of the Shares Do You Buy?

Accepted Answer

Our usual approach involves acquiring the full 100% of the shares from the sellers.

However, there are instances when a business owner indicates an interest in initially selling a majority, but not all, of the shares. This allows for a collaborative partnership with Firebird over a period of 3-5 years, aimed at accelerating growth. After this duration, both Firebird and the business owner jointly sell, a strategy that also aligns well with our objectives

Question 5

How Do You Incentivise  the Remaining Team?

Accepted Answer

We firmly believe in aligning interests and fostering a sense of Mastery, Autonomy, and Purpose. This not only boosts engagement and performance but also contributes to a more fulfilling experience for everyone involved.

Here's how we achieve this:
Equity Participation: We grant shares to key team members, reserving up to 20% of the shares for this purpose. This approach means that if the business achieves strong performance, those driving that success are duly rewarded.
Scaling Up Methodology: Leveraging the Scaling Up methodology (one of our Directors is a certified Scaling Up Coach), we develop a differentiated strategy and identify a handful of strategic priorities that are transparent to all. This cultivates a shared Purpose and provides clarity on how individuals can contribute to these priorities.
Clear Career Progression: We facilitate well-defined career progression plans for all team members, enabling them to pursue Mastery in their roles. Moreover, our emphasis on nurturing leadership within the business allows for Autonomy and empowerment.

For more insights on the Scaling Up Methodology, you can refer to: Scaling Up Methodology

Question 6

Why Is There a Handover Period and How Long Might It Be?

Accepted Answer

A Handover Period is essential for a number of reasons:

Knowledge Transfer: You possess invaluable knowledge about the business's operations, strategies, relationships, and industry insights. A handover period allows for the transfer of this knowledge to Firebird and the remaining team, ensuring a smoother transition and continuity of business operations.
Relationship Building: You have likely established relationships with clients, suppliers, and key stakeholders. A handover period allows the remaining management team to nurture these relationships, maintaining trust and preventing disruptions.
Cultural Integration: Understanding and integrating into the company culture is crucial for the success of any transition. Your presence during the handover helps Firebird familiarize itself with the company's values, work environment, and team dynamics.
Smooth Transition: Change can be unsettling for employees and clients. A handover period helps ease the transition, reassures stakeholders, and minimizes disruptions to operations.
Adjustment Period: A handover period allows the new leadership to gradually assume control, make necessary adjustments, and implement changes without causing abrupt shifts that could negatively impact the business.

In essence, the handover period ensures a comprehensive and seamless transition that protects the legacy of the business while setting the foundation for its future growth with Firebird.

The duration depends on a number of variables, though is largely focussed on how involved you are as an owner at present. Typically, it lasts 6 months to 18 months.

Question 7

What Are The Key Legal Terms in a Transaction?

Accepted Answer

As you might imagine, there is a long list of legal documents that need to be created, negotiated and agreed. The key terms are:

1) Warranties and Indemnities - you will be required to give standard warranties and indemnities in a transaction with Firebird. General Warranties would last 2 years and Tax Warranties last 7 years. These warranties are required because, regardless of the extent of our due diligence, Firebird still relies on what you tell us about the business.

2) Limitation of Liability - Your liability is capped at 100% of value paid over to you.

3) Restrictive Covenants - Given the values involved and that you are retiring from the business, there will be restrictions on the type of work you can do. Expect to not be allowed to provide competitive services for up to 3 years.

4) Cash Free, Debt Free and with a Normalised Level of Working Capital - On top of the valuation, Firebird acquires businesses cash free, debt free and with a normalised level of working capital. This means that on top of the value paid over to you for the business, Firebird will also pay over any excess cash in the business bank account. Similarly, you would be expected to pay any outstanding debts and to ensure debtors had not been squeezed / creditors stretched to flatter the cash position.

5) Completion Accounts - pre completion, we estimate what Excess Cash/Excess Working Capital is payable to you (if any). Completion Accounts are created post transaction to provide an accurate view of the actual Excess Cash/Excess Working Capital as at the point of completion. Once the Completion Accounts are agreed, we settle the difference between the Estimated and Actual Excess Cash/Working Capital

6) Shareholders Agreement - this is the document used to govern the action of shareholders (eg: remaining management team and Firebird) post completion. It contains a list of things that have to be done with Investor (ie: Firebird) Consent. An example might be paying bonuses to directors.

7) Good Leaver and Bad Leaver - this governs what happens if an employee shareholder leaves the business post transaction. As an investor, Firebird is highly reliant on the management team and to incentivise them, we gift them shares. Sadly, the reverse is also true: if they leave without a pre-agreed reason. we have the right to take the shares away at a nominal value. We need to do this to incentivise new members of the team.

Deal structure overview

How Do We Value a Business?

How Much Will You Pay for my Business?

How Much of the Value Will I Get Upfront?

What Percentage of the Shares Do You Buy?

How Do You Incentivise the Remaining Team?

Why Is There a Handover Period and How Long Might It Be?

What Are The Key Legal Terms in a Transaction?

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