M&A MARKET UPDATE

STEVE WOOLMER & JAMES FIELDHOUSE OCTOBER 2013

Copyright © March 13 BDO LLP. All rights reserved.

WHAT WE WILL COVER

M&A activity in the sector Next 12 months How to build an attractive proposition Preparing for a sale process M&A Market Update Page 2

DEAL METRICS UK deals in 2013

Who were the buyers

UK Private 23% UK Refinancing 5% Overseas PE 11% Overseas plc 18%

Who were the sellers

Overseas PE 2% Overseas plc 5% UK Private 39% UK plc 4% UK PE 14% Overseas Refinancing 4% Overseas Private 21% UK plc 5% UK PE 2%

Population of 56 deals

Overseas Private 47% M&A Market Update Page 3

SPREAD OF DEALS BY SECTOR UK deals in 2013

Industrial 2% IT 3% Logistics and Transportation 7% Legal 2% Media 2% Accountancy and Finance 2% Hotel & Catering 2% Government 2% Construction 2% Education and Healthcare 12% Energy 7% Engineering 2% Executive 9% Generalist 46% M&A Market Update Page 4

KEY DEALS LAST 12 MONTHS

£n/dm December 2012

Management buyout of

£n/d July 2013

Acquisition of

£2.8m

June 2013

Management buyout of

£234m October 2012

Acquisition of

£n/d October 2012

Sale of Backed by Baird Capital Europe by Pinstripe Inc backed by ISIS PE LLP by Graphite Capital to AEA Investors by Palatine Private Equity to LGV Capital • MBO backed by Baird Capital Europe in a BDO led process • Unitranche debt financing was provided by Beechbrook Capital • SR owns a number of leading brands operating globally with a focus on the legal services market • Sale by UK PE to overseas private company • The sale by NBGI Private Equity represented a 4x return on their original investment • Independent provider of RPO and talent management solutions • Management buyout backed by ISIS PE LLP • Specialist executive search and intelligence consultancy • Investment will allow further international expansion and help to develop the infrastructure further • Graphite backed the £86m management buyout in 2006 • The transaction represents an estimated EBITDA multiple of 12.4x

• Created 20 new offices under PE ownership & now has 32 locations around the world • Palatine backed the £30m management buyout in 2009 • Debt financing of £61.5m was provided by HSBC.

• Services to the oil & gas sector, operating from 35 offices worldwide in over 50 countries M&A Market Update Page 5

NEXT 12 MONTHS...

Figure A: Trend of working hours and vacancies Key factors:

• “confidence” • availability of debt (?) • private equity landscape • strategy of corporate • acquisition v organic growth • activity in niche sectors

Source: Datastream, Shore Capital Stockbrokers

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SIMPLE VALUATION OF YOUR BUSINESS

In 'asset light' companies, valuation focuses on the earnings/cash generation potential

EARNINGS x MULTIPLE = ENTERPRISE VALUE Enterprise Value plus cash less debt (includes invoice discounting) = Equity value M&A Market Update Page 7

MAXIMISING THE VALUE DRIVERS

EARNINGS

• 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.

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MULTIPLE

• 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.

CASH GENERATION

• 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.

ESSENTIAL STEPS

• Planned sale process • Competitive tension • Targeted buyers.

• Exit − personal/ strategic • Partial exit.

• Succession • Aligned • Incentivisation.

Buyers and sale process Profitability /growth

• Business Plan • Add backs/exceptionals • EBITDA bridge historic to forecast.

Rationale MAXIMISATION People VALUE Information

• Withstand sale process • Anticipate buyers needs • Create confidence • Systems − robust and scalable.

Cash generation

• Working capital • Taxation • Contingent liabilities.

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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 Market Update

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