A scoring system for private companies.
Valius have devised a scoring system which can be used to pre-select any business which is being considered for purchase. Starting from zero, observe the 11 point system below and add or subtract according to the instructions for each question:
- Length of time the business has been on the market – add 5 points if over 6 months
- Will the existing owner(s) leave equity in on sale ? – add 10 points if yes
- Does it have consistent/increasing levels of ebitda ? – add 10 points if so
- Are there any current management team members who can join with our buyer to effect a transaction to create a buyin management buyout ? – add 10 points if yes / add 20 points if there is more than one person
- Does any management team member have personal capital to invest as part of the deal ? Add 10 points for each management team member with capital to invest
- Is this a retirement sale ie is the owner of formal retirement age ie 55 or above ? – add 5 points if yes
- Is there a strong balance sheet ie over £500k net asset value ? – add 10 points if yes
- Are there substantial cash reserves on the balance sheet ? ie over £500k – add 10 points if so
- Does the business have some defensible aspect to it eg registered patents, long term formal contracts, etc ?– add 10 points if so
- If the business is in one of the following sectors: recruitment; haulage; building/construction; fit-out and contracting; property development – deduct 10 points
- Most recently reported ebitda level. Below £200k – deduct 10 points / between £200K and £450k – do nothing / over £450k – add 10 points. This is particularly relevant from a funder’s perspective as they struggle with smaller deals with reference to their minimum lend levels and also, the costs associated with completing a smaller transaction can be seen to be disproportionate to the deal value/amount of funds to be loaned.
The higher the score, the greater the chance of success and in particular, the greater the chance of a funder being interested in backing your purchase.
If the score is over 60, then its GREEN (definitely worth pursuing)
If the score is between 40 and 60, then it’s AMBER (possibly worth pursuing further but more information is required)
If the score is below 40, then its RED (definitely not worth pursuing further and move on to the next one).
