• Valuations in the healthcare software industry
• Valuation of GLINTT on a group level
• Valuation of GLINTT based on the individual parts of its business (including healthcare software)
• Enterprise value versus equity value: GLINTT’s 40 million euros in debt
• What determines the price of a healthcare software company?
• Dividend payments and the influence of the value on a healthcare software company
• Questions on the value of a healthcare software company

Valuations in the healthcare software industry

Software companies are normally highly valued given that they support critical parts of their clients’ activities. This is even more the case for the healthcare industry where human health is extremely important. Digitization is becoming more essential within this field because it enables software companies to grow the quality of their services offered to clients. EBITDA multiples for smaller, mature, private software companies can be very broad. Simply stated, let’s say an EBITDA multiple ranges from 7 to 10 or even more.
For stock-listed software companies, this can differ. Most listed software companies trade at higher EBITDA multiples as they have less risk compared to their private software counterparts and can be more easily exchanged into cash when this is required. Constellation is a listed software company that owns a large portfolio of smaller software companies across various industries. Constellation is often trading at an EBITDA multiple of more than 25. Constellation acquires new software companies regularly and is considered one of the best companies in the market, but still, this is a high multiple. GLINTT is often trading at a multiple of around 4 times the EBITDA. Of course, this comparison of EBITDA multiples is not fully like-for-like as GLINTT does sell services and hardware next to its software. Further, Portugal’s stock market is different than the Toronto stock exchange. However, is the difference in EBITDA multiples between both companies somehow remarkable?

Valuation of GLINTT on a group level

On another level, I want to keep things very simple and calculate with high-level numbers only. Let’s assume that GLINTT has 100 million euros in revenue (as of the date of this article it is already more). For a company with significant software activity, it should be possible to achieve a 20% EBITDA margin and hence a 20 million euro EBITDA. However, GLINNT has various activities, some of which are not as lucrative as software.
The way GLINTT reports revenue does not give much clarity on the actual split of revenue and is, in my opinion, somewhat old-fashioned. It only reports services and ‘Vendas’ which is hardware, if I understand it correctly. For simplicity, in the table below I assume services, which include healthcare and pharma software are responsible for 70% of GLINTT’s revenue and hardware is the remaining 30%.
Which EBITDA multiples can we assign to the various activities?
10 times the EBITDA for software: Healthcare and pharma software, especially of the quality and position that GLINTT possesses should at least be rewarded 10 times the EBITDA multiple.
6 times the EBITDA for services: For a stock-listed company like GLINTT, services should get rewarded more than 6 times, but for this exercise let’s calculate with 6.
5 times the EBITDA for hardware: Hardware sales are normally considered of a lower value. However, consider that GLINTT distributes hardware like robotics. Further, the hardware it sells is within a long-term client base of pharmacies where it has a strong position.
An important question is, which part of the revenue is related to pure software? This is not reported by GLINTT separately. Hence, I have assumed it to be 10 million euros in the table below. However, in reality, I think it could be higher.

In practice, GLINTT’s EBITDA is already much higher than 14 million euros and could be more towards 18 to 20 million euros. Also, revenue is likely higher than the 100 million euros above. To keep it simple, I have left them as is.
GLINTT, from my point of view, deserves an EBITDA multiple of around 7. This is because GLINTT has a strong position in pharma and healthcare, and it is dominant in its home market in Portugal. In addition, it is also growing in Spain. Its EBITDA is currently growing towards 20 million euros. However, based on the revenue allocation in the table above, I am assuming an EBITDA of more than 14 million euros. With an EBITDA multiple of 7, an enterprise value of 100 million euros seems realistic to me.
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Valuation of GLINTT based on the individual parts of its business (including healthcare software)

GLINTT has various activities:
a) It is a service provider of software to pharmaceutical companies in Portugal and Spain
b) It provides software for hospitals, mainly in Portugal but gradually more in Spain too if I am correct
c) Nexllence is a digitalization agency with around 300 people and plans for growth
d) Support for new developments in healthcare and other smaller activities like Odontonet

In the past, I analyzed all the publicly available financial details on the legal entities and activities of GLINTT. I have attempted to reconcile the available statutory accounts with the published consolidated group numbers. This reconciliation did not fully work out, probably because some overhead costs were not incorporated in the analyzed statutory legal entities. Further, In the meantime, I think GLINTT has stopped activities in most foreign markets such as Angola, Brazil, Ireland, Poland, and the UK. The two primary remaining markets seem to be Portugal and Spain.

In the field of software for pharmacies, it is possible to get some idea of a valuation.

In Spain, GLINTT owns Consoft which is a pharmacy software provider with around 8 million euros in revenue and a 50% EBITDA margin. Based on a 4 million EBITDA and 10 times the EBITDA multiple (remember Constellation is trading at 26 times) Consoft could have an enterprise value of 40 million euros.

It is difficult to assess the number of pharmacies GLINTT services in Spain, but it could be up to 13,000 pharmacies. Somewhere in my old notes, I found that GLINTT services around 16,000 pharmacies in total.

At the same time, GLINTT is a market leader in its home market in Portugal where it provides similar software for pharmacies. I understand that GLINTT services around 2,800 pharmacies in Portugal. This part should also have an interesting value. Would someone know the actual number of pharmacies served in both countries? This would be helpful.

The value of the software for hospitals is difficult to assess as limited numbers for this healthcare software activity are available. Based on the number of hospitals, 200, that GLINTT is servicing this activity certainly has an attractive value. It is not fully clear if the financials of this healthcare software activity are the Portuguese legal entity Glintt – Business Solutions, LDA. This legal entity posted 36 million euros in revenue and an EBITDA number of 4 million the last time I analyzed it.

Nexllence is an IT consultancy that services clients across various industries. Nexllence has no single separate legal entity in the GLINTT accounts, as far as I can see. Digitalization, the field where it operates, is a growing activity across all industries. With around 300 people, the total revenue is estimated to be around 25 million euros. For a consultancy and software development service provider, we can assume a 10% EBITDA margin resulting in an EBITDA of 2,5 million euros. Assigning a relatively modest multiple of 6, Nexllence could have a value of at least 15 million euros. GLINTT’s management plans to grow Nexllence to 42 million euros in revenue in 2027, with a team of 350 people.

Support for new developments in healthcare and other smaller activities like Odontonet also has value. GLINTT is quite actively promoting and supporting new digital innovations for the Portuguese and Spanish healthcare industries. This is important given the aging population in both countries. However, to keep things simple, be conservative and do not assign a value to this activity yet. The same would apply to Odontonet software for the Spanish dental industry which is still relatively small but has potential to grow.

Altogether, the analysis of the separate individual parts does not give a satisfactory outcome. It does not provide detailed numbers that give a good insight into the value of the separate activities of the company. However, it gives some flavor that these activities provide good value and have an appealing position in the market.

Enterprise value versus equity value: GLINTT’s 40 million euros in debt

GLINTT still has high debt. In the past, I calculated it to be around 40 million euros. GLINTT seems to repay on an annual basis, so I expect the current actual debt to be lower. However, for simplicity, I want to leave the amount at 40 million euros. This is because we want to deal with the concept of enterprise and equity value in this paragraph. Enterprise value and equity value are two important concepts in a company valuation, and they provide different perspectives on the worth of a business. I want to start again with their definitions:

Enterprise value (EV): Enterprise value represents the total value of a company’s operations including free cash and debt. It is calculated by adding a company’s market capitalization (equity value) to its debt and subtracting any cash and cash equivalents.

Enterprise value = market capitalization + debt – cash and cash equivalents:  Enterprise value considers not only the value of a company’s equity but also its debt and cash holdings. It reflects the value of the entire enterprise, including both the interests of equity shareholders and debt holders.

Equity value: Equity value, also known as market capitalization or market value of equity, represents the value of a company’s shareholders’ equity. It is calculated by multiplying the company’s share price by the number of outstanding shares.

Equity value = share price * number of outstanding shares: Equity value reflects the ownership interest of shareholders in a company and represents the residual claim on assets after deducting liabilities. It does not consider debt or cash in its calculation.

Now, l want to discuss how these values impact GLINTT’s valuation:

The enterprise value we have seen in the paragraphs above could be as high as 100 million euros. We want to calculate with simple numbers just to show the purpose of the calculation.

From the above, we know that the estimated debt is 40 million euros. Also, working capital has not been analyzed. Given it is not the scope of this article not, we can assume GLINTT has sufficient working capital.

From the above theoretical calculations, we can now see that the equity value of GLINTT could be as high as 60 million euros (100 million euros in enterprise value minus the net debt of 40 million euros). Based on the current market value of the shares, and the analysis done in this article, you can make your conclusions.

What determines the price of a healthcare software company (for example GLINTT)

Valuing a healthcare software company like GLINTT involves both technical and subjective elements. Each person will have a different view. Currently, the equity value of GLINTT is considered to be around 25 million euros based on its stock price.

Market share: GLINTT has a large market share in its home market in Portugal with software for pharmacies. In Spain, it seems that GLINTT is gradually growing its market share and winning new pharmacies as clients. A large market share often makes companies more valuable than those with smaller ones due to their stronger competitive positions and greater pricing power.

Customer base: The customer base of GLINTT is stable as pharmacies do not tend to change their software provider regularly. This is an essential factor that determines the value of a healthcare or pharmacy software company. A large customer base can bring many advantages to a healthcare or pharmacy software company, including:

• Revenue stability: Massive changes or clients dropping off is low and given the larger client size revenue numbers tend to be predictable. Stable and predictable revenue streams should appeal to investors.
• Pricing power: Companies with a large customer base often possess pricing power. The question is how relevant this is for GLINTT. Many of its shareholders are also their clients (the pharmacy owners in Portugal)
• Growth potential: GLINTT can still expand much further in Spain with pharmacy software. Further, its healthcare software can be supplied to more companies such as hospitals. Expansion in new markets like the dental clinic software market is also an option.

Product portfolio: Healthcare software companies have good valuations. For GLINTT, software is the most valuable part, but it also needs to provide services and hardware to its pharmacy client base.

Management team: One key factor determining a company’s value is its leadership team. For me, it is difficult to assess the quality of GLINTT’s management team. What do you think? Please leave your opinion at the end of the article.

For a more detailed analysis of enterprise value versus equity value please read more here: Click here for our blog article on enterprise value versus equity value

Dividend payments and the influence of the value on a healthcare software company

Recently, GLINTT has started to pay dividends for the first time in its history. As of June 2023, GLINTT distributed dividends intending to reward shareholders. The question is if distributing dividends is in the best interest of shareholders of a healthcare software company like GLINTT. Dividends are taxed in Portugal at 35%. A better option for GLINTT is possibly to repurchase its shares. With the potential amount of 1,5 million euros that GLINTT devoted to dividends, at the current share price, 5 to 6 million shares could be repurchased.
Repurchasing their shares would have given current shareholders that want to exit the business the opportunity to sell their shares which would increase the share price. This higher value would enable shareholders that want some cash now to sell off some of their shares. This would give shareholders cash too, but without dividend taxes to be paid. What do you think is the best strategy for GLINTT, to pay dividends or repurchase its shares?

Disclaimer: This article is not meant to advise anyone to buy or sell shares in the company GLINTT. CFIE is active in supporting the buying and selling of companies. It does not give advice on buying or selling shares in stock-listed companies. This article on GLINTT has only been written to give an example of how a healthcare software company can be valued.

Questions on the value of a healthcare software company?

What do you think is the correct way to value a healthcare software company?
What do you think about the current valuation of GLINTT?
Do you have any feedback or remarks that might have an impact on the valuation of this healthcare software company GLINTT?

Het bericht Valuation example of healthcare software company GLINTT verscheen eerst op Corporate Finance in Europe.

Financial performance is a key indicator in valuing a logistics business. This includes factors such as revenue growth, profitability, and cash flow. Investors look for consistent and sustainable financial performance to ensure the long-term viability of the business. By analyzing financial statements, such as income statements and balance sheets, one can assess the company’s ability to generate profits and manage its expenses. Moreover, comparing the financial performance to industry benchmarks can provide insights into its competitiveness and market position.

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Assets are another crucial element in determining the value of a logistics business. These include tangible assets such as warehouses, vehicles, and equipment, as well as intangible assets like customer relationships and intellectual property. The value of tangible assets can be determined through appraisals or market comparisons, taking into account their condition and market demand. Intangible assets, on the other hand, may require more subjective evaluation methods, such as customer surveys or brand valuation techniques.

Market conditions and industry trends play a significant role in assessing the value of a logistics business. Understanding the overall market demand for logistics services and how it is expected to evolve in the future is vital. Economic growth, technological advancements, and regulatory changes can impact the industry’s dynamics and affect the value of individual businesses. Conducting thorough market research and staying abreast of industry trends can help investors make informed decisions when evaluating the value of a logistics business.

There are several valuation methods that can be employed to determine the worth of a logistics business. The most used methods include discounted cash flow analysis, market multiples, and asset-based approaches. The discounted cash flow analysis estimates the present value and projected cash flows of a business, taking into account the time value of money. Market multiples, on the other hand, compares the business’s financial metrics, such as revenue or earnings, to industry benchmarks to derive a valuation. The asset-based approach focuses on the net value of a business’s assets, subtracting liabilities to determine its worth. Each method has its strengths and limitations, and it is often advisable to use a combination of approaches to arrive at a comprehensive valuation.

In conclusion, determining the value of a logistics business requires careful analysis of its financial performance, assets, market conditions, and industry trends. By considering these factors and utilizing appropriate valuation methods, one can accurately assess the worth of a logistics business. This information is invaluable for business owners looking to sell or attract investors, as well as for investors seeking opportunities in the logistics industry.

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Disclaimer 

The industry valuation calculators are designed to help you get a rough idea of your business value, but are not intended to be used as a substitute for professional advice. It is not intended to be used in the context of a sale or other transaction. It is only guidance for business owners or users. In case you want a more detailed and further fine-tuned valuation for your company please contact the CFIE team.

Het bericht Unveiling the worth: How to determine the value of a logistics business? verscheen eerst op Corporate Finance in Europe.

• Developments in the chemical distribution industry
• Value and price expectations of business owners in the chemical distribution industry
• What determines the price of a chemical distribution company when you sell?
• Influencing factors and valuation multiples for chemical distribution companies
• Trends within the chemical distribution industry

Developments in the chemical distribution industry

Chemical distribution companies typically fall into two main categories: commodity chemical distributors and specialty chemical distributors. Commodity chemical distributors specialize in bulk chemicals like fertilizers, solvents, and fuels while specialty distributors focus on more complex chemicals to a larger degree, for industries like pharmaceuticals, personal care, and electronics.
Over recent years, there has been a significant expansion in the chemical distribution industry driven by rising demand across various sectors for chemicals. Digitization is also becoming more prominent within this field. Increasingly, companies are utilizing technology to optimize logistics, storage, and delivery processes. Furthermore, more eco-friendly practices and sustainable alternatives to traditional chemicals have become prevalent among companies operating within this space.
Chemical distribution industry consolidation and the rising involvement of private equity funds have driven company prices higher in recent years, prompting many owners to believe they can obtain high EBITDA multiples, such as ten times or more significant, for their companies.
Chemical distribution company owners often demand an inflated price, while buyers needing more funds for acquisitions, staff salaries, or software licenses to increase the value of the acquired chemical distributor may offer less. This results in a bidding war where chemical distributor owners seek a premium while buyers offer less.

Value and price expectations of business owners in the chemical distribution industry

Business owners in the chemical distribution market want to understand how much their enterprise is worth, yet calculating this value may be challenging due to numerous variables that could sway its estimation. Note that prices and values of chemical distribution companies from the owners’ perspective often differ significantly from what buyers offer. Further, financial buyers like private equity funds, family offices, or holding corporations typically offer lower prices than strategic buyers such as chemical manufacturers or more prominent distributors. Entrepreneurs may want to seek professional assistance from accounting firms or business brokers in calculating an appropriate valuation of their enterprise.

What determines the price of a chemical distribution company when you sell?

Valuing a chemical distribution company involves both technical and subjective elements. While technical valuation involves analyzing financial statements and other quantitative data, subjective valuation involves evaluating your company’s competitive position. This includes clients, services, and locations as well as market trends and qualitative aspects such as client relations or market research trends. Moreover, professional assistance from M&A consultants will enable you to arrive at an accurate value for your enterprise.

Market Share: Large market share often makes companies more valuable than those with smaller reach due to their stronger competitive positions and greater pricing power that led to greater revenues and profits. On the other hand, having a larger market share does not always translate to higher valuations.  Especially, when operating in highly saturated or saturated markets compared to those with greater growth potential, such as rapidly developing ones with reduced competition for customers.

Customer Base: The customer base is an essential factor that determines the value of a chemical distribution company. Companies with large and diverse customer bases tend to be considered more valuable since more customers provide increased stable revenue streams as well as providing room for future expansion. An expansive customer base can bring many advantages to a chemical distribution company, including:

• Revenue Stability: Establishing an expansive customer base can help protect a business from changes in demand from any one customer or market sector, providing more stable and predictable revenue streams that appeal to investors.
• Pricing Power: Companies with a diverse customer base often possess greater pricing power, as they rely less heavily on individual clients or market sectors for their revenue stream. This can increase profitability and margins while increasing the valuation of the company.
• Growth Potential: Chemical distribution companies that rely heavily on customers have more potential for expansion as a larger and diversified customer base enables the business to enter new markets or create products tailored specifically for specific customer requirements.

Product Portfolio: Chemical distribution companies that deal in commodity chemicals may experience more drastic fluctuations due to their fluctuating price, while specialty chemical suppliers could command higher prices due to their unique properties.

Industry Trends: Current industry trends such as sustainability and digital transformation may significantly affect the value of chemical distribution businesses. Companies positioned to take advantage of such initiatives may prove more lucrative than those that miss these opportunities.

Reputation: Brand reputation can have an enormous impact on a company’s value. Especially, those with stronger names and positive associations which tend to be seen as more valuable than ones with lesser well-known names or unfavorable associations.

Management Team: One key factor determining a company’s value is its leadership team. Businesses with experienced management are usually considered more valuable than those led by inexperienced or weak leaders.

Influencing factors and valuation multiples

Chemical distribution company values can be determined by several factors, including its financial performance, customer base size, geographical reach, and product mix. Macroeconomic conditions, industry regulations, and technological advancements may also affect their value. Valuation multiples in the chemical distribution market generally range from 6  to 10 times the EBITDA. However, this may vary based on various factors, including the size of the company, the industry it operates in, and the motivations behind the acquisition. The bigger the company, the more EBITDA multiples it can achieve.

Commodity chemical distributors typically deal in high-volume, low-margin products with wide availability and few barriers to entry. Competition in this market tends to be fierce while profit margins can remain relatively low, leading to lower valuations than specialty chemical distributors, who tend to specialize in products requiring specialized knowledge or expertise for production and distribution. Competition may be lower and barriers more formidable in this arena, leading to greater profit margins and thus higher valuations overall.

Innovative companies often drive demand for specialty chemicals, leading to a competitive advantage for specialty chemical distributors who have expertise in these areas compared to commodity chemical distributors who may offer commodity chemicals only. As such, valuations may be higher for specialty chemical distributors.

Overall, the difference in valuation between commodity chemical distributors and specialty chemical distributors can be explained by several factors including product type, competition, profit margins, barriers to entry, and so forth.

Trends within the chemical distribution industry

Consolidation: The chemical distribution industry has experienced an ongoing consolidation trend as larger companies acquire smaller ones to increase efficiency and market share. This trend can be explained by many factors including cost savings and new market entry opportunities. Ultimately, this leads to industry consolidation with only a handful of major players dominating it all. Consolidation also allows businesses to invest heavily in the research and development of products to remain competitive in an ever-evolving marketplace.

Sustainable Practices: Over recent years, Chemical distributors have witnessed an upsurge in eco-friendly practices due to growing environmental awareness and emphasis on cutting carbon emissions and waste production. Businesses have taken steps to minimize their carbon footprint by investing in renewable energy or decreasing packaging waste plus, they have placed increased importance on creating eco-friendly alternatives to traditional chemical products.

Digital Transformations: Technology is quickly revolutionizing the chemical distribution industry, with companies increasingly using digital platforms to increase efficiency, provide superior customer service, and gain real-time insight into their operations. Solutions like cloud computing, data analytics, and machine learning are being adopted to optimize supply chain processes and enhance overall operations. This means more customers are ordering chemicals online via e-commerce platforms that offer doorstep delivery directly.

Use our online valuation tool to get an estimate for your chemical distribution business

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Disclaimer 

The industry valuation calculators are designed to help you get a rough idea of your business value, but are not intended to be used as a substitute for professional advice. It is not intended to be used in the context of a sale or other transaction. It is only guidance for business owners or users. In case you want a more detailed and further fine-tuned valuation for your company please contact the CFIE team.

Het bericht How to value chemical distribution companies? verscheen eerst op Corporate Finance in Europe.

• Developments in the contract research organization industry
• Value and price expectations of business owners in the contract research organization market
• How to value a company overall
• What determines the price of a contract research organization company
• An analysis of factors influencing prices
• Valuation multiples in the contract research organization market
• Trends within contract research organization operations, such as outsourcing and technology adoption

Ever stronger demand for R&D services from pharmaceutical, biotechnology, and medical device firms has fueled significant growth of the CRO industry in recent years. Outsourcing has become an increasingly popular strategy among sponsors to reduce costs and boost efficiency. As a result, this has led to more outsourcing of R&D activities to contract research organizations.

Another significant trend in the CRO industry is the adoption of new technologies. Innovations have enabled contract research organizations to offer more efficient and cost-effective services. For instance, using artificial intelligence and machine learning has enhanced the speed and precision of data analysis, while cloud computing simplifies data storage and sharing securely. The need for digitalization of clinical operations has led to the emergence of several digital CROs from Spain to Germany, and to Eastern Europe.

Likewise, significant consolidation has taken place in the upper echelon of the industry, with the emergence of global and regional CRO powerhouses, like IQVIA, PPD, Icon, Covance, Eurofins, GBA Group, and Optimapharm in Europe.

Private equity (PE) has been a driving factor for such CRO consolidation in Europe. Another factor has been the need to compete with larger firms by offering CRO services across global locations. This has driven many acquisitions of smaller firms in Europe by US firms, or acquisitions like that of Italy’s Cromsource by China’s ClinChoice. Another example is the buyout of Easthorn in the Czech Republic by the Australian Novotech CRO earlier this year.

For European CROs under 2 million euros in revenue, growth is becoming harder to reach organically. This is because they need more financial resources for business development in the USA, securing scarce talent with higher salaries, or for expensive technology. Therefore, many are looking for a sale to a larger organization as the only option to reach the next level.

European CROs are also under strong pressure to adopt the full-service model of their American counterparts. This means going beyond just offering traditional services like trial management to adding biostatistics, data management, medical writing, and even PV or RWE. Further, expansion into oncology trials has become almost a must, given a large number of studies for this indication. EU regulatory changes are also boosting revenue from medical device and IVD studies, which in the past have been small or non-existent. Lastly, the COVID-19 pandemic has boosted the need for DCT studies across the globe.

Value and price expectations of CRO business owners

Like business owners across all industries, CRO business owners want to understand how much their company is worth. Unfortunately, determining this value can be challenging due to the many variables that can influence it. Entrepreneurs may thus want to seek professional assistance from accounting firms or business brokers to calculate a fair value for their enterprise.

CRO industry consolidation and the increasing participation of PE funds have driven CRO company prices up in the last few years. Thus, many small CRO owners think they can get extremely high EBITDA multiples, for example in excess of 20 times more, for their companies. However, they don’t know how CRO buyers value acquisition targets and come up with a price offer, which is a rather technical exercise of corporate finance.

This creates a far-too-frequent scenario where CRO owners demand an inflated, or crazy price like between 5 – 6 million euros for a small CRO with only 1.5 million euros in revenue and 300,000 euros in EBITDA while a non-EU CRO buyer is only willing to offer 1.5 to 1.7 million euros.

Another common misconception is thinking that value and price are the same. Not only do the price and or value attached by company owners tend to differ quite a lot from the one offered by buyers, but such values also differ depending on the buyer.

In general, financial buyers like PE funds, family offices, and some holding corporations would tend to offer lower prices for a CRO than a pharma consultancy or another larger CRO. One of the reasons for this is that they will need to invest more funds in other acquisitions, staff, offices, or software licenses for instance to build the value of the acquired CRO.

However, that price offer can go up significantly if the buyer must have a presence in Europe or needs access to expertise in biosimilar studies, or wants to add 30 more staff in Germany, for instance.

How to value a company in general?

Valuing a company requires both technical and subjective elements. The technical evaluation includes analyzing financial statements and other quantitative data, while the subjective component involves assessing the company’s competitive position including clients, services, and locations, as well as market trends, and other qualitative elements. At the end of this process is an estimate of its fair market value.

For instance, common adjustments to the EBITDA margin of a CRO include not only the salaries and bonuses to shareholders but pass-through study costs, non-recurring expenses or sales of masks and COVID-19 antigen tests in 2020-21, to name a few we have observed in our practice. Likewise, high taxation on company sale proceeds can artificially inflate asking prices in countries like Austria, Germany, or Italy, for instance.

What determines the price of a CRO company when you sell?

As said earlier, numerous factors can impact a CRO company’s sale price, such as its size, profitability, customer base, taxation, and growth potential. Furthermore, the potential buyers’ interest and ability to realize synergies also play an important role in setting prices.

Here is a breakdown of elements and how they could influence the acquisition price:

• Size: Larger CRO companies of more than 10 million euros tend to command higher prices due to perceived smaller risks, more resources, and greater market share. European CROs under 5 million euros in revenue tend to have unstable financials. They might have some good years of high revenue and profits fueled by large contracts followed by 2-3 bad years when revenue drops by 40% or more, where there are little or no profits and retained earnings have to be tapped to keep operations going. A consistent revenue and profit growth trajectory is preferred by most CRO buyers.
• Profitability: A CRO’s profitability is essential when assessing its acquisition value. Companies with strong financial performance usually command a higher price than those with weaker results. Similarly, complex situations like the common practice of non-consolidation of financial statements of individual CROs with offices across Eastern Europe and Russia by several de facto CRO groups make it hard for a buyer to estimate the true profitability and price of such acquisition targets. EBITDA margins of more than 20-25% are considered as a minimum for acquisition discussions by many CRO buyers.
• Customer base and concentration: A company with a diverse and stable customer base is more attractive to buyers than one heavily dependent on a few customers. The revenue of many small European CROs depends too heavily on one multi-year, multimillion euro contract from one big Pharma or a single-product American biotech, or on local arms of studies for 2-3 other larger CROs. This is a red flag to buyers, as that business could easily evaporate once there is a new owner or upon contract expiration. Thus, the price will be adjusted significantly downwards to address this risk, but more frequently a deal structure involving a 70% upfront payment plus 30% in contingent or earn-out payments based on future revenue and profits will be used.
• Synergies: Due to the substantial operational expenses faced by global contract research organizations, mergers and acquisitions often lead to cost savings. One can divide these cost savings into three primary categories: operating expenses, labor costs, and facilities. However, most of such cost savings tend to accrue from cost amortization over a larger revenue base than from traditional cost-cutting of staff. This is because labor is not only the largest cost component for CROs but also the key to revenue generation. Further, most synergies post-acquisition will be derived from complementary service offerings, expansion to new locations, and upselling to the existing client base of the combined entity.
• Growth potential: CROs are increasingly diversifying their service offerings beyond traditional R&D. For instance, some contract research organizations now provide digital health and technology solutions like real-world data analytics and telemedicine solutions. Others have chosen to build a niche specialization like ophthalmology or rare CNS disorders. While another might consider adding RA, PV, and data management to their service portfolios. All these areas provide additional growth prospects and are highly valued by buyers.

Valuation multiples in the CRO market

According to Pitchbook data, business sale median valuations of publicly traded contract research organizations range from 12-20 times the EBITDA in earnings and 2.88 – 4.77 times the revenue multiples.

At CFIE, we have recently seen multiples for European CROs ranging from 4 to 10 times the EBITDA or more, if the target is a high-quality CRO. Due to the scarcity of larger independent CROs, multiples have sometimes increased to around 15. Revenue size, a competitive environment, growth rates, margins, management team strength, and buyer motivations all influence valuations within this range.

Likewise, if the CRO buyer is a stock market-listed company, one can expect multiple arbitrages, meaning the likely offer for a CRO target will be a multiple below the P/E multiple at which the buyer’s shares are trading. Another variation of this would be an offer not exceeding the P/E multiple such as in large CROs like IQVIA or Icon PLC that are trading in the stock market. In a way, such P/E multiples are the price ceiling for a CRO anywhere in the world.

The only exceptions to warrant higher multiple would-be targets offering unique advantages to the buyer, like access to trial locations in Eastern Europe, expertise in MEDDEV studies, or an established relationship with key European pharma companies like Novo Nordisk, AstraZeneca, Novartis, or Sanofi.

It is also essential to remember that while past transactions can serve as a useful benchmark when valuing contract research organizations, they may not always accurately reflect current market conditions. Data suggests using multiples from past transactions as the sole valuation measure could lead to an extremely wide range of valuations, making them less reliable.

In conclusion, while the multiples above provide a useful starting point for valuing contract research organizations, it is essential to consider other elements that affect a company’s value. By taking an integrated approach and considering all relevant variables, buyers and sellers can arrive at more precise and informed valuations of a CRO.

Developments in the CRO industry: Outsourcing and technology

The contract research organizations sector has seen tremendous growth recently, with outsourcing and technology playing an increasingly important role. Here are some of the main developments in these areas:

Outsourcing: In recent years, the CRO industry has seen a marked shift towards outsourcing by sponsors. More pharmaceutical and biotech companies are turning towards contract research organizations rather than conducting clinical trials in-house due to cost reduction, improved efficiency, and access to specialized expertise. Outsourcing also allows these firms to focus on their core competencies, such as drug discovery or marketing, while leaving clinical trial management up to CROs.

Technology: Technology has had a major impact on the CRO industry. Developments in data analytics, artificial intelligence, and other technologies are revolutionizing how contract research organizations conduct clinical trials and manage data. For instance, many now utilize electronic data capture (EDC) systems for collecting, managing, and analyzing trial information. EDC systems improve speed, accuracy, and completeness of collection while offering real-time insights into trial progress. Other DCT technologies such as wearables and mobile health apps collect patient information more efficiently and conveniently than ever before.

In addition to these developments, the CRO industry faces other trends and challenges. For instance, there is growing pressure to reduce drug development timelines and costs while guaranteeing the safety and efficacy of new drugs. Furthermore, contract research organizations are being asked more and more for real-world evidence (RWE), patient-centric services, or DCT in addition to traditional clinical trial management. To meet these challenges and capitalize on emerging opportunities, CROs must continue investing in technology, talent, and process improvements.

Use our online valuation tool to get an estimate for your contract research organization business

Are you uncertain of the worth of your CRO business? Try our valuation tool. It is fast and simple. Just enter basic business information to get started. You can find our CRO valuation tool here: Click here for the CFIE valuation tool.

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Disclaimer 

The industry valuation calculators are designed to help you get a rough idea of your business value, but are not intended to be used as a substitute for professional advice. It is not intended to be used in the context of a sale or other transaction. It is only guidance for business owners or users. In case you want a more detailed and further fine-tuned valuation for your company please contact the CFIE team.

Het bericht How to value a contract research organization (CRO) business? verscheen eerst op Corporate Finance in Europe.

As a business owner, you will naturally be interested in knowing the value of your company. Different people or advisers will give you a different opinion. This article will try to give you an idea about company valuation calculators.

Information about company valuation calculators:

• Introduction
• How to value a company
• Valuation calculators on the market
• Our industry valuation calculators
• How to use our valuation calculators
• CFIE industry valuation calculators
• Disclaimer
• The best valuation calculator

Introduction

If you are looking for a way to value your business, we have a simple solution: CFIE’s online industry valuation calculator. Our industry valuation calculator is an online tool that will help you to get a first high-level value indication for your business with a few clicks. Just enter the details of your business and we’ll give you an instant valuation estimate. You can get links further in the article. Also, there are other company valuation tools that we will describe.

How to value a company

When a business is valued, it is usually done by one of three methods: discounted cash flow (DCF), industry, EBITDA, multiples, or book value. These three methods can be used together or individually to determine a company’s value.

When valuing a company, it’s important to keep in mind that the market value of any given company is determined by multiple factors: its revenue and profit margins; its current assets (such as cash) and liabilities (like debt); its forecasts for future growth; and so on. Because of this, there are multiple ways to come up with an approximate value for each business depending on which method best suits your needs at the time. Some methods are more accurate than others and some are better suited for different situations. However, all valuation methods share one thing in common: they require an understanding of the company as a whole and its long-term prospects.

Valuation calculators on the market

Pitchbook (www.pitchbook.com) is a well know solution offering company valuations for companies that have been acquired or financially injected in the past based on reported figures or estimates

NIMBO’s online company valuation (www.nimbo.net) calculator for SMEs has a comprehensive free version of their valuation tool based on hundreds of real purchase offers. The calculator is updated each month based on the data they receive from SMEs.

Smergers online valuation tool performs comparable method valuations based on data from several markets to get to an estimate.

There are also individual valuators that use their own valuation tools. They mostly do the valuation themselves and you must pay for the services. An example of a valuator is Wingman (https://wingman.nl/en/)

CFIE’s industry valuation calculator

CFIE has a team of industry M&A experts who have been working in the same field for years and have come up with a simple valuation calculator. Our goal was to create an online calculator with all the basic features and functionality required to come up with an estimated range.

Our industry valuation calculator is a web-based application that provides all the necessary information on the current and future value of companies in specific industries. Businesses owners can use this, as well as investors, analysts, and others who need to make decisions about what companies in different industries are worth.

The calculator was created by CFIE because we wanted to help our visitors understand how valuable their companies or investments are. We found that there were many calculators available online but most of them are not industry specific. The fact is that the valuation varies a lot depending on which industry the company is active in. Therefore the calculator allows users to enter information about their business and then calculate its current value range based on several industry-specific benchmarks.

How to use CFIE’s valuation calculator

Using our industry valuation calculator is simple: The user inputs relevant information such as industry sector, revenue dependence, and operating metrics (such as revenue), then enters assumptions about future growth rates. The calculator then generates a range for the valuation estimate.

CFIE industry valuation calculators

In our valuation calculator, each industry has its own set of data and multiples.

Here are the CFIE valuation calculator links for specific industries:

Valuation tool for automotive companies: www.corporatefinanceineurope.eu/automotive/automotive-company-online-valuation/

Valuation tool for chemical companies: www.corporatefinanceineurope.eu/chemicals/valuation-chemical-company/

Valuation tool for food companies: www.corporatefinanceineurope.eu/food/food-company-online-valuation/

Valuation tool for healthcare companies: www.corporatefinanceineurope.eu/healthcare/healthcare-company-online-valuation/

Valuation tool for IT/ICT companies: www.corporatefinanceineurope.eu/ict/valuation-it-company/

Valuation tool for manufacturing companies: www.corporatefinanceineurope.eu/manufacturing/valuation-manufacturing-company/

Valuation tool for pharma companies: https://www.corporatefinanceineurope.eu/pharma/valuation-pharma-company/

Valuation tool for plastic companies: www.corporatefinanceineurope.eu/plastics/valuation-plastic-company/

Valuation tool for transportation companies: www.corporatefinanceineurope.eu/transportation/valuation-transportation-company/

Disclaimer

The industry valuation calculators are designed to help you get a rough idea of your business value, but are not intended to be used as a substitute for professional advice. It is not intended to be used in the context of a sale or other transaction. It is only guidance for business owners or users. In case you want a more detailed and further fine-tuned valuation for your company please contact the CFIE team.

The best valuation calculator

Which do you think is the best company valuation tool or calculator?

Which ones have you used and why did you like them?

What do you think of our CFIE valuation tools for the specific industries?

(Please share your comments so we can improve our tool further).

Het bericht Company valuation calculators verscheen eerst op Corporate Finance in Europe.

In this article I want to provide more information about the Letter of Intent, very often also described as a LOI. On the one hand I write this article to give business owners a first view on what a Letter of Intent is about. On the other hand, I also write this article for our colleagues in M&A to exchange opinions and increase the knowledge about this important document in any M&A process.

Here are some of the items I will touch upon:

• What is a Letter of Intent (LOI)?
• Related documents to the Letter of Intent
• What is described in a Letter of Intent?
• How to prepare a Letter of Intent?
• How does the M&A experience of both parties play a role?
• What makes a Letter of Intent a good one?

I am very interested to hear your view on the Letter of Intent. Please leave your opinion on these questions about the usefulness of a Letter of Intent at the end of the document.

What is a Letter of Intent (LOI)?

A Letter of Intent is, as the name indicates, a document, read a Letter that is used to give an Intent. In our practice, international M&A, the Intent is to buy a company from a Seller. Its main purpose is to describe, often at a relatively high level, the main items that will determine the planned future acquisition.

The LOI is often prepared once both parties are familiar to each other and have spoken and visited each other various times.  A buyer will want to ensure when drafting a LOI and before starting a costly due diligence process that the acquisition can be successful.

Related documents to the Letter of Intent

In practice there are various other documents that are somehow related to a Letter of Intent. In the end it is a legal document that is signed by both the Seller and Buyer. Documents that are somehow related to the LOI are:

• Term Sheet
• NBO (Non-Binding Offer)
• SPA (Share Purchase Agreement)

A Term Sheet also describes the main criteria of a transaction. However, this document is mostly used for much smaller transactions. A Term Sheet can be one or a few pages only and describes the main items of a planned future transaction. Download an example of a Term Sheet here.

A NBO (Non-Binding Offer) is an offer of a buyer. The NBO is not legally binding and makes a proposal to acquire a company from a Seller. The objective is to give an indication of the main terms of a planned company purchase.   A NBO can often be followed, not much later in the process by a LOI. This LOI is then much more detailed and describes the planned transaction and all it’s important aspects.

The SPA (Share Purchase Agreement) is the final legal document that describes the detailed conditions on which the shares of a legal entity are acquired.

 What is described in a Letter of Intent?

A Letter of Intent is in practice always prepared by the prospective Buyer. These are the areas that are normally described in a Letter of Intent:

• Background buyer (optional)
• Transaction Rationale
• Confidentiality (mostly already signed in a previous NDA)
• Valuation details
• Purchase price (including earn-out structure)
• Timing of payments
• Financing structure
• Legally binding (mostly non-binding in practice, but sometimes with binding provisions)
• Due Diligence requirements and planning
• Further process timing
• Management and owners future plans
• Exclusivity (period and details)

A Seller might have or build up significant knowledge about a LOI during various processes. Although it must be obvious that any business owner needs professional legal advice.

How to prepare a Letter of Intent?

There should normally have been a detailed and intensive cooperation between both parties involved before a LOI is submitted. As stated above it is normally the responsibility of the Buyer to prepare the LOI.  In practice we see some Buyers do this internally with their own legal support. Especially if Buyers are closely related to investors, like Private Equity players, own templates are often used.

In case you are a strategic buyer that is focusing on a single transaction only and will use external legal support it might be wise to get the legal advisor be part of the LOI process. A lawyer will then know which items have been agreed early in the process. Also specific items that might be crucial can be brought up and agreed early on in the process. Sometimes this prevents an acquisition from breaking down in a later stage of the process.

However, legal advisors are often very detailed and a bit further away from the actual business activity. This can also lead legal advisors to cause potential issues and make a transaction process more complicated.

A tricky aspect can be that a LOI, although described as not legally binding can have so many concrete elements that it could be considered binding and create obligations on one or both sides. The question is then if a transaction is enforceable by any of the parties. This will also depend on the law one uses for a specific transaction as this aspect might be treated differently across Europe.

How does the M&A experience of both parties play a role?

There is very often a difference in experience on both sides of a transaction. Sometimes there is a Seller on one side of the table that wants to retire and who only sells a company once. On the other side there can be an experienced Buyer that has done multiple transactions and is continuously working on acquisitions. In such a situation it is desired that a Seller receives professional advice via an advisor (both legal and M&A related).

If there is a large difference in experience between both sides it can be wise to create a strong base of confidence between both parties first. Especially if both parties continue to cooperate and work together after the Closing this can be useful. If both sides still depend on each other this confidence can help the transaction close smoothly.

What makes a Letter of Intent a good one?

It is a good question what really makes a LOI stand out. On the one hand there needs to be sufficient understanding on both sides of what the plans are from the opposite party. It is definitely good, or even required, that both parties have met once or possibly more often.

Regarding timing a LOI should not be presented to early and be to general. As an example some PE (Private Equity) firms send out a NBO or even a LOI to various parties with low offers (‘fishing’). They  only really start to finetuning once there appears to be a serious interest from a potential Seller. This might result in broken negotiations early on in the process with sour feelings on both side.

The level of detail is also important. A LOI needs to be detailed, no question about that. However, it is also not a SPA (Share Purchase Agreement) and if both parties take to much time and a LOI is not signed after longer negotiations it might be a bad signal for the remaining part of the M&A process.

A LOI is good, from my point of view, if it has sufficient detail and covers the main topics that are crucial for the planned M&A transaction. The preparation of the document should also allow both parties to develop a methodology in solving issues or different views on specific topics. In this way both parties can create a base for a further successful continuation of the M&A process.

Please provide your feedback and opinion on this topic below.

• When to choose between a LOI and a Term Sheet?
• Can an acquisition project be successful with a NBO only (and do without a LOI)?
• Does the Letter of Intent need to differ between industry and size of business?
• What is crucial for a good LOI?
• What are possible mistakes in a Letter of Intent?

Please leave your opinion on these questions about a Letter of Intent here below.

Het bericht What to know about a LOI (Letter of Intent)? verscheen eerst op Corporate Finance in Europe.

Content of this article:

• At the start: Why are enterprise and equity values important?
• Enterprise value: The main determinator for the value of your company
• Equity value: The quality of your balance sheet
• Working capital: What is its role in the equity value?
• Simple graphics to help understand equity value
• Making equity value more complicated: the grey area in practice
• Practical misunderstandings by business owners
• Conclusions about equity value (versus enterprise value)

At the start: Why are enterprise and equity values important?

Do you plan to sell your business? If so, you need to have some basic understanding of enterprise and equity value as both terms are often used in M&A processes. Usually, this topic creates confusion and misunderstanding. Hence, it is important to work on the relationships continuously in any transaction and have open communication. Without a proper understanding of both enterprise value as well as equity value, the seller could get the wrong idea about the valuation of the company. Please keep reading to find out why these terminologies and their meanings are important and how it relates to your specific company sale.

Enterprise value is what your company is worth. Equity value is what you, as a business owner, get in your pocket. Often there is not much difference between these two. However, that depends on the structure and quality of your balance sheet.

Enterprise value: The main determinator for the value of your company

The primary purpose of both enterprise and equity value is the same, which is to represent the worth or value of a company or a business. The enterprise value (EV) represents the total value of the company including both its equity and debt. This value is intended to reflect the future earning potential of the company and is often calculated by multiplying a normalized measure of operational profits (EBITDA) by a chosen multiple.

We do not talk about this multiple in this report, as it is subjective and influenced by different factors. In M&A processes, enterprise value is much more common, as it removes the capital structure from the equation and therefore companies are more comparable to each other. It is important to realize, that whenever we are talking about enterprise value it does not tell the whole story. We could end up with a situation where two sellers with the same enterprise value could receive a different net amount after they have sold their businesses. This is because those two companies had different capital structures.

Equity value: The quality of your balance sheet

The equity value is important, as this is what an owner receives in the end for the sale of its company. At the time of the acquisition process, the target company most probably has debt and cash on its balance sheet. For this reason, it is generally agreed that the acquisition will be on a debt-free and cash-free basis. This means that the buyer will not inherit any of the debt and cash of the target company. The process will make the necessary adjustments on the balance sheet and after that, we arrive at the equity value. Equity value = enterprise value – total debt + free cash

If we compare it with the sale of a house, then the enterprise value would be the final sale price. However, if we have a mortgage and cash in the house then first, we must pay off the debt and remove the cash before we sell it. The equity value is the value that remains after debts have been paid off and cash has been taken out from it. Just to sum it up: Enterprise value = equity value + total debt-free cash.

So, in the end, the equity value depends on the quality of your balance sheet. If you made a lot of historic profits and have not taken many dividends in the past, you will likely have free cash. Then, it is time to be rewarded for this via a higher equity value.

Working capital: what is its role in the equity value?

A buyer will demand normal working capital to operate a business. This will mostly be positive working capital. The difficult question is to determine what a normal level of working capital is. This will always be arbitrary.

In practice, often the normally required working capital is determined based on a historic working capital level from previous years. In case a company is growing quickly, and there is more working capital required, it might be wise (from the point of view of the buyer) to compare to the working capital level of the last 12 months or even the last 6 months.

It also matters what is taken as a definition of working capital. Is it just the concise trade working capital (debtors and creditors) or a much broader definition of working capital that includes the non-trade working capital? In any case, the higher the agreed required working capital level, the lower the equity value.

Simple graphics to help understand equity value

Situation 1

If we assume the agreed net working capital is 1.

Then, the equity covers the fixed assets and the agreed net working capital, there is no free cash (nor net debt). In this case, the equity value is the same as the enterprise value.

Situation 2

Again, assume the agreed net working capital is 1.

In this case, the equity covers the fixed assets, the agreed net working capital and leaves some free cash. In this case, the equity value is the enterprise value plus 1.

Situation 3

Assuming the agreed net working capital is 1.

In this case, the equity does not cover the fixed assets and the agreed net working capital. In this case, there is net debt, and the equity value is the enterprise value minus 2.

Making equity value more complicated: the grey area in practice

In practice, a balance sheet is often much longer and much more complicated. There are many items that will not be considered being part of the working capital. Some items might be considered as debt-like items or in contrast, cash-like items. Examples of debt-like items can be overdue payments to suppliers or advance payments from customers. These items should not be considered as a part of the normal net working capital anymore. Another debt-like item can be a backlog in capital expenditure (CAPEX) payments. The CAPEX is part of the normal operations, but the payment for it has not been made yet.

So, in practice, advisers, buyers, or owners might try to massage the numbers to their advantage. Here is where an experienced adviser can help and support in a smooth process. In case you, as a business owner, have any questions we are always open to giving some free advice.

Practical misunderstandings by business owners

There are definitely some clear misunderstandings by business owners that we see in practice. That is due to the lack of experience with practical business sales. This can be a showstopper or dealbreaker in many cases. Misunderstandings or different opinions both exist in the enterprise value as well as in the equity value. Here we focus on misunderstandings in the equity value. Some examples we have seen in practice:

• Many owners think the historic equity belongs to them. This is, in the end, what they have worked for and earned themselves they feel. However, equity is required to operate the business and covers the fixed assets and the net working capital. Any buyer will want to acquire a functioning business with fixed assets and sufficient net working capital.
• One owner asked for a realistic enterprise valuation. However, in addition to this, the owner wanted to get compensated for inventory. This large inventory could be sold in his opinion and had a huge value. However, in that case, any potential buyer then needs to build up and acquire new inventory himself. A normal net working capital is required to operate the company.
• One owner indicated he had an extremely large stock to supply his clients faster than the competition. Hence, he had large working capital but wanted to agree on a much lower normal working capital which would leave him more free cash. However, this high inventory allowed him to ask for higher prices as he could deliver more quickly. Hence, in this case, one needs to calculate with a higher working capital level.
• Many owners want to take out all the cash that is on the balance sheet. However, this free cash needs to be seen in relationship to the equity, the assets available, the net working capital, and possible debt-like, and cash-like items. Hence, it is quite likely that the actual level of free cash to be taken out is lower than what is on the balance sheet at the date of closing.

Conclusions about the equity value (versus enterprise value)

Based on our practical experience, one can see that the determination of a correct equity value (and enterprise value) that is acceptable for all parties involved is a tricky project. Managing and keeping good personal relations between the seller and buyer is crucial in this process. Misunderstandings or disagreements on these numbers should be prevented by sharing common, well-substantiated calculations. A basic or ideally good understanding of this topic is helpful to make a business sale a successful project.

What is your opinion on how the equity value impacts business sales?

Het bericht Enterprise value versus equity value? verscheen eerst op Corporate Finance in Europe.

Finland joined the European Union (EU) in 1995. Finland’s debt remains below the 60% benchmark set by the European Union’s (EU’s) growth and stability pact. It is declining from 44% of the GDP in 2008 to 38% in May 2011. Despite the debt level, exports are still not returned to the level before the crisis. Due to the decline in international trade the total value declined from $129bn in 2008 to $89bn in 2009 with a small recovery to $90bn in 2010.

Almost no corruption exists in Finland. The country is ranked 4th out of 180 on the Transparency International’s Corruption Perceptions Index. This makes Finland an attractive country for foreign (M&A) investments.

Business in Finland

Three-quarters of the land area of Finland are covered with forest and around 20% of the export income is derived from the forest industry, particularly from high-tech paper products. Sustainable forest management is a key issue for the government.

Much of the EU’s trade with Russia occurs through Finland, which gives the country a significant advantage in terms of geographic location, as it can be used as a trading hub by and for both the Baltic States and the Nordic countries.

Exported products of Finland can be found in pulp, paper, machinery and equipment, chemicals, metals, timber. Finland’s three top export partners are Russia, Sweden, and Germany. Imports are textile yarn and fabrics, grains, foodstuffs, petroleum and petroleum products, chemicals, transport equipment, iron and steel, machinery. In terms of imports, Russia had an import share of 16.2% in 2009, followed by Germany (15.7%), Sweden (14.6%), and the Netherlands (6.9%).

M&A Opportunity sectors

Information and communications technology (ICT), forest-based industries, and biotechnology have been identified as important sectors for investment in Finland. High technology products accounted for around 14% of the country’s total exports in 2009. Several of the world’s top Internet security companies are based in Finland. Around 10% of European companies in the biotechnology sector are from Finland. Finnish biotech firms constitute almost 7% of all biotechnology companies in the EU.

M&A Investing in Finland

The legal system of Finland is heavily influenced by Sweden, Finland welcomes foreign investment and provides an attractive environment for foreign investors, owing to the country’s macroeconomic stability, its well-educated workforce, its openness to technology, and its cheap electricity and telecommunications. Taxes on individuals are relatively high. Corporate entities are subject to a tax of 26%. The general VAT rate is currently at 23%. Finland’s labor system is overregulated. Much of the European Union’s (EU’s) trade with Russia happens via Finland. With regards to acquisitions of major enterprises and defense companies, the government has a right to reject such deals.

Research & Development

Although government expenditure on research and development is high, private sector investment is not broad-based. Finland’s expenditure in R&D is high with 2,7% of its GPD. Investments in the private sector are not broad based, a significant share is invested by the Nokia Corporation (32,3% of total spending in Finland)

Technological landscape

According to the World Economic Forum, Finland ranks seventh in the world in terms of the Global Competitiveness Index for 2010–11. Finland is unable to translate its research capabilities into patents. Although the number of patents is rising (with 1,232 patents registered in 2010), it is still far behind other EU nations.

The annual number of doctoral degrees doubled since 1990´s. A highly qualified workforce is beneficial for Finland concerning the investments in high-tech industries. The aging population is a challenge for the government to keep the pension system on its current level.

Finland is an interesting country for M&A. In this article we tried to give a impression about M&A in Finland. If you have a question, suggestion or opinion leave a reaction on this article.

Het bericht M&A in Finland (2012) verscheen eerst op Corporate Finance in Europe.

Investing in Italy can be attractive but also includes some hurdles. For some sectors there are M&A restrictions (see details last paragraph). Further, legal difficulties and relative high taxes can be less attractive. The market size, strong industries like ICT (especially communication equipment), Biotech, Manufacturing, Automotive and Renewable Energy can be interesting areas for M&A investments. The Italian government has started several initiatives to improve the situation.

Business in Italy

The business confidence index reached pre-crisis levels in November 2010. Italy’s budget deficit rose to 4.8% of GDP in 2009, with a 5.5% decline in revenues and a 1.2% increase in current expenditure. In 2010 Italy registered a budget deficit of just under 5%. Although Italy is the third largest economy in the Eurozone, it has difficulties in tackling its high debt of approximately 119% of GDP. Slow economic growth (averaged around 0.3% between 2001 and 2010), weak public finances and the budget deficit are challenges for Italy´s competitiveness and strength in the markets. The low R&D expenditure and limited innovation can be causes for concern. In 2002 Europe set a target of 3% of the GPD. Since then Italy is hovering around 1,1% expenditure as a percentage of the GPD with 1,2% in 2010. Result is a small number of patents registered.

Italy’s unemployment rate is at around 8.4% in 2010. According to EU Labour Force Survey 2010 the employment rate in Italy was 56.9%, the EU average is 64.2%.

The Innovation Union Scoreboard 2010 placed Italy in the group of “moderate innovators,” with a performance below the EU average. The Italian government offers opportunities in the ICT industry, with planned technology expenditure of around €5bn including information technology and network connections.

Key industries of Italy

Italy´s processing and manufacturing sector are well developed, with precision machinery, motor vehicles, chemicals, pharmaceuticals, electrical goods, and fashion and clothing being major industries. Main exports of Italy are textiles and clothing , motor vehicles, chemicals, engineering products, production machinery, transport equipment, food, minerals and nonferrous metals. Italy’s exports and imports to non-EU countries increased by 17.7% and 30.0% respectively in April 2011.

A strong services sector is contributing around 74% of GDP. Tourism, retail, and financial services are a significant part of the services sector. The sector is considerably more regulated than in other European countries. Liberalization by the government has taken place in several sectors such as retail trade, pharmaceuticals, professional services, local public services, and retail banking. In the professional services sector some of the protectionist regulations were removed. The financial services sector of Italy is better placed than other European nations, with a smaller share of riskier products in their portfolio.

M&A opportunities in Italy

The market for telecommunications equipment and services in Italy is estimated to be the third largest in the EU with a total revenue of $447.3m in 2009. Italy has earmarked around €4bn for the development of renewable energy and energy efficiency. The biotechnology market has posted healthy growth rates over the past three years.

A National Reform Programme should eliminate macroeconomic imbalances, improve public finances and reduce public debt. Large amounts are earmarked for structural initiatives in the logistics sector, for supporting industrial policies, on education to strengthen skills development and improve the quality of education and training systems to increase labour-market participation, for technological R&D and the development of renewable energy and energy efficiency. This should improve the country’s competitiveness by strengthening the markets. Weak implementation of intellectual property laws is a challenge for Italy.

M&A restrictions

M&A can be reviewed as provided for in the country’s Antitrust Law. Foreign participation is not encouraged in sectors like defence and aircraft manufacturing. Additional requirements have been imposed on the film and shipping industry.

Italy is due to its market size an interesting country for M&A. We tried to give an impression about M&A in Italy. If you have a question, suggestion or opinion leave a reaction on this article.

Het bericht M&A in Italy (2012) verscheen eerst op Corporate Finance in Europe.

The acquisition will help to strengthen Kerry Logistics’ freight forwarding capabilities in the UK and Europe. Bergen will also strengthen Kerry Logistics’ network in the UK and across Europe as well as extend its reach into the UK’s major manufacturing regions in the North of England. Kerry Logistics Network Limited is a Hong-Kong based logistics company that provides a range of logistics services including freight forwarding, express parcel delivery, contract logistics, warehousing, and distribution.

Het bericht Acquisition of UK ocean freight forwarding companies by Kerry Logistics verscheen eerst op Corporate Finance in Europe.