Fundraisings, Acquisitions and Valuations
Contents
How does Beauhurst find unannounced fundraisings?
We monitor thousands of online sources to identify equity investments, but unannounced fundraisings make up over 50% of all UK fundraisings so we have developed a clever system that detects them. The top-level process is the following:
- We monitor all share allotment forms filed with Companies House in the UK.
- An algorithm decides whether any of those looks like it contains genuine investment.
- A human analyst investigates whether the algorithm correctly identified genuine investment.
Our system scours share allotment forms daily and identifies c.95% of the forms containing investment. But identifying genuine investment is only half the work, we still need to decide how to interpret the data.
When linking announced fundraisings with share allotment forms (say, to calculate valuation), we can match the forms with details in an announcement, including date and announced invested amounts. But where we’re dealing with unannounced fundraisings, we need to make harder choices about which share allotment forms are part of the same investment round, and which date we ought to choose as the date of the deal.
How does Beauhurst calculate valuation data?
We use the data in share allotment forms filed with Companies House to calculate valuation. In the simplest case we multiply the price paid for each share issued in a fundraising by the total number of shares in the company. To get the pre-money valuation we subtract from the post-money valuation the amount of investment received on this particular round.
But many factors complicate matters, including:
- Huge numbers of share allotment forms makes the above calculation difficult
- Share allotment forms may be attached to other companies in complex or multi-layered corporate structures
- Share allotment forms are often filled out incorrectly
- Certain shares (e.g. deferred shares) can cause a valuation to be nonsensical i.e. in the trillions
- Shares could be consolidated or split during a fundraising, altering the total number of shares
- Shares may be issued as part of an option scheme not investment
In the simplest possible case, and if we’ve resolved all the problems discussed above, we set our valuation confidence as ‘High’.
We put our confidence as either ‘Medium’ or ‘Low’ when we haven’t been able to resolve some of the problems above and/or any of the following arise:
- Several shares, each paid at a different price and with different rights
- The verified amount (i.e. the amount present in share allotment forms) differs greatly from the announced amount
- The stake taken in the company is unusually high (i.e. above 60%)
- The valuation seems anomalous compared with companies in the same sector and stage
If your work only requires you to have ballpark figures (perhaps because you are researching a certain sector rather than individual companies), then including Medium- and Low-confidence valuations is probably the right course of action; but if you need very precise figures, you should only be relying on High-confidence valuations.
What research does Beauhurst do on acquisitions?
When we research an acquisition, we try to calculate the following data points:
- Consideration paid
- Consideration type(s)
- Company valuation
- Earnout
- Percentage stake sold
Consideration paid is the value of the consideration that has been handed over (or will be handed over) to the shareholders of the acquired company who have sold their shares. Consideration paid includes both consideration paid upfront and deferred, but excludes any earnout, if there is an earnout component.
Consideration types comprise ‘cash’, ‘shares’ (typically shares in the acquiring company), ‘deferred consideration’ (when consideration of some kind is guaranteed to be handed over at a future point in time, not contingent on any metrics being hit) and ‘other consideration types’ (typically options or warrants, or other sorts of financial contracts).
Company valuation refers to the valuation of 100% of the issued share capital of the acquired company. Where the percentage stake sold is 100%, the consideration paid and the company valuation are identical. Where the percentage stake sold is below 100%, the company valuation is the consideration paid plus what the remaining percentage of shares would have been worth had they been sold at the same price as the shares that were actually sold.
Earnout refers to the contingent consideration part of the acquisition. Unlike the consideration paid, which the exiting shareholders receive at the time of the acquisition (initial consideration) or in the future (deferred consideration), how much earnout the exiting shareholders receive depends on certain future conditions being met (typically related to the financial performance of the acquired company). It is usually not possible to discover how much of the earnout has actually been disbursed. The earnout figure announced at the time of the acquisition constitutes an estimation, at that point in time, by the acquiring company. That figure is typically adjusted, upwards or downwards, at future points in time, depending on the actual performance of the acquired company since its acquisition. Beauhurst analysts only collect the figure initially estimated, not every subsequent revision of it.
Percentage stake sold is the percentage of the issued share capital of the acquired company that has been sold to the acquiring company. Beauhurst does not currently research ‘asset sales’, where what is sold is assets of a company (like intellectual property) rather than shares.
As well as the data points above, we also add some research notes to each acquisition.
Where the announced consideration paid amount differs from the researched consideration paid amount and/or the announced valuation differs from the researched valuation, this could be due to a number of possible factors, including (but not limited to): the announced amount being the rounded-up or -down researched amount; the announced amount containing the earnout portion of the transaction (Beauhurst accounts for earnouts separately, as per our methodology above); what has been announced as the consideration paid amount is actually the valuation (in cases where the percentage acquired is below 100%, consideration paid and valuation are different); currency fluctuation; the researched data are marked ‘Medium’ or ‘Low’ confidence and are therefore only an approximation of the real figures; behind the scenes, the announced figures rely on a different methodology from the researched figures (e.g. one set of figures may include administrative transaction costs whereas the other set of figures may exclude it).
The acquisition data is assigned a confidence level, from ‘Low’ to ‘High’. Where the confidence is marked ‘High’, it is because Beauhurst analysts have decided this was a straightforward case.
Where the confidence is marked ‘Medium’, this could be due to a number of possible factors, including (but not limited to): our having used the consideration paid to a specific shareholder in order to extrapolate to the overall consideration paid amount and valuation; our resorting to filings of foreign companies; the structure of the transaction blurring the line between non-contingent and contingent/earnout consideration.
Where the research confidence is marked ‘Low’, this could be due to a number of possible factors, including (but not limited to): lack of clarity over what percentage of the acquired company was sold; no direct mention in company accounts of acquisition amounts, but we can make an educated guess based on net book value figures or aggregate figures for all of a company’s acquisitions in that financial year; we have been unable to use company filings (as they either don’t exist or exist only in foreign, secretive company registers) and have resorted to using other, more indirect and unreliable, sources.