Empowering Growth: A Digital Marketing Agency's Strategic Restructuring and Share Valuation Success

Business Valuations

Business Structuring

Discover how our client, a digital marketing agency specialising in the study of human behaviour, utilised a corporate group structure to make strategic acquisitions to increase the breadth of its services and attract external investors.

Background

Our client is a digital marketing agency specialising in the study of human behaviours. Their specialist technology is used to detect and protect vulnerable users in online settings such as gambling and financial services. The business has over a decade’s experience in successfully delivering large scale digital projects for well known global brands.

The business had recently restructured, creating a corporate group structure which had enabled the business to make some strategic acquisitions, including a branding agency and a team of search engine optimisation (SEO) specialists. These acquisitions allowed the business to increase the breadth of its services, increase revenues, and attract external investors. 

Setting up an employee share scheme

Our valuation service was required to allow the issuance of Enterprise Management Incentive (EMI) share options to key team members,which was part of the company's broader strategy to incentivise and retain important employees. We worked alongside the business’s legal team to help draft the terms of the share option scheme, and to ultimately agree a valuation for the share options with HMRC. The valuation was also important for establishing the market value of non-influential minority interests, particularly as the company was preparing for further equity investment and had ongoing discussions with potential investors.

Valuation methodology

Given the nature of the business as a consultancy with limited tangible assets, an asset-based valuation approach was deemed inappropriate. Instead, the valuation utilised an earnings-based approach. This method involved assessing the company's maintainable profits by examining its net profits over the previous three years.

Key steps in the valuation process included:

  1. Profit analysis: The average net profit after tax over the three-year period was used to estimate maintainable profits.
  2. Comparable company analysis: Price-earnings (P/E) ratios of similar publicly traded companies were analysed. These ratios were discounted to account for factors such as lack of marketability, liquidity, and the minority status of the shares.
  3. Share valuation: The discounted P/E ratio was applied to the company's maintainable profits to determine the Actual Market Value (AMV) and Unrestricted Market Value (UMV) of the shares.
  4. HMRC approval: Our valuation report was then submitted to HMRC for their review and approval, which was promptly received with no further questions. 

The valuation concluded with a per-share value that considered restrictions on the shares, reflecting both current market conditions and the specific characteristics of the company's shares.

Conclusion

This valuation was integral for the digital marketing agency in navigating its strategic financial planning, particularly concerning the issuance of EMI options and future investment considerations. The approach balanced rigorous financial analysis with an understanding of market conditions and the company's specific circumstances, providing a comprehensive view of the company's financial health and investment potential.

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