BSP Strategic facilitated the acquisition of a rapidly growing Adelaide-based defence consultancy (XYZ for confidentiality) by a large U.S. multinational. The consultancy, having operated for only 15 months, secured lucrative long-term sustainment contracts for mission-critical infrastructure in the defence sector. With a Top Secret Positively Vetted (TPSV) team and substantial growth projections, BSP Strategic determined an enterprise value of $4M to $6M. After conducting a thorough due diligence and valuation process, BSP negotiated a final purchase price of USD $5.85M, with additional earn-out payments tied to future performance, ensuring an optimal exit for the founder and continued business success.

Industry

Defence Consultancy

Life Cycle

Start Up

Size

6

Location

South Australia

As a start-up, XYZ had limited financial history with around 15 months of trading records. Despite this, the business was experiencing rapid growth, with revenues projected to increase by 250% in its second year compared to the first. The founder’s clear vision for expansion included plans to scale operations by 10 times the current size.

After reviewing existing contracts and discussing growth opportunities, it was evident that XYZ’s revenues and earnings would continue to grow exponentially in the short to medium term, with a revenue growth forecast of 56% CAGR over five years. There was also significant potential for contract extensions beyond initial terms, especially as prime contractors often managed asset sustainment activities for up to 25 years.

BSP Strategic built a comprehensive financial model to evaluate future business performance, considering multiple scenarios. The chosen methodology, Discounted Cash Flow, was most appropriate given the limited trading history and high growth rates. BSP estimated the company’s enterprise value to be between $4.0 million and $6.0 million, with the mid-point representing more than 10x current EBITDA.

BSP Strategic was engaged to facilitate a complex transaction between XYZ and a US-based multinational buyer. This process, lasting approximately six months, involved extensive collaboration due to sovereignty and foreign control issues, including International Traffic and Arms Regulatory (ITAR) considerations, requiring informal due diligence to structure the deal.

An asset purchase was agreed upon, with a headline purchase price of USD $5.85 million. The founder would be retained with Golden Handcuffs and an earn-out arrangement. The deal required approval from the buyer’s board, a hurdle that BSP Strategic overcame by preparing a detailed pitch deck, including financial analysis, strategic advantages, and corporate strategy. The board approved, leading to formal due diligence.

The U.S multinational engaged PwC and Minter Ellison to head their respective transaction teams with approx. 15 individuals from each team representing the buyer’s interests. BSP Strategic effectively managed the entire DD process and facilitated all Q&A responses through to completion.

BSP Strategic collaborated closely with both buy-side and sell-side legal teams, ensuring seamless alignment between the Term Sheet and the final Asset Sale Agreement (ASA). The firm also played a pivotal role in negotiating the founder’s ongoing remuneration and defining the key terms of the earn-out component. BSP secured a $USD3.2 million earn-out, split into two tranches over two years, contingent on meeting revenue milestones, which would be paid in addition to the upfront cash amount agreed upon.

Completion accounts were prepared by the client’s accountant, with BSP Strategic actively involved in calculating the adjustment amount. This adjustment was based on the difference between the agreed PEG and the actual closing balances, calculated in line with the agreed formula. Now, more than two years post-transaction, the founder has achieved both earn-out tranches and continues to serve as the APAC Vice President.