Project Apex
Residential construction
M&A model
KPI's: Over £500m revenues and 2,500 units sold per annum.
M&A model build for residential home builder to support sale of the business.
Requirement
The client is a large national home builder which has an existing in-house operational forecasting system which works at a granular level. This detailed system is driven bottom up and does not allow for a strategic view over the medium to long term, and does not allow for an M&A process as it was not configured for this, nor could it be made accessible to bidders.
Requirement was for a strategic model which could be used to support an M&A transaction, but also for strategic management of the business in preparation for sale in the interim.
Solution
The model was built up at a site level (rather than plot level) with assumptions for site start date, number of plots, average house price (private and social), build costs per sq. ft, and required margin. Land costs were assumed to be the balancing figure as they are typically negotiated to achieve a target margin. These per site assumptions were exported from the client's operational system and stored as a data table within the model.
In order to keep file size down each site was calculated sequentially using a calculation engine approach to call up assumptions one site at a time and compute the P&L, Balance Sheet and Cash Flows on a per site basis. Outputs per site are stored and then aggregated to show Regional and Group results. Additional outputs are provided such as a Site List output with information on per site basis to allow review and benchmarking of individual sites.
The model allowed for sensitivities to be applied per site, region or globally and these effects to be viewed at a site, region or company level. These features allowed potential bidders to sense check and stress test the business forecasts during the M&A process - clear information is key to reducing uncertainty and achieving maximal returns to shareholders, and in this case supported a successful sale of the business.