Case study july 2011 marks plan ICAEW

They comprised: i analysis of the 30 June 2011 accounts against actual results for the prior year; ii calculation of the price that WW should offer for acquiring a target company, Mustan

EXAMINERS’ COMMENTS AND MARK PLAN

Contents

Page Part 1: Executive summary

Part 2: The Case Study examination

Part 3: Commentary on candidates‟ performance

Requirement 2: Assessment of proposal for Mustang acquisition 14

Part 4: Appendices

Appendix 1: Financial statement analysis: Review of Watchwell‟s financial performance 19

Appendix 2: Financial data analysis: Calculation of price for Mustang 21

Part 5: Marking key

PART 1: EXECUTIVE SUMMARY

Introduction

This report covers the July 2011 Case Study (CS) exam It is issued in conjunction with two other

documents, comprising two illustrative scripts and related Examiners‟ commentaries The first script was

well within the top 25% of all assessed scripts; the second failed the exam In reviewing these documents, it

is important to be aware that it is rare for a script to be uniformly „bad‟ or uniformly „good‟: a successful

script will often present detailed coverage of all requirements but include errors of calculation, spelling or

logic, and an unsuccessful script may contain one or two strong sections or several excellent points but be

let down by poor or incomplete text elsewhere Unsuccessful candidates will also find helpful guidance in

the July and November 2010 Examiners‟ Reports, as well as the Case Study Manual, which forms part of

the ICAEW Learning Materials and includes specific chapters on Introductory Financial Analysis and Ethics

Attached to the report are two appendices with examples of financial analysis work that candidates did, or

might have done, for Requirements 1 and 2 The two illustrative scripts offer further insights into financial

analysis

Overview of performance

75.2% of all candidates sitting the paper passed, compared with 76.0% in November 2010 and 78.7% in

July 2010 Successful candidates demonstrated their higher skills effectively They approached the tasks

methodically and produced well-balanced, relevant answers to the three main requirements, clear

appendices and succinct, focused executive summaries Many had an even spread of good competency

grades, revealing an ability to assimilate the case material into a report together with commercial knowhow and appropriate professional scepticism They had clearly prepared well for the exam, making the necessary effort to master the Advance Information and to refine their exam technique

The subject of the case is Watchwell Ltd (WW), a privately-owned medium-sized manned security company

WW was formed in 1995 and is based in the South of England, having its head office at Weymouth in Dorset – the county in which the majority of its clients are based The main business is providing guards to these

clients and then billing on an hourly basis In an industry governed by regulation and employment law, WW prides itself on its ethics, compliance standards and reputation for quality It has achieved steady growth,

largely through a series of acquisitions as well as successful tenders and re-tenders It is looking to expand further in order to penetrate the industry elite, the Infologue.com Top 20 The candidate is in the role of

Ossie Fordham, a final-year trainee Chartered Accountant working for Rosslyn Chartered Accountants,

providers of business advisory and corporate finance services to WW

The exam requirements followed on from the Advance Information (AI) They comprised: (i) analysis of the

30 June 2011 accounts against actual results for the prior year; (ii) calculation of the price that WW should

offer for acquiring a target company, Mustang, together with a discussion of that company‟s business profile; and (iii) an evaluation of the advantages and disadvantages for WW in tendering for the enlarged manned

guarding contract of an existing client, PQR, after its merger with another company, Funtimes In the rubric, candidates were specifically told to provide an executive summary and that the report should be balanced

between the three elements

As always, each requirement contained several parts Candidates had to identify these and then tackle them

in an orderly manner In particular:

 At Requirement 1, the captions to be analysed by candidates (including six KPIs) were clearly set out

 At Requirement 2, they had to perform calculations and then discuss their underlying assumptions and

the business profile of the target company

 At Requirement 3, they had to integrate a range of areas (benefits and risks, ethics and „matters for

consideration‟) into a cohesive narrative

In broad terms, all three requirements necessitated skilful integration of AI and Exam Paper (EP) material

Also, as indicated by (i) the instruction to candidates to balance their report and (ii) the marking key, the

three main elements of the report were broadly equal in importance: any candidate spending too much

time on any one section was likely to have missed the opportunity to gain competent grades in others

A feature of this case was the range of topics that were relevant to more than one requirement but in subtly different ways (e.g Minimum Wage; female guards; public sector cuts; police collaboration), with scope to

make good connections between the requirements

With reference to the four skills areas, candidates generally made good use of the case material (both AI

and EP) but were not as effective in describing the wider context Better ones ensured that their scripts

followed a clear progression from Assimilating and Using Information to the other three skills areas and thus achieved uniformly high grades across a requirement They were able to demonstrate both „range‟ and

„depth‟ in certain critical areas of the marking key Application of professional scepticism and the coverage of ethical issues were also good

Candidates who failed did so for a variety of reasons, notably a lack of time management This resulted in

unbalanced answers (incomplete Requirement 3 or rushed executive summary – these have become

common characteristics of failing scripts) For others, the reasons for failure rested within each requirement

Requirement 1 tested financial statement analysis skills, and candidates should have expected this Most

tackled it methodically, using the headings given (revenue, gross profit, profit from operations, six Manned

Guarding KPIs) to ensure coverage of all the main elements.The overall performance was pleasing, with

better candidates developing their analysis of the income statement by performing additional calculations

such as revenue per hour on individual clients or average wages and salaries per staff member Weaker

candidates often did not cover all six KPIs or wasted time on irrelevant areas of the accounts (especially

cash and debtor days)

Requirement 2 involved financial data analysis and the ability to challenge assumptions The information on

Mustang closely followed the template in the AI but candidates needed to take account of unfamiliar factual information in relation to each of Mustang‟s three divisions The best ones set out their calculations clearly

and then used appropriate professional scepticism to discuss the key issues in a structured, considered

way, culminating in lucid conclusions and recommendations at the end of the requirement Those towards

the bottom of the cohort were characterised by poor calculations and/or a thin coverage of the related

business issues They could not articulate clearly their concerns over the figures with which they had been

presented, and failed to provide a rounded business appraisal of all three divisions (there was often too

much emphasis on Manned Guarding and insufficient understanding of the issues affecting Mobile Security)

Requirement 3 assessed strategic and ethical skills, and was the weakest requirement For those who

had familiarised themselves with the AI in overall terms and specifically who had considered the issues

involved in tendering, it should have been straightforward – tendering had clearly been identified as a

factor in WW‟s past and planned growth Stronger candidates kept focused on the „big picture‟ of the

tender Those who dealt methodically with all the main aspects (strategic and commercial benefits and

risks, matters for „consideration‟, ethics) generally obtained a good number of competent grades However, weaker candidates tended to offer a „scattergun‟ approach – perhaps a sign that they were unable to relate their prior work on WW‟s strategy to the specifics of this tender – and so produced unstructured answers;

less organised candidates had overrun on the rest of the exam, resulting in sparse sections on

Requirement 3

In summary, as tutor firms have remarked, the subject matter of the Case Study was topical and relevant,

and the exam was a very reasonable paper allowing candidates to demonstrate the range of professional

skills required to be successful in the modern accounting environment Those who managed their time well, covered all aspects of the requirements and effectively applied the processes learnt during their studies

should have been able to score highly

PART 2: THE CASE STUDY EXAMINATION

Scenario for the paper (Advance Information)

The case relates to Watchwell Ltd, a medium-sized manned security company with annual revenue

approaching £15 million

You, the candidate, are Ossie Fordham, a final-year trainee Chartered Accountant working for Rosslyn

Chartered Accountants, a firm based in Weymouth, a town on the south coast of England You work closely with, and report to, the senior partner, Alfred Vesey

Four weeks prior to the examination, candidates were provided with a 40-page package of information,

containing a series of exhibits relating to Watchwell and the industry in which it operates, comprising:

1 About you (Ossie Fordham), your employer (Rosslyn Chartered Accountants) and your client

(Watchwell Limited)

2 The UK security industry: Background

3 Manned guarding: The business model (Industry briefing document)

4 All about Watchwell Limited (WW)

5 Watchwell Limited board briefing: Business review

6 Watchwell Limited: Management accounts for the year ended 30 June 2010

7 Watchwell Limited: Business plan

8 Briefing note: Employment issues in manned security (Rosslyn Chartered Accountants – HR

Advisory Department)

9 Regulation: The Security Industry Authority (SIA)

10 Watchwell Limited: Tenders

11 Watchwell Limited: Example acquisition appraisal – Tyro Guards

12 Press articles

Analysis of Advance Information (AI)

By carefully studying and analysing the AI, candidates should have formed a comprehensive picture of WW and the industry, using facts and figures from across the AI They were not required to carry out any major

research of their own: the AI was, as always, intended to be self-contained However, as usual, close

monitoring of the media would have been beneficial Specifically, with the exam date being exactly one year before the opening ceremony, coverage of the 2012 Olympics – which featured prominently in the AI – was high in the lead-up to the exam

Key findings from the AI are summarised below Additional commentary by the examiners is provided in

bracketed italics While the AI was shorter than it has often been in the past, it still contained a wealth of

information with which candidates needed to familiarise themselves if they were to be able to tackle all

aspects of the case requirements In particular, there were lots of connections between exhibits: it required good organisational skills by candidates to identify these and then use them effectively in their answers

As always, Exhibit 1 sets out the background to the candidate‟s role and areas of work, stressing the need

to keep up-to-date with industry issues

Exhibits 2-3 give an overview of the manned security industry, explaining the typical business model The

key messages that candidates should have extracted from these exhibits are as follows:

 Manned security (mainly manned guarding, mobile security) constitutes half of the UK security market

 Manned security has been relatively stable during the recession It is forecast to grow between now and

2015 by 2-4% per year, partly reflecting expected demand for security staff during the 2012 Olympics

 Margins will continue to be squeezed, exacerbated by rising costs from compliance and legislation

 Successful companies have generally been those offering more integrated solutions

 Electronic security (CCTV etc) is forecast to be the fastest-growing market segment in the next five years

 The main opportunities overseas are also likely to be in electronic rather than manned security

 For manned security, staffing is key:

o Guards must be licensed by the Security Industry Authority (SIA)

o Companies must ensure that their workforce achieves high standards of reliability through

effective vetting, recruitment, retention, training and compliance with legislation

o It is also a labour-intensive business: wages (including on-costs, such as employer taxes) can

exceed 80% of revenue Guards are often low-paid, and staff turnover can be high

 Clients used to choose security suppliers according to price, but they are now more influenced by quality

 Success is built on reputation A small local business (many companies operate solely within one UK

region) may have a competitive advantage over a larger national or international one

 In terms of finances:

o Companies earn revenue by charging clients for hours worked by their staff at client sites

o Amounts invoiced represent an agreed hourly rate x man hours worked over the contract period

o The key in determining contract price is a sufficient mark-up on average hourly pay costs per

guard (these include „on-costs‟, which can add around 20% to the wage)

o Gross and operating margins are critical: if cash collection is slow, the business is at risk

o Many companies aim for a gross margin of 15% Larger ones can more easily charge an

artificially low price to secure a major new contract

o Aside from normal revenue / profit measures and accounting ratios, most KPIs relate to

personnel e.g revenue per man hour, utilisation, staff turnover, training and sickness days

(Industry exhibits are intended to „set the scene‟, to provide an important context for the case and exam

requirements and to create a „level playing-field‟ so that candidates do not have to carry out extensive

research of their own One key to a full appreciation of the AI is an ability to relate these general industry

issues to the company‟s circumstances, for example: KPIs (Exhibit 4); CCTV (Exhibits 5 / 7); staffing (Exhibit 4) While candidates are not expected to commit every sentence of these exhibits to memory, they should

aim to be aware of the main contents so that they can easily locate key topics in the exam hall Thus

mention of market growth rates (p8), the Minimum Wage (p11) and contract pricing (p12) would in turn have enhanced candidates‟ answers to each of the three requirements.)

Exhibit 4 is a pivotal exhibit, documenting the history and current position of WW:

 WW was incorporated in July 1995 by Tom and Anita Mitchell, who each own 20% A further 20% is

owned by Edward Allison, the remaining 40% externally WW has Approved Contractor status

 Tom (Director of Operations), Anita (Director of Finance) and Edward (Director of Sales) all take an

active role, joined by Derek Young (Head of Control) and Gregory Driscoll (Head of Human Resources)

 Most clients are in Dorset, though WW avoids the crime-ridden „Alpha, Bravo, Charlie‟ areas

 The main type of work is Manned Guarding (95% of total revenue); Mobile Security contributes the rest

o Manned Guarding earns a 20% gross margin Revenue comprises amounts invoiced fortnightly

to clients (man hours worked in the period x contractually agreed hourly rate per guard)

o Mobile Security earns a 60% gross margin Contracts entail routine visits by car / van to client

sites Along with wages, the running costs of these vehicles are the only major direct expense

 With regard to staff:

o WW has lower turnover than the industry average of 25%

o It has a reputation for employing reliable personnel

o Guards joining WW must hold an SIA licence

o WW„s workforce is 20% female – important for some clients (e.g retail)

o The typical working week is 40 hours Guards log on/off at the start/end of shifts; their hours are then used to calculate pay and amounts invoiced to clients

o Derek Young wants to upgrade this time system in 2011 to accommodate WW‟s growth plans

o Larger sites require a team of staff from across the range of grades (guards, supervisors etc)

o WW is looking to introduce a pension scheme in 2013

 WW has a history of revenue and profits growth, partly organic and partly via a series of acquisitions

 The largest expense is payroll WW pays guards‟ wages weekly in arrears

 With revenue invoiced fortnightly and wages paid weekly, cash must be closely managed / monitored

 Cash flow depends heavily on invoices being settled promptly:

o A re-tendering client might ask for a change in payment terms (e.g from 30 to 45 days)

o WW makes a full impairment charge against all balances 90 days overdue

 Other expenses include training; uniforms; advertising; recruitment; legal / professional; tendering

 Contracts are usually signed for 3 years, after which they may be automatically renewed or put up for tender They specify a minimum number of man hours per year but variations can later be made

re- Manned Guarding clients span a wide range of sectors (e.g retail, construction, leisure) They include:

o Ardwicke Stores (£3.7m): forecast to grow to £6.3m in 2011 after opening new stores

o PQR Leisure Parks (£1.3m): a client since 2010; looking to buy sports grounds or form mergers

o Jonas Construction (£0.8m): building work for Olympics sailing site at Weymouth and Portland

o Granville University (£1.4m), Soton College (£1.0m), Dorset Hospital (£0.9m): under pressure

from recent UK public expenditure cuts

o Contracts inherited on the 2010 acquisition of Quinto, expected to earn £1.2m revenue in 2011

 WW has grown mainly by buying portfolios of security contracts from other companies („acquisitions‟)

with the associated transfer of staff It does not buy physical assets or shares as part of this process

o WW treats the purchased contracts as intangibles, and amortises them over four years

o Acquisitions range from £15k to £450k; the 2 most recent (Tyro, Quinto) cost £93k and £223k

o The target supplies contract details on which a financial, strategic and risk (FS&R) appraisal can then be carried out The data can be subject to adjustment and/or debate if contract terms alter

o The FS&R appraisal also covers business „fit‟ (e.g, client profile) and potential efficiencies

o The acquired company and staff must meet SIA and ACS requirements

o For Manned Guarding, the acquisition price is 1.5 x next year‟s expected gross profit

o For other sectors, the price is 2.0 x next year‟s expected gross profit

o For a target in several sectors, the relevant multiple is applied to each and the price is the total

o Staff transfer to WW under TUPE; directors of the acquired company are not usually taken on

o WW now uses Rosslyn to conduct FS&R appraisals after poor experiences on Tyro and Quinto

 WW is constantly tendering or re-tendering, looking to win contracts at acceptable gross margins Among other reasons, it can lose tenders when rival bidders offer artificially low prices

(Some of these points link back to the earlier industry information – see notes to Exhibits 2-3 They also

provide an obvious connection to the next two exhibits – 2010 business review and management accounts.)

In Exhibit 5, Anita briefs the board on the June 2010 management accounts and current developments:

 WW continued to achieve strong growth in 2010, helped by 2009 acquisitions, but this year‟s acquisition, Tyro, has not generated the expected level of revenue

 WW has continued to make good progress in 2011, following the major acquisition of Quinto, though this too has fallen below expectations Further acquisitions – and tenders – are in the pipeline

 The new Ardwicke work is generating extra revenue, and there is a new site on the PQR contract

 Other initiatives include new uniforms, increased training, Olympics-related advertising and a project to identify a potential CCTV partner

These comments are reinforced by Exhibit 6 – the June 2010 management accounts themselves, which

showed that both revenue and profitability had risen in tough trading conditions Specifically for 2010:

 Revenue was up from £13,136k to £14,264k (8.6%), with both business streams showing increases

 Gross profit was up from £3,019k to £3,195k (5.8%), again reflecting growth in both business streams

 Profit from operations was up from £1,469k to £1,720k (17.1%)

 Dividends were up from £575k to £600k

 Wages were up from £9,732k to £10,664k (9.6%), with the number of guards up from 582 to 622

 Head office salaries fell 13.0% from £884k to £769k, with the number of staff down from 27 to 24

 There were no significant changes in other cost captions

 Cash rose from £1,391k to £2,086k, and trade receivables net of impairment from £1,722k to £1,975k

 Among Manned Guarding KPIs: Revenue per man hour improved from £11.53 to £11.73; wages as a

proportion of revenue up from 77% to 78%; staff turnover from 19% to 21%; utilisation down from 90%

to 89%; training days per employee from 5.0 to 4.3; sickness days per employee up from 6.6 to 7.1

(As always, time spent on the financial information would have been invaluable The management accounts and board briefing – plus client table at Exhibit 4 – gave students ample material on which to carry out in-

depth financial and operational analysis on WW prior to the exam The method of accounting for acquisitions may have been unfamiliar, but it was clearly set out and should have been easy to follow Exhibit 4 also had summarised income statement and KPI figures for 2008, enabling candidates to carry out a more extensive trend analysis on these items The industry background and KPIs – plus Exhibits 7 / 10, with their references

to WW‟s rivals – should have helped develop candidates‟ wider sector knowledge, enabling them to produce value-added analysis of the company‟s performance They should have recognised the need to understand trends in the big clients; the importance of, and interaction between, the six KPIs; and the relationship

between revenue and hours They had to appreciate the major elements of all three primary statements and links between them e.g impairment charge vis-à-vis receivables)

Exhibit 7 is the WW business plan (prepared in February 2011) This sets out six strategic objectives and

six key risks The objectives include penetration of the Infologue.com Top 20 (for which WW would need to increase annual revenue to around £25 million); an improved tendering record; more acquisitions; and

diversification into new business streams and new geographical areas The risks include price competition; poor client service; major regulatory or other developments in the industry; and inappropriate recruitment

(All these points link to issues discussed in more depth in Exhibit 4 and elsewhere in the AI.)

Exhibit 8 deals with employment issues in manned security It lists the tasks typically carried out by guards

and goes on to set out „snapshots‟ of four pieces of UK law that affect the employment terms and conditions for guards, also important when a company is tendering for a new client or seeking an acquisition:

 UK Minimum Wage, set to rise from £5.93 to £6.08 on 1 October 2011

 EU Working Time Directive: a 48-hour maximum working week, from which the UK has „opted out‟

 Equality Act 2010, which protect the rights of individuals and advances equality of opportunity for all

 TUPE, whereby employees inherit the same pay and terms when their business changes ownership

Exhibit 9 sets out the regulatory framework for the industry, led by the Security Industry Authority (SIA),

which has two main duties: compulsory licensing of individuals undertaking designated activities within the

industry; and managing the voluntary Approved Contractor Scheme (ACS) For companies applying for ACS accreditation, 85% of staff must hold an SIA licence and the other 15% must have applications in progress

(As always with more „technical‟ content, these exhibits were provided as a synopsis of the legal issues with which candidates needed to be familiar for their understanding of some of the other case material.)

Exhibit 10 provides an overview of five tenders in which WW has recently participated, some successful

and some not – in both cases for a variety of reasons, primarily related to pricing or quality We learn that,

as well as price, contracts with Manned Guarding clients cover terms such as invoicing, payment, service

quality standards and a penalty in the event of early termination by the client Among successes have been:

 Packryte, for which WW had to demonstrate its credentials by undertaking a security consultancy project

 PQR, where proactivity enabled WW to win although its contract price was the highest of five bidders

 Hyacinth, for which it has more recently had to collaborate effectively with the police

Among the failures have been:

 Bild, where WW was unable to persuade the client on flexibility and refused to commit an unethical act

 Tower, a long-established client that it lost to its close rival Logos, which had put in a very low bid –

consistent with Logos‟ reputation for using such techniques to expand its market share

(These examples serve as illustrations for some of the general WW information given earlier at Exhibit 4.)

Exhibit 11 sets out an example acquisition appraisal, for Tyro Guards (Tyro), acquired in 2010:

 Tyro‟s two divisions, Manned Guarding (MG) and Mobile Security (MS), respectively generated revenue

of £409k and £37k and gross profit of £49k and £8k in the year to 30 September 2009

 MG utilisation was 90% and staff turnover, 22%

 For MG, WW asks targets such as Tyro to provide details of existing contracts: start date, weekly hours, guards per shift, charge rate, pay rate, „other costs‟ (22% of annual pay)

 Information about actual or potential changes to these contracts is then obtained

 Adjusting for such changes, Tyro‟s gross profit would fall from £49k (12.1%) to £38k (10.7%)

 MS gross profit was distorted by two factors On adjustment for these, it would rise to £18k

 Based on these figures, WW paid £93k: £57k (£38k x 1.5 multiple) for MG and £36k (£18k x 2.0) for MS

 Actual results to 30 June 2010 were worse than expected as some data given to WW had been wrong

(Candidates needed to familiarise themselves with the methodology set out here, particularly the factors that gave rise to changes in the figures initially provided by the target company A „proforma‟ exhibit of this

nature should carry a strong expectation that something similar will appear in the exam.)

Exhibit 12a-c are a series of press cuttings:

 In Exhibit 12a we are told that:

o random SIA checks have found 20% of all guards in Dorset and Hampshire to be unlicensed;

o an event like the Olympics could not be staged without a joint police / private security operation;

o clients prefer a supplier who can advise on developing the role of security within their business;

o the level of sickness days at a company can reveal underlying problems of staff discontent

 Exhibit 12b explains the security for the Olympics sailing events, being held at Weymouth and Portland

 In Exhibit 12c we learn that manned guarding companies are continuing to experience financial difficulty, with many seeking revenue growth at the expense of margins

(These articles shed further light on issues mentioned elsewhere e.g licensing, Olympics, pricing pressure.)

Information provided in the Exam Paper (EP)

The Exam Paper contained five new exhibits:

13 Email dated 27 July 2011 from Alfred Vesey to you: Watchwell Limited (WW)

14 Watchwell Limited: Management accounts for the year ended 30 June 2011

15 Email dated 25 July 2011 from Tom Mitchell to Alfred Vesey: Acquisition target – Mustang

16 Letter dated 21 July 2011 from Corey Thwaites (PQR) to Tom Mitchell (WW):

Tender to become sole security provider to combined Funtimes / PQR business

17 Funtimes – where has it come from? („Music For Today‟ magazine, July 2011)

These covered ten pages of new information, three of which comprised the management accounts

Examination requirements

Candidates were required to prepare a draft report to the board of WW, to include:

1 A review of WW's performance for the year to 30 June 2011

2 An assessment of the proposal for the acquisition by WW of Mustang

3 An evaluation of the advantages and disadvantages for WW in tendering for PQR‟s enlarged manned

guarding contract with effect from 1 September 2011 after its merger with Funtimes

Additional guidance drew candidates‟ attention to the expected approach for each requirement:

 Their review at Requirement 1 was to comprise a commentary on the revenue, gross profit, profit from

operations and the six Manned Guarding KPIs, by comparison with the previous year

 At Requirement 2, they were to calculate the price that WW should offer for Mustang and explain any

assumptions made in that calculation They should also advise WW on the factors to consider in

appraising Mustang‟s client contracts and profile of business activities, with reference to Tom Mitchell‟s email dated 25 July 2011

 At Requirement 3, they should address the commercial and strategic benefits and risks for WW‟s

business in tendering for this larger contract, dealing with Corey Thwaites‟ „matters for consideration‟ as well as any ethical issues arising

Candidates were also told to include an executive summary and to balance their report across the three

detailed requirements They were given a suggested time allocation, unchanged from recent Case Study

exams, as well as other guidance that should now be familiar in relation to executive summaries, the

discussion of ethical issues within their answer to the requirements, the need to attempt all requirements and, for each of these, to address all four skills areas: Assimilating and Using Information (A&UI), Structuring

Problems and Solutions (SP&S), Applying Judgement (AJ) and Conclusions & Recommendations (C&R)

The time allocation suggested to candidates was:

Candidates should have spent time studying Exhibit 13 carefully so as to understand the requirements and

to identify the key elements of each; digesting the other new exhibits (management accounts, proposals in

relation to Mustang and PQR / Funtimes, press article); and identifying the related AI exhibits to integrate

into their answers

For Requirement 1, candidates should then have begun a more detailed review of Exhibit 14, enabling them

to assess the 2011 accounts in the light of their analysis of past results and forecasts for the large clients

carried out in preparation for the exam For Requirement 2, it was essential to recognise that the data for

Mustang at Exhibit 15 followed the methodology set out at Exhibit 11 in the AI Finally, for Requirement 3,

candidates had to read Exhibits 16 and 17 and relate these to relevant material within the AI referring to

PQR and tenders – as well as other topics such as policing and the Olympics

With proper time allocation, candidates should have been able to complete these tasks within the four hours available to write a well-balanced report A danger may have been to spend too long on Requirements 1 and

2 so that Requirement 3 (and the executive summary) was rushed and thus unstructured or short of content Not for the first time, there was much evidence of such time pressure, particularly for the weaker candidates

Analysis of Exam Paper information

From an initial reading of the new exhibits, candidates should have established the following:

 WW has grown sharply in 2011 via expansion in the Ardwicke contract and clients inherited from Quinto

 A corporate agent has approached WW on the possible acquisition of Mustang, a small local company

 WW‟s client, PQR, is merging with Funtimes, a local leisure group (not mentioned in the AI)

 WW has been invited to tender to become sole security provider for the merged business

 As part of the tender, among other ethical issues, PQR is offering WW inside information from a rival bid

A more detailed review of the EP should then have elicited the key facts to be addressed in the exam

From the management accounts at Exhibit 14 (in similar format to Exhibit 6), we learn that WW has done

well in 2011, with strong revenue growth, but with pressure on margins and working capital Specifically:

 Revenue has risen to £18.9m, up 32.7% on the prior year, with growth across both business streams

 Revenue and hours from the two largest private sector clients have risen, though not as much as

forecast; but revenue and hours from the three key public sector ones have declined or stayed constant

 Quinto clients have contributed revenue of £1.1m and 94,000 hours, both slightly below forecast

 Cost of sales and administrative expenses are respectively up 35.1% and 37.2%, to £15.0m and £2.0m

 Most components of costs have risen, with wages and salaries broadly up in line with staff numbers

 As a result, gross profit and profit from operations are up 24.2% / 13.1%, to £3.9m / £1.9m respectively

 KPIs have been variable: in particular, revenue per hour is up from £11.73 to £11.91 but sickness days and staff turnover have both deteriorated

(Candidates will have expected to be presented with 2011 management accounts Detailed analysis of the AI figures – 2010 accounts, 2011 forecasts for key clients and KPIs – was essential preparation for understanding key relationships within the accounts and the main drivers of WW‟s performance They should not have been surprised to see the impact of Ardwicke and Quinto on the results or a decline in WW‟s public sector clients.)

Exhibit 15 presents the Mustang proposal, providing key financial information to be adjusted in line with the

equivalent data previously provided for Tyro Guards at Exhibit 11 This shows in particular that:

 Mustang has three divisions: Manned Guarding (MG), Mobile Security (MS), Security Consultancy (SC)

 In the year to 30 June 2011, these generated total revenue of £0.7m and gross profit of £0.2m, with

£0.5m of revenue in MG but gross profit much more evenly distributed

 MG comprises three contracts, one of which is having its terms changed, another is being renewed and the third (which generates minimal profit) is in doubt

 Utilisation is 93%; staff turnover, 17% Guards are fully licensed and receive six days of annual training

 MS is experiencing problems, partly at client sites in the Alpha, Bravo, Charlie districts

 The future of SC (professional advice to public sector bodies) is unclear: there are no signed contracts

and Peter Ross (director responsible) is leaving to set up a new company in the north of England

(This new information was in a very similar format to Exhibit 11, and the vast majority of candidates

recognised that the contents were directly comparable However, they had to identify and analyse the facts and figures relating to Mustang, which were subtly different from those for Tyro.)

From Exhibits 16 (letter by Corey Thwaites, PQR purchasing director) and 17 (press article), we learn that:

 PQR is merging with Funtimes, a local leisure group around the same size as PQR WW is being asked

to tender for the enlarged security contract, ten months before the existing PQR contract expires

 The only other bidder is Logos – Funtimes‟ incumbent security provider and a close rival of WW

 The enlarged contract will cover security for the 2012 London Olympics sailing venues at Weymouth and Portland, but Funtimes (using Logos) is solely responsible for the test events in summer 2011

 If its bid were unsuccessful, WW would have to be compensated for early termination

 Corey sets out eight „matters for consideration‟ for WW in preparing its tender These include: the need

to work closely with the police; the „TUPE‟ transfer of staff from the losing bidder to the winning bidder;

thresholds for SIA-accredited staff and female staff; a change in the invoice payment period from 30 to

45 days; the need to provide security outside Dorset from 2013; additional specialised staff training

 Corey is offering to provide WW with inside information on the Logos bid

 Logos is rumoured to be planning visits to WW client sites to tempt guards with cash bribes

 Funtimes has been reducing costs (including security at all venues) in a quest to become more efficient; this has proved a false economy, with savings dwarfed by the cost of a recent riot at its flagship site

(Candidates may have predicted a tender but are unlikely to have expected one arising in precisely these

circumstances For a proper appreciation, they had to have fully familiarised themselves with the AI.)

The EP develops a number of features of WW‟s business from the AI, each needing a different technique for

advising the board: The management accounts require a clear focus on financial statement analysis; the

Mustang proposal involves financial data analysis together with a broader business perspective and a strong

element of professional scepticism; while the PQR / Funtimes tender entails an understanding of WW‟s

strategic objectives and financial goals Exhibit 13 sets out the route to be followed in writing the report

The analysis of WW‟s accounts at Requirement 1 had to cover the items specified at Exhibit 13 It should

have been apparent that this involved not just the company as a whole but also key clients; not just revenue

but also hours; not just the income statement but also KPIs (but not the statement of financial position,

working capital ratios or the cashflow statement) Data for all of these was given, just as it had been in the

AI With a logical approach, the numerical analysis (mainly calculations of absolute changes and percentage variances) could have been carried out quickly, leaving time for a sensible commentary on this analysis

For Requirement 2, candidates had to perform a series of calculations on the acquisition target Mustang,

and then apply a healthy degree of professional scepticism in order to reach a conclusion that took account

of both quantitative and qualitative considerations A logical approach would again have paid dividends

Finally, Requirement 3 involved a structured assessment of a different sort of business activity – re-tender

for an existing client following its merger with another company in the same sector Candidates had to

produce an integrated piece of writing that addressed the key elements of the requirement („benefits and

risks‟, „matters for consideration‟ and „ethical issues‟) In relation to ethics, candidates had to read carefully

the note appended to Corey‟s letter so as to gauge the potential impact of the issues raised

Summary of grades available

The Examiners identified five topics for which grades would be awarded, corresponding to the requirements:

 Executive summary

 Review of WW‟s financial performance

 Assessment of proposal for Mustang acquisition

 Evaluation of PQR / Funtimes tender

 Overall paper

Candidates were rewarded according to how well they demonstrated, under each of these topics, their

application of four skills:

 A&UI Assimilating and Using Information

 SP&S Structuring Problems and Solutions

 AJ Applying Judgement

 C&R Conclusions & Recommendations

For each topic, there were a number of „boxes‟ under each of the four skills, representing specific areas in

which the skill was to be demonstrated Within each, candidates were awarded one of five available grades:

PART 3: COMMENTARY ON CANDIDATES’ PERFORMANCE

Professional skills

Assimilating and Using Information (A&UI)

In each requirement, but to varying extents, candidates had to integrate the AI with the new EP material in

order to build their answers Most appreciated the pervasive aspects of the case: the importance of

acquisitions and tenders to WW; its ambition of reaching the Top 20; the centrality of KPIs to the company‟s financial performance; and the regulatory framework

Most assimilated the numerical information well at Requirement 1, and so achieved high A&UI grades

Around half of candidates referred to wider industry and economic data (2-4% growth, 15% gross

margins, UK government cuts) Some also did their own further research to supplement the case

information Among the best examples was a CBI survey from May 2011 reporting average UK sickness

days of 5.9 per year A number of candidates mentioned an industry market review about the growth of

CCTV, but this was of questionable relevance and may have been the result of an expectation that WW‟s

plans for expansion into CCTV would form part of the exam requirements

At Requirement 2, they demonstrated effectively their understanding of the methodology from Exhibit 11 in

calculating the offer price for Mustang, referring also to the background on acquisition multiples at Exhibit 4 and the law „snapshots‟ at Exhibit 8 Some candidates skilfully used own research to compare WW‟s

multiple with Securitas‟ multiple when acquiring Reliance in 2010 (a transaction mentioned on pp8/28 of the AI)

At Requirement 3, familiarity with Exhibit 10 was essential There were also numerous other AI topics that

would have enhanced candidates‟ scripts (e.g references to the police, scattered across several exhibits)

In general, with grades for „Identifies business issues‟ or „Describes wider context‟ available in each of the

three main requirements, a clear differentiator was between those candidates who had familiarised

themselves with the AI and had done some reading around it and those, generally weaker, candidates who had not They tended to score badly in particular at Requirement 3

Structuring Problems and Solutions (SP&S)

Candidates generally demonstrated good SP&S skills, though with variation within and across the three

main requirements

For Requirement 1, most candidates produced a quality analysis of the 2011 accounts by including all

elements specified at Exhibit 13 and integrating their preparatory work effectively The most common

omissions were in respect of individual cost captions (needed for a proper appreciation of the margin

changes) or in not addressing all six KPIs As always, the weakest candidates produced tables of

percentages which they did not then use Some even reproduced the 2009 figures in their appendices,

perhaps in a bid to blind the examiners with science

For Requirement 2, candidates also scored well, providing calculations for the three divisions and then

explaining the assumptions underlying them They appreciated the need to be sceptical about the numbers, even if they did not query every assumption Many linked their scepticism to the problems with previous

acquisitions However, few gave much thought to Mustang‟s KPIs – which was disappointing, because KPIs had been a cause of problems in the Tyro acquisition

For Requirement 3, those who made a good attempt at each element should have achieved competent

grades in all three boxes In general, candidates were better at identifying the risks than the benefits Most

sensibly included the „matters for consideration‟ in their narratives (rather than as a discrete section), though they rarely addressed all eight

Applying Judgement (AJ)

Candidates struggled to achieve competent grades for AJ in Requirement 1 They found it hard to rationalise the implications of financial analysis on revenue or costs – the result of failing to assess trends in revenue

per hour among the key clients or to use the accounts information to explain changes in payroll expenditure Weaker ones spent time calculating key numbers and commenting on them but did not allow themselves

enough time – or lacked the expertise – to go beyond that and consider what it all meant and how one figure

might relate to another (e.g training costs vis-à-vis the „training days‟ KPI) or to other aspects of the case

Those who discussed revenue per hour or by key client, or who assessed the impact of contracts inherited

from Quinto, generally gained a competent grade for AJ box 1

The quality of candidates‟ business appraisal at Requirement 2 varied between the three divisions For MG, they recognised the fact that Mustang‟s reported gross profit margin was within an acceptable band, but they rarely considered the other issues shown on the marking key Few noted that Mustang‟s charge rates and

pay rates were quite a bit lower than WW‟s own or therefore assessed the implications of these differences Candidates noted the possible bias of the corporate agent who had approached WW A common judgement was to cherry-pick the best bits of Mustang to buy and refuse the rest; this needed to be properly justified if it was to earn good grades

For Requirement 3, the two ethics boxes on average earned much higher grades than the two for benefits

and risks Within ethics, the two „signposted‟ issues (bribery, insider information) were tackled much better

than the two more general ones (SIA accreditation, aggressive tendering) There was a similar gradation for risks and benefits, with more candidates discussing „cash‟ and „other‟ than „revenue‟ and „margins‟

Overall, as always, the strongest scripts contained reasonable, balanced and appropriate judgements built

on analysis They demonstrated a logical flow of decision-making and a real understanding of the case

Conclusions and Recommendations (C&R)

Strong candidates presented clear conclusions and sound commercial recommendations for all three

requirements, derived from their analysis and judgement (In addition, their executive summaries contained conclusions and key recommendations at each requirement.) The exam rubric makes clear that C&R grades are available throughout the exam Most candidates have now internalised this instruction and ensure that

they have a C&R section for each requirement (some still unnecessarily include one for each part of each

requirement)

The differentiator thus lies in the quality and relevance of these sections As usual, those of weaker

candidates were indecisive or misdirected

At Requirement 1, candidates were more likely to conclude on revenue (typically to say that WW was

making good progress towards the Top 20) than on margins or KPIs This was perhaps inevitable since

revenue had been the chief focus of their analysis The most popular recommendation was to investigate

the poor morale implicit in the high staff turnover and sickness days KPIs

At Requirement 2, almost all candidates recommended a price for Mustang, usually a single figure rather

than a range Pleasingly, they realised that they were being asked specifically to calculate a price rather

than advise on whether or not to proceed with the transaction at all They often went on to say that the

acquisition was easily affordable – a delayed chance to use their pre-prepared work on cash that had not

been needed at Requirement 1 Some added the suggestion to include some contingent or staged

consideration, not so much to reduce the pressure on cashflow as to mitigate the inherent acquisition risk

This showed good commercial understanding of the AI (problems with Tyro and Quinto) and WW‟s business environment Many advised WW to corroborate the Mustang information – a natural extension of earlier

analysis work: this was mostly in respect of the MG contracts and the future of SC

At Requirement 3, stronger candidates generally scored well Not all came to a conclusion on whether or not

to tender The majority of those who did so advised WW to proceed, and to focus on quality rather than

price Many made sensible recommendations on the ethical issues

Executive summary

Virtually all scripts included executive summaries, and virtually all referred to all three main requirements,

although not necessarily evenly (Requirement 1 tended to dominate) Most included numbers (both absolute

£ figures and percentages) and referred to the ethical issues from Requirement 3

The summaries of the best candidates were, as ever, excellent – of a sensible length (around 10% of the total report), covering the three main requirements evenly, integrating the key numbers and providing clear analysis that led seamlessly to conclusions and recommendations with an appropriate business focus and an ability to see the „big picture‟ They presented their key findings succinctly e.g “The main commercial implication is the

retention of PQR, which currently accounts for 10% of WW‟s total revenue” Most included conclusions and/or

recommendations at Requirement 1 (good results) and Requirement 2 (suggested price; need to corroborate Mustang data); at Requirement 3 disappointingly few gave WW any definitive advice on whether to tender Those of weaker candidates often ended in mid-sentence, suggesting that their authors had not planned

their time adequately As the executive summary represents nearly 15% of the total grades available, that is

a high-risk strategy Poor scripts usually did not include enough on each requirement For Requirement 1,

they mentioned the terms „gross profit‟ and „operating profit‟ and provided the headline figures, but gave no explanation of the drivers for movements and/or did not discuss revenue by reference to streams or clients There were often glaring omissions e.g nothing on KPIs (Requirement 1) or assumptions (Requirement 2) –

or excess brevity: on Requirement 3, one candidate wrote simply: “It is unethical.” Where ID/NA grades

were awarded, this was typically because candidates stated facts which they did not develop further; did not make any recommendations; or were just generally short in detail The worst summaries continue to be

enlarged contents sections or restatements of the requirements – or make points that are not relevant, as

though they had been practised beforehand and were going to be rewritten in the exam at any cost

Requirement 1: Review of Watchwell’s financial performance

This section was done well, with candidates generally focusing appropriately on the set tasks As noted

above, they should have expected the 2011 management accounts and so been well-prepared for this

requirement It was relatively straightforward and indeed – as for the equivalent in the past few sittings – it

produced the highest number of candidates achieving competent grades Most tackled it methodically, using the headings given (revenue, gross profit, profit from operations, six Manned Guarding KPIs) to ensure

coverage of all the main elements

Fewer than at some sittings strayed into areas that were not asked for – though a minority provided irrelevant treatises on the cashflow statement: “ It is concerning that this cash balance has been able to cumulate

year on year, and could be an indicator that the directors spend too much time on daily operations to utilise it for business development It would be recommended to use part of the cash balance to hire a new director specifically responsible for strategy and business development, to focus fully on driving WW‟s business

forward.”

The difference between weaker and stronger candidates was in the level of detail provided The former often discussed revenue and gross profit but made no mention of operating profit Alternatively, they did not

mention KPIs – or, if they did so, they mentioned only two or three of the six or just repeated figures from

case without adding any value

More than half of all candidates commented on the mix between revenue streams In fact, for this case, there

was not much that could be said about revenue streams, with WW having only two lines of business, one of which dominated Stronger candidates were instead able to produce a more complete analysis of revenue by

reviewing and explaining movements in revenue per hour, and in the best cases by key client They also

talked about the impact of the contracts inherited from Quinto and the fact that these had underperformed

Thus they might observe that the Quinto contracts were generating £11.46 per hour compared with the

overall WW average of £11.91 (Some confused themselves and treated Quinto as a client rather than as a company that had been acquired at the start of the year with a portfolio of contracts.) Few considered hours

in isolation: sensible remarks could have been made about the overall increase from 1.1m to 1.5m hours

worked and the link between this, the average working week, and growth in staff numbers and in utilisation Weaker candidates mentioned the clients only briefly They may have been put off (possibly feeling time

pressure) from performing the revenue per hour calculations This was a missed opportunity as some useful judgement could have been drawn from them In practice, there were only a few individual clients, or groups

of clients (a sensible overall remark could have been made about the three major public sector clients)

Some candidates did provide a table of all the revenue per hour but then made no reference to it at all – not

even just identifying those contracts with the highest and lowest ratios and certainly not providing any

explanation for the low revenue per hour from public sector clients This meant that they had wasted time

producing a schedule from which they gained minimal benefit – as well as using up valuable minutes that

could have been better directed at the other requirements

It was a similar story with gross profit and operating profit: weaker candidates merely provided the headline movements and gave no insight, by reference to movements in cost categories, as to what had happened

during the year Marginally better candidates mentioned that wages had risen by 35%, but again offered no

explanation as to why This was disappointing given that staff numbers were included in the notes to the

accounts (as they had been in the AI) and it was not hard to see that they were a factor, even without doing

a calculation of average wage per employee – which only a small minority of candidates in fact attempted

By the same token, of those who examined salaries within administrative expenses, only a minority related these to changes in the number of head office staff, let alone considering the reasons for these changes

Non-payroll costs were rarely mentioned: candidates may have thought that they were so small compared

with wages and salaries that they were too insignificant to discuss In practice, while this was true to an

extent and while there was no expectation that each caption would be explained, some variances merited an

explanation as they told a wider tale about the overall business; for example: “The 41% rise in recruitment

and training arises from the compulsory two additional training days undertaken by all staff during the year

and the costs of recruiting more guards to service the extra Ardwicke work in particular.” Where other

categories were discussed, advertising and impairment were the most popular, though for the latter the

comments tended to be quite shallow and those candidates who had rehearsed a review of cash or debtor

days missed this obvious opportunity to put it to good use

The vast majority of candidates followed the specific instruction to address the six Manned Guarding KPIs

The task was made easier by the fact that four were provided in the EP (note 4 to the accounts) and only

KPI 1 and KPI 2 had to be calculated Although listing all six (including KPI 1 and KPI 2), many did not then

discuss them fully or compare them – where the data was available from the AI – with industry standards or targets, or make a qualitative judgement about whether they had improved Better candidates made

connections between the KPIs (e.g sickness days and staff turnover) Utilisation was the least well done –

surprisingly, as many students work in environments where individually and collectively this is a statistic

that must be closely monitored

Appendices were generally well-presented and at a sufficient level of detail, showing movements in key

areas (see Appendix 1 to this Examiners‟ Report) There were few with meaningless numbers or

numbers not used in the report (but see above comments on revenue per hour) The majority of

candidates gave both absolute and percentage movements, but weaker candidates still just present

percentages without showing how they were derived, thereby running the risk of achieving low grades

under SP&S as well as for Overall Paper („appropriate appendices‟) The weakest of all included only one

number in the entire script – 20 (in the phrase „Infologue.com Top 20‟)

Requirement 2: Assessment of proposal for Mustang acquisition

Requirement 2 had the most grades allocated to it (12 skills boxes) There were in effect three parts to it:

 Calculation of the price that WW should offer for Mustang

 Explanation of any assumptions made in that calculation

 Advice on factors to consider in appraising Mustang‟s contracts and profile of business activities

The detailed example at Exhibit 11 in the AI may have led candidates to expect a similar calculation in the

exam Almost all did follow the prescribed approach, indicating that this was indeed the case.Encouragingly few candidates decided to provide their own valuation methods However, they would not have been able to predict so easily the numerous issues that arose in connection with Mustang, especially with its third line of business (Security Consultancy – SC) to add to the two with which they were familiar from WW itself and

Tyro – Manned Guarding (MG) and Mobile Security (MS)

The best candidates discussed the key issues in a structured, considered way, resulting in clear conclusions and recommendations at the end of the section: “At first glance, the analysis suggests that the acquisition will

be profitable It also fits well with WW‟s strategy of achieving growth and diversifying into other areas such as consultancy There are, however, a number of concerns, firstly over the authenticity of the data provided ”

This was followed by two other concerns, and then a suggested price and a list of eight recommendations

In general, weaker candidates failed to provide a rounded business appraisal of all three divisions (there

was often too much emphasis on MG and insufficient understanding of the issues affecting MS

band However, some were below £100k – which involved taking a pessimistic view of the whole business,

as well as using multiples lower than those normally applied, and perhaps also making some careless errors along the way (some were out by a factor of 1,000) At the other extreme were those above £1m, typically

through higher multiples and/or (again) silly mistakes When a very high price was given, it was generally just stated, without being rationalised The best candidates computed prices in the desired range and

commented on their scale in relation to previous acquisitions (“the second-largest since WW began and the

biggest since Supersafe in April 2000”)

Almost all candidates used the „Tyro‟ method to calculate the price for MG, adjusting the contract figures for the variations given However, a significant minority did not apply the tabular approach and their adjustments were often poorly done, for example merging extra income / wages / on-costs in one figure without a proper explanation Some got bogged down in trying to adjust for differences in year ends or in periods to expiry; in doing so, they forgot what they were meant to be computing In general, while schedules were mostly clear, quite a few were scrappy and hard to follow, with crossings-out and a lack of trail

In practice, only one of the three MG contracts (contract 1) required adjustment A substantial number of

candidates recognised a further, „hidden‟ adjustment: although the pay rate was not being formally

increased, the figure of £5.95 was below the new Minimum Wage of £6.08 taking effect from October 2011 The adjusted pay rate for contract 1 thus had to be at least this figure On the other hand, many candidates failed to adjust „other costs‟, although these were clearly stated in the Tyro example as being set at 22% of pay costs, and although in the Mustang table they were also at 22%

In contrast, contract 2 was being renewed on the same terms and so the figures as presented could stand – though there was scope for some scepticism here too (“It will be necessary to ensure that all the figures

supplied are correct and that there are no underlying undisclosed issues that could affect the continuation

and profitability of this contract ”)

The future of contract 3 was in doubt, and candidates adopted a variety of approaches towards it – mostly

acceptable provided that they were well-argued Many applied a value of zero, arguing that, with a very low margin, an estimated 50% chance of success in the re-tender and the risk of a reduced charge rate, the

contract would become loss-making Thus the most commercial view was to exclude it from the acquisition Some simply valued it at 50% of its current margin; others did more complex calculations and lost their way Candidates struggled more with MS Quite a few seemed to misread the exhibit and thought the 50% was an

additional margin adjustment after the 60% had been applied, and so came out with some low valuations As

the original gross profit was £96k, reducing by a further 50% to £48k probably felt right as they were told that the vehicles needed replacing and a drop from 60% to 50% may not have seemed big enough

The third division – SC – had not featured in the Tyro acquisition, and candidates were often unsure how to deal with it Most candidates reasonably opted for a price of £68k, representing £34k (2011 revenue) x 2.0

multiple Others tended to take the figures at face value and so had £136k (£68k x 2.0) The most prudent

believed that SC would not be able to continue at all without Peter Ross and that it was thus worthless

Explanation of assumptions

Candidates often queried the MG data (remaining life, Minimum Wage, value of contract 3) They were

reluctant to double the SC revenue and also realised that losing Peter was significant to the business At the same time, they happily accepted the MS data as presented with hardly any questioning of the assumptions Weaker candidates generally displayed little scepticism, often just restating the facts from Exhibit 15

With regard to the multiples, most candidates used the prescribed figure of 1.5 for MG Some felt that this

should be adapted to take account of the remaining lives of each contract (the figure of 1.5 was predicated

on an average period to expiry of 3 years), even though this was not done for the Tyro example at Exhibit 11 While the Tyro acquisition had run into problems, there was no indication that this was the result of a flawed assumption for the MG multiple Around half legitimately questioned the validity of a 2.0 multiple for SC,

given that – unlike MS – this was a non-recurring line of business Some came up with their own multiples

and then did not bother to explain where these came from