Stage 2 investment report

1 Mandate and remit

The buyer seeks a single UK trading company, £2m to £6m revenue, EBITDA above £400,000, priced under £2,000,000, funded with equity of no more than £450,000 and senior debt at no more than 1.5× normalised EBITDA. Minimum year-one debt service cover 1.5×. Minimum base-case equity IRR 25.0%. Sectors in scope: business services, facilities management, light industrial. Excluded: regulated financial services, healthcare provision, anything requiring a licence the buyer does not hold.

2 Scope and exclusions

This report analyses filed and supplied data. It is not an audit, a legal due diligence or a survey. No verification of title, no inspection of the depot, no interview with customers and no testing of the sales ledger has been performed. Tax advice is out of scope. Nothing here is regulated investment advice.

3 Sources and authorisation

No public_web adapter contributed to this report. Two remain disabled pending a signed authorisation record.

4 Provenance key

Verified filed or registered. Seller supplied by the vendor, untested. Broker from the information memorandum, untested. Management information from the management pack, untested. Calculated derived by the platform. Operator assumption from the assumption table. Forecast forward-looking. Missing requested and not supplied.

5 Entity resolution

The listing names no company. Resolution used the trading name, the postcode district and the SIC code, and matched Northgate Facilities Services Ltd, company number 09912345, registered office Watford WD17, SIC 81210. Confidence high. Two candidate matches were rejected on postcode and incorporation date. Verified

6 Corporate history

Incorporated 2016. Nine full trading years. No change of name, no change of registered office in the last five years, no dormant periods, no restoration events. Accounting reference date 31 March, unchanged. Small company exemption claimed in each of the last three years, so filed detail is limited to the abridged formats. Verified

7 Officers and ownership

One director, appointed at incorporation, also the sole person with significant control at 100% of shares and voting rights. One company secretary resigned in 2019 and was not replaced. No other officers on record. The concentration of role, ownership and control in one person is the central operating risk in this transaction and is carried through to sections 29, 36 and 21. Verified

8 Charges and encumbrances

Two charges outstanding: a fixed and floating charge in favour of a clearing bank created 2021, and a hire purchase charge over vehicles created 2023. Neither has been satisfied. The bank facility carries £312,000 outstanding and is deducted in the equity bridge at section 43. The hire purchase balance of £88,000 is assumed novated and is serviced at £27,625 a year in the funding model. Verified

9 Revenue by year

£3,410,000, £3,780,000 and £4,120,000 for the years to 31 March 2023, 2024 and 2025. Compound growth 9.92%. Growth is steady rather than lumpy, with no single year carrying the increase. No revenue split by contract type is available in the filed accounts, so the analysis at section 25 relies on management information. Verified

10 Gross margin

Not separately disclosed under the small company abridged format. The management pack states a gross margin of 31.4% in FY25 Management information and this has not been tested against the filed accounts because the filed accounts do not contain the components to test it. The analysis therefore works at the EBITDA line throughout.

11 Overhead base

Administrative expenses are disclosed in aggregate. The overhead base has grown more slowly than revenue across the three years, which is the arithmetic source of the widening EBITDA margin at section 12. Whether that reflects operating leverage or deferred spend cannot be resolved from the filed data. Section 15 shows capital expenditure running below depreciation, which is consistent with deferred spend and is priced at section 43. Calculated

12 Reported EBITDA

£392,000, £455,000 and £521,000, a compound growth rate of 15.28%. Margin 11.5%, 12.0% and 12.6%. EBITDA has grown faster than revenue in each of the three years. Verified

13 Balance sheet summary

Net assets positive in all three filed years. Cash at bank £145,000 at 31 March 2025, bank debt £312,000, hire purchase £88,000. No pension deficit disclosed. No deferred consideration or contingent liability disclosed. The abridged format does not require a debtor ageing, so the concentration and recoverability of the ledger is untested. Verified

14 Working capital

Working capital absorbs 9.2% of revenue. Debtor days 55.6, creditor days 44.2. The business funds its customers for roughly eleven days longer than its suppliers fund it, which is normal for contracted facilities management and is the reason the working capital shock at section 47 is the most damaging of the seven scenarios. A £42,000 abnormal working capital deduction is taken in the equity bridge. Calculated

15 Capital expenditure

Maintenance capital expenditure is assessed at £62,520, which is 10.7% of platform normalised EBITDA and 12.0% of reported EBITDA. Recent capital spend has run below depreciation, and £60,000 of deferred capital expenditure is deducted in the equity bridge to reflect the catch-up a buyer inherits. Calculated

16 Cash flow summary

Free cash flow of £369,910, being normalised EBITDA of £585,200 less maintenance capital expenditure of £62,520, less a working capital movement of £38,600, less pre-deal cash tax of £114,170. Conversion 63.2%. Calculated

17 Seller adjustments presented

Six adjustments totalling a net £152,700, taking reported EBITDA of £521,000 to a seller adjusted figure of £673,700: owner remuneration £95,000, family salary £28,000, vehicles £14,500, personal travel £9,200, exceptional legal costs £22,000, less a one-off grant of £16,000. Seller

18 Adjustment testing method

Each adjustment is tested on three questions. Is the cost genuinely discretionary to the owner rather than to the business. Would a buyer avoid the cost entirely, or only in part. Is the amount evidenced. An adjustment that fails the first question is rejected. An adjustment that fails the second is reduced to the avoidable part. An adjustment that fails only the third is accepted at the evidenced portion and flagged.

19 Adjustments accepted

Four accepted in full: owner remuneration £95,000, vehicles £14,500, personal travel £9,200 and the one-off grant deduction of £16,000. The grant is deducted because it is non-recurring income, and accepting a seller deduction that lowers earnings is not a concession, it is the same test applied consistently.

20 Adjustments challenged

Two reduced. The family salary add-back of £28,000 is cut to £22,500 because part of the role is genuinely performed and would need replacing. The exceptional legal cost of £22,000 is cut to £11,000 because the matter spans two years and only the portion outside normal legal spend is exceptional. Combined effect £16,500 of EBITDA, worth £56,100 of enterprise value at 3.4×.

21 Owner replacement cost

The owner performs an operational role beyond that of a shareholder. Replacing it is assessed at £72,000 including employer costs. This is deducted from adjusted EBITDA. The seller's presentation adds back the owner's full remuneration without deducting the cost of the work, which overstates transferable earnings. This is the single largest difference between the two views. Calculated

22 EBITDA bridge

23 Normalised EBITDA

£585,200, a margin of 14.20% on revenue of £4,120,000. This is the figure used in every downstream calculation: the multiple, the enterprise value, the debt capacity, the cover ratios and the stress tests. The seller's £673,700 appears nowhere in the model. Calculated

24 Bridge sensitivity

If both challenged adjustments were accepted in full, normalised EBITDA would be £605,200 and the maximum supportable price would rise from £1,740,000 to £1,780,000. If the owner replacement cost were not required, normalised EBITDA would be £657,200 and the maximum £1,882,000. The second case is not a modelling choice, it is a decision to work in the business full time. Calculated

25 Recurring revenue

68% of revenue is described as contracted or repeat. Management information This is above the mandate preference of 60%. It is untested and carries no duration, because the contract expiry ladder was requested on 18 August and not supplied. A 68% recurring share with twelve months of remaining term is a different business from the same share with four years.

26 Customer concentration

Largest customer 18.4%, top five 46.1%, top ten 61.7%. Management information The largest sits in the platform warning band between 15% and 25% and below the 25% refusal threshold. Losing it is modelled explicitly at section 47 and produces a cover breach.

27 Debtor and creditor days

Debtor days 55.6, creditor days 44.2. Calculated Both are computed from filed balances and filed revenue, so they are period-end snapshots rather than averages and may understate intra-year swings.

28 Cash conversion

Free cash flow of £369,910 against normalised EBITDA of £585,200, a conversion of 63.2%. Calculated This is the number that carries the debt. Every scenario at section 47 works by changing it.

29 Owner dependency

Assessed moderate. The owner holds the customer relationships and signs the contracts, and there is a supervisory layer beneath. Dependency is not assessed as high because the operation is contract-delivered and the delivery does not run through the owner day to day. It is not assessed as low because no second signatory exists on the commercial side. Calculated

30 Management depth

One operations manager and two supervisors are described in the management pack. Management information No commercial or finance lead below the owner. Any buyer who does not intend to work in the business full time is buying a hiring problem alongside the trade, and the £72,000 at section 21 is the price of solving it.

31 Employees and suppliers

Headcount is not disclosed in the filed accounts and was not supplied. Missing No supplier concentration data was supplied. TUPE implications on contract transfer have not been assessed and are legal diligence rather than platform analysis.

32 Distressed signal check

No signal detected across the eight implemented checks: late filing, repeated late filing, strike-off action, new charge, net liabilities, consecutive losses, clustered director resignations and auditor resignation. Three checks are not implemented, being judgments, petitions and trade payment behaviour, and their absence is stated so a clean result is not read as a full check. Detail at distressed detection.

33 Legal and regulatory

Facilities management in this configuration requires no licence the buyer lacks. No regulatory register entries were found. The exceptional legal cost at section 20 relates to a matter the seller describes as settled, and no confirmation of settlement has been supplied. Legal diligence is out of scope for this report.

34 Property and lease

One leased depot in Watford. Term, break dates and rent review pattern were not supplied. Missing A dilapidations provision of £35,000 is deducted in the equity bridge as a platform estimate, not a surveyed figure. A lease with a near break and a large dilapidations exposure would change the bridge materially.

35 Contract and customer risk

The combination of 68% recurring revenue, an 18.4% largest customer and no expiry ladder means the platform can state the concentration but cannot date it. This is the highest-value gap in the report. Section 47 models the loss of the largest customer and the result is a cover breach at 1.40×.

36 Key person risk

One person is director, sole shareholder, sole person with significant control and the commercial lead. The mitigations available are a handover period, an earn-out or a deferred element. The modelled structure includes £100,000 of deferred consideration payable at month 24 and a £260,000 vendor note repayable on exit, both of which keep the seller financially engaged.

37 Acquisition quality score

38 Component scoring detail

39 Mandate screening result

Twelve of fourteen tests pass. One fails: the asking price of £1,850,000 exceeds the platform maximum of £1,740,000. One is overridden: owner independence, which is a stated preference rather than a hard requirement. Full detail at screening.

40 Overrides recorded

One override. Owner independence marked as acceptable at moderate, on the recorded reason that the £72,000 replacement cost is already deducted from earnings, so the dependency is priced rather than ignored. The override is attributed, timestamped and visible in the audit trail. It does not alter the score.

41 Multiple selection

Sector base 3.4× from operator assumption table v3 dated 1 July 2026. Operator assumption Six adjustments applied: +0.35 recurring revenue, +0.20 growth record, −0.30 owner dependency, +0.10 margin trend, −0.20 customer concentration, −0.15 size. Net effect zero. Selected 3.4×, within a range of 3.0× to 3.8×. No comparable transaction data has been ingested and none is asserted.

42 Enterprise value

3.4 × £585,200 = £1,989,680. At the low end of the range £1,755,600, at the high end £2,223,760. Calculated

43 Equity bridge

Low case £1,363,600, high case £1,831,760.

44 Price range

Opening offer £1,380,000. Target £1,560,000. Maximum £1,740,000. Asking £1,850,000. The maximum is not the equity value from section 43, it is the price at which year-one debt service cover reaches the 1.5× mandate floor. Calculated

45 Funding structure

At the target price of £1,560,000: equity £420,000 being 26.9%, senior debt £780,000 over six years at 9.5% amortising, a vendor note of £260,000 at 6% interest only with principal repayable on exit, and deferred consideration of £100,000 payable at month 24. Assumed hire purchase of £88,000 novated and serviced at £27,625 a year. Total funded debt 1.95× normalised EBITDA, senior alone 1.33×. Transaction costs of £60,000 are met from the £145,000 of acquired cash. Calculated

46 Returns and cover

Year-one debt service £219,700, cash available for debt service £390,825, cover 1.78×. Cover rises to 2.25× by year five as senior amortises against a flat service profile. Base case equity IRR 65.3%, money multiple 7.4×, equity payback 2.6 years. Downside IRR 51.2%, multiple 5.0×, payback 3.0 years. The high modelled return is a statement about a 3.4× entry multiple with £420,000 of equity, not a prediction. Full working at funding and returns.

47 Stress tests

Three cover breaches, no return breaches. Detail at stress tests.

48 Reverse stress test

Cash available for debt service is close to linear in EBITDA at CADS = 0.643 × EBITDA + 14,445. Cover reaches 1.5× at EBITDA of £490,200, a fall of 16.2% from normalised. It reaches 1.25× at £404,800 and 1.00× at £319,300. A 16.2% fall in EBITDA corresponds to an 11.5% fall in revenue, which is less than the largest customer represents. Calculated

49 Forecasts and permitted use

Three cases are modelled and each carries a Forecast tag. Base year-five EBITDA £723,000, downside £525,000, upside £866,000, probability weighted £702,100 at 55, 25 and 20 percent. Forecasts may be used to test debt capacity and to frame the exit. They may not be used to pass or fail a screening test, they may not contribute to the quality score, and they may not be quoted as fact. Detail at forecasts.

50 Recommendation and gaps

Attractive only below £1,740,000. Open at £1,380,000 with the two challenged add-backs itemised. Hold £1,740,000 as the ceiling, because above it the year-one cover test fails on the platform's own model. Do not commit Stage 2 diligence spend until the seller engages on price.

Four gaps. None has been estimated into the recommendation. Each is either priced conservatively in the bridge or excluded from the conclusion.