The M&A market continues to be buoyant, with buyers actively seeking out investments. In the main, this is due to trade buyers need to make acquisitions to shift their business models and create scale and there is private capital looking for a yield which smaller companies can bring. Company valuations are holding, however, if your plan to sell your business has been put on hold by the coronavirus, you can take practical steps now that will further increase that worth… So how do you maximise your companies’ value?
Stand-out in the blue ocean
If you look like your competitors, you will not stand out and buyers will have a choice, driving the value of your business down. If you can own a niche within a niche, you create barriers to entry and therefore ‘we want, we need’ motivation in buyers. That is when buyers are forced to acquire you to ensure market share and or market entry into new ‘blue oceans.’ Thus, creating and capturing uncontested market space, thereby making competition less relevant and helping boost margin. In the COVID era, margins are increasingly pressured, and this is the key counter.
The coronavirus has shaken previously thought unshakable sectors, whilst others have sailed through. Without reinventing yourself, you cannot change your industry, but you can learn from the experience and position your business for future wobbles. Seek clients in resilient sectors, embrace remote and online ways of meeting customer needs, and work with suppliers to create more robust and alternative supply chains.
Put data first
Volatility increases risk. This can be offset with information. You have great service and excellent reputation; however, buyers want growth prospect and yield. The more you can prove this with the right research, information, realistic forecasts and credible information, the focus can be on the opportunity that excites buyers to pay premium values. A virtual data room is a must, and this should be professionally presented, indeed crafted to a showcase.
If you can demonstrate that you can sustainably per person produce more than others in your sector, you will place yourself in the upper quartile in that sector and quality commands buyer’s attention in bids.
Put technology at the hub, not the spoke. Every business is a technology business
Today, every company is a technology business and its effective use underpins competitive advantage. Due diligence must, therefore, expand to a company’s digital capabilities, strengths and weaknesses from customer interfaces, sales, finance, Enterprise Resource Planning (ERP), manufacturing, and Human Resource (HR) applications. Are these leveraged, integrated and ahead, or are you a laggard? COVID accelerated the virtual age so digital capability will increasingly be a good value influencer.
Lead in real-time recurring performance
The old model of three years of historic profit to value businesses are gone. Historic profits have been spent. Sales are about now and tomorrow. What is it doing now and what is the credible work in progress to build the right forecasts? Create dashboards and key performance indicators such as the cost per acquisition of clients, lifetime values, and immediate real performance run rates. Recurring revenue is also central so even if you don’t have contracts, being able to demonstrate high levels of repeat trade pushes value up, particularly if it’s well spread between customers.
Build a breakthrough the glass ceiling strategy
Business models are changing rapidly, companies ahead of market demand with customers in pull, they seek you as much as you seek them, are always more valuable. This means knowing where to position your business ahead of the competition is an important value driver and being able to articulate this. Buyers and investors do not like glass ceilings, they want to see ample headroom, capacity and demand to secure growth wherever possible.
Invest in your people
Buyers and investors want growth and your people ultimately deliver this whatever your business model or track record. If the business is all driven by you, investors will see this as high risk but if they can see a business is team driven with quality then it is a lower risk, and risk is a key valuation metric. It is not good enough to show that your team are competent, better to show they can both drive growth and stretch within the business. This may require extraordinary investment in training and development.
Get the right professional team
Selling a business might be the largest transaction you undertake. The approach can make a fundamental difference in both its achievement and financial realisation at maximum value. Beyond positioning and preparation how the process is managed to create an auction is important. Furthermore, transactions are technical and therefore even if you have known buyers, appointing a quality intermediary who understands you, your sector as well as the technicalities, is a key-value driver when selling your business.
Avondale is launching a scale to sell Board Group we also offer one to one consultation to help you understand current valuations, value builder options or the best exit strategy options.
For an exploratory discussion without obligation, please contact us on +44 (0)1737 240888 or email firstname.lastname@example.org.
We have launched our ‘Lead Ahead’ Webinar Series in line with our weekly articles. Join our ‘Private Equity Sale Myth vs Reality ’ webinar on 23rd July 2020, 9.30 to 10.30 (BST).
For information on other webinars within the series, visit our Webinars & Events page.