Today we conclude our three-part series examining key steps to build a buyer ready business. The series is based on a study conducted by the Cass Business School of the City University London and Intralinks. The folks at Cass and Intralinks analyzed 23 years of acquisitions and examined a global sample of 33,952 public and private companies in the process of their research.
Their in-depth examination revealed, as we have learned over the years, that there are a number of key steps business owners can take to enhance their company valuations and eventual salability. Our recommendations are contained in a document we call the Roadmap for Enhancing Value (REV), which we provide to every client at the conclusion of our business evaluation. It examines a few dozen key areas that typically buyers are concerned about and that business owners can address in order to build a buyer ready business.
Also known as “off-balance sheet assets,” these are items that specific buyers will find attractive about your company, and their attractiveness will vary from buyer to buyer. This is how the study describes these features:
Many of our survey respondents point to intangibles such as brand value, the capabilities of management, legal and regulatory compliance, social responsibility, risk management and reputation – with culture often being mentioned, as a key factor in business growth.
Looking at this list above, folks with an MBA in finance will correctly point out that these are impossible to truly value. What is the dollar value of a company that meets all compliance standards in an industry? What intrinsic value does a firm’s reputation have? Well, we only need to look at the debacle that Wells Fargo now faces to understand that although these items may not be listed on the balance sheet, they have a huge impact on the valuation of any business.
Here are some keen insights from professional buyers surveyed by Cass/Intralinks:
“We look at the value and the name the company has made for itself in a particular region,” says the head of M&A and strategic investment at a Singaporean public company. “We believe in sustainable growth and have been focusing on companies that have been a part of it. But we also look at the way business is carried out and the culture within the company.”
“The target’s culture is very important. Having a clear understanding of the target’s culture will reveal several insights, making it easy for the acquirer’s management to take control and introduce new growth methods to help the business grow at a faster rate, benefiting all the people involved in this operation from the management right up to the employees,” says a partner at a UK PE firm.
Culture is just one of the many intangibles that buyers examine closely when making an acquisition. In our first article in this series we focused on top line growth being a key issue. The second piece honed in on profit margins and the bottom line as being equally valuable to buyers. However, based on our work with buyers, assuming that revenue and profit trends are positive, intangibles often will become a key determinant affecting not only deal value, but structure as well.
Here is a short list of some intangibles you may have in your business that you may not even be aware of having “value”:
Now this list does not apply to every industry and in fact, in some industries, you will find some very specific intangibles that buyers look for. What you need to do before you approach any buyers with your opportunity is to brainstorm your company’s intangible assets. Have you ever done this? It is an exercise I would encourage you to do. You might be surprised at how long your list may be. And the reality is this list will determine how you approach buyers, items you will highlight in your marketing materials, and features you will focus on when negotiating.
Interested in learning more about how buyers “value” intangibles? Attending a Generational Equity M&A workshop is a good place to start. A few hours invested in this meeting will help you generate a long list of possible intangible assets that exist in your business. To learn more, call us at 877-213-1792 or visit our website to learn when we will be in your area next.
By Carl Doerksen, Director of Corporate Development at Generational Equity.
© 2016 Generational Equity, LLC. All Rights Reserved.
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!Andy Graham, Vice President, Modern Heating & Plumbing
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.Michael J Polarek, President, Paragon Packaging
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.Michael J Polarek, President, Paragon Packaging
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.Karen S. Williams, CFO, BW Manufacturing
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
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