You have a business with a strong bottom line and you are considering selling to realise its value. As a general rule of thumb, you used a five times multiple of earnings to work out a valuation for your company and are happy with the price you could command for your business. You put the company on the market but the prices offered are nowhere near what you expected – so what went wrong?
Companies that find themselves in this position are likely to be lacking in transferable business value. Transferable business value is a company with internal characteristics that will continue once the owner departs. Without this, no matter how strong the bottom line is, acquirers are likely to be unwilling to invest, or drive down the price paid for the company.
So, does your company have transferable business value? The below details five features that acquirers look for in a business which could increase its value.
A Diverse Customer Base:
In this instance, you have to ask yourself, how much does your main customer contribute to sales? If this is more than 10%, then an acquirer may view the customer base as too concentrated on one customer, putting the company at risk if this customer was lost for any reason.
This is best dealt with by growing the customer base or, alternatively, establishing contracts for a substantial period of time that cannot be broken in case of an acquisition, ensuring an acquirer will not lose the customer base.
The establishment of written contracts also has transferable business value in itself – contracts demonstrate that you have a reputable firm and longevity, as well as making guaranteed money for an acquirer without need for any resources. Alternatively, a strong pipeline of products also demonstrates this and can save the resources of an acquirer.
Remember, transferable business value is looking at the business without you at the helm. So, if you are to depart, could the management team grow the business without you? If not, then you need to look at who in your company could step up and do this, or employ somebody who could. If you do have this management team in place, it is important to ensure they remain post-sale, perhaps by writing it into their contracts.
If you have a niche in the market an acquirer may want to purchase the company because of this, particularly if they are a competitor, thus translating as transferable business value.
If there is no niche, then you need to work out what your company’s competitive advantage is and promote and protect it. This could be as simple as competing on price point.
Even if your company is doing well now, an acquirer will want to see this extend into the future. It is, therefore, important that revenue is not only sustainable, but that you have a growth strategy in place, e.g. growth through new product lines. If this growth is also proven to be scalable, meaning that profit margins increase with revenue, then this is better in terms of transferable business value. Plans for growth need to be coupled with effective financial reporting to ensure that the growth is demonstrated by the figures to a potential acquirer.
To demonstrate growth, invest in financial systems to ensure accurate reporting and identify and write a detailed growth strategy, if you have not done so already.
If your company has all the above features in place then this is good news – you are likely to have a saleable company. If not, then don’t worry – Benchmark International can help you in advising on the optimum time sell, ensuring this is done when you have developed transferable business value. Benchmark International also has a wide pool of acquirers to choose from, sourcing companies that may be interested in companies that have, for example, no management team, as well as negotiating for you the best deal possible no matter the circumstances.
WE ARE READY WHEN YOU ARE
Call Benchmark International today if you are interested in an exit or growth strategy or if you are interested in acquiring.
Americas: Sam Smoot at +1 (813) 898 2350 / Smoot@BenchmarkCorporate.com
Europe: Carl Settle at +44 (0)161 359 4400 / Settle@BenchmarkCorporate.com
Africa: Anthony McCardle at +2721 300 2055 / McCardle@BenchmarkCorporate.com
ABOUT BENCHMARK INTERNATIONAL
Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximising solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $5B across 30 industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from 13 offices across the world, have assisted hundreds of owners with achieving their personal objectives and ensuring the continued growth of their businesses.