DRIVING UP THE VALUE OF YOUR COMPANY: The Top Five Value Drivers
Carol Frank
Do you want to find ways to ensure your pet company is
more valuable 12, 24, or 36 months from now than it is
today? This is done through “Value Drivers” that increase
the transferable value a buyer will eventually pay for your
company. Generally, these value drivers increase cash flow
both during and after the original owner’s tenure.
Determining how to increase transferable value is the
owner’s job. But once owners and their advisors determine
which of the value drivers (listed below) must be
strengthened, everyone in the company should be
involved. Owners cannot do it alone. If they could, by
definition, they wouldn’t be creating transferable value
because once they departed, the value drivers would
disappear. Based on my years of experience as a pet
company M&A advisor, these top five drivers will give you
the most bang for your buck, with respect to increasing the
value of your company:
1.
2.
3.
4.
5.
Stable, motivated, strong management team who is
willing to stay on after an acquisition.
Sustainable revenue, resistant to “commoditization”
through unique products or IP.
A competitive advantage.
A documented and proven growth strategy.
A solid, diversified customer base.
A brief word about each:
1.
2.
3.
4.
A stable, motivated management team that stays
after owner leaves. If you plan to take any exit path
other than liquidation, capable management
is indispensable. Having the “best in class”
management is the surest way to become a “best in
class” company.
A solid, diversified customer base. Buyers
typically look for a customer base in which no single
client accounts for more than 10-15 percent of total
sales. A diversified customer base helps insulate a
company from the loss of any single customer.
Sustainable revenue. Buyers look for revenue
streams that continue despite fluctuations in the
economy. They also prefer those that are resistant
to “commoditization”, which can be avoided if your
company has strong patents or other forms of IP.
A Competitive Advantage. To paraphrase Michael
Porter of Harvard University’s Business School,
competitive advantage is the product or service that
a company offers–either better or more cheaply–
over time than does its competitors. Your
company’s competitive advantage is the reason
your customers buy from you instead of from your
competitors.
5.
A documented and proven growth strategy. In my
experience as an investment banker, the first thing
buyers want to know about a potential acquisition are
the specific ideas/plans the company has on how to
significantly grow the business over the coming years.
Valuation multiples in the pet industry are still quite
high, but those multiples cannot be achieved if the
seller does not have a solid, defendable growth strategy
that includes innovative, unique products or services in
the pipeline. Even if you expect to retire tomorrow, it
makes sense to have a written plan describing future
growth and how that growth will be achieved based on
industry dynamics, increased demand for the
company’s products, new product lines, market plans,
growth through acquisition, and expansion through
augmenting territory, product lines, manufacturing
capacity, etc. It is this detailed growth plan, properly
communicated, that helps to attract buyers. Buyers
will give credence to your current growth plan if
previous plans have attained their goals.
Creating the plan to increase transferable value in your
company is your job. No one else cares nearly as much and no
one else will reap as great a reward. Executing the strategy to
increase value, however, is everyone’s job. If you don’t already
have top managers and skilled advisors ready and willing to
provide ideas and implement value drivers, I suggest that you
recruit them immediately.
Remember that this list contains only the top “generic” value
drivers. There are many others that carry a great deal of weight,
depending on what your company does. Your best course of
action is to hire a professional advisor or CFO that can help you
execute a plan to attain your maximum valuation.
Carol Frank of Boulder, CO, is the founder of four
companies in the pet industry and a Managing Director with
MHT Midspan, a premier middle-market investment bank,
where she specializes in M&A in the pet sector. She is also a
principal at BirdsEye Consulting, the pet industry’s premier
consulting group. BirdsEye advises in the areas of M&A,
strategy, and licensing. She can be reached at
birdseye@carolfrank.com