M&A market continues to go from strength to strength. Trade buyers need to make acquisitions to shift their business models and create scale, and private capital is looking for the yields that smaller businesses can provide.
M&A market continues to go from strength to strength. Trade buyers need to make acquisitions to shift their business models and create scale, and private capital is looking for the yields that smaller businesses can provide. Valuations are holding and if you are planning to sell your business, the following ten proactive steps can further maximise your company’s value:
Stand out from the crowd
If you cannot be differentiated from your competitors, your business will not stand out and buyers will have a choice, which will drive down your value. If you have a specialism within a niche sector, you create barriers to entry and generate a ‘we want, we need’ motivation. This is when buyers are forced to acquire you to ensure market share and/or market entry into new ‘blue oceans', thereby creating and capturing uncontested market space, making the competition less relevant and boosting margins.
Create a resilient business model
Many sectors suffered during the pandemic whilst others have sailed through. Reinventing yourself cannot change your industry, but you can learn from past experience and reposition your business to better counter future challenges. Targeting clients in resilient sectors, embracing remote and online ways of meeting customer needs, and working with suppliers to create more robust and alternative supply chains will all help to build future resilience.
Put data first
Volatility increases risk but this can be offset with information. No matter how great your service, or how excellent your reputation is, when it comes to selling your business, buyers are looking for future growth and yield. Demonstrating your company’s potential to buyers with the credible information and realistic forecasts will drive value. A virtual data room is a must, and this should be professionally presented to showcase the business.
Demonstrate your productivity
Being able to show that you can sustainably produce more than your competitors per headcount will put you in the upper quartile of your sector and this quality will command buyers’ attention in bids.
Put technology at the centre of your business
Today, every business has become technology-driven, and its effective use will underpin your company’s competitive advantage. We are increasingly seeing sale due diligence expanding to assess a company’s digital capabilities, strengths and weaknesses - from customer interfaces, sales, finance, enterprise resource planning, manufacturing, and human resource applications. Are your systems leveraged, integrated and ahead, or are you trailing the market? The pandemic has accelerated the virtual age and digital capability is increasingly becoming a good value influencer.
Measuring recurring performance in real-time
The old sales model of using three years’ historic profit to value businesses is a thing of the past. Since Covid, valuations are about now and tomorrow – looking at current performance and the credible work-in-progress to build future forecasts. Creating dashboards and key performance indicators such as the cost per acquisition of clients, lifetime values, and immediate real performance run rates are key in this assessment. Recurring revenue is also important - so even if you do not have contracts, being able to demonstrate high levels of repeat trade will push up the value, particularly if it is well spread between customers.
Aim to break through the glass ceiling
Business models are rapidly changing - companies ahead of market demand with customers in pull (they seek you as much as you seek them), always command higher valuations. Knowing how to position your business ahead of the competition is therefore important - buyers and investors do not like glass ceilings, they want a company that has ample headroom, capacity and demand to secure future growth.
Your people are important to sell your business
Buyers and investors want growth, and your teams ultimately deliver this - whatever your business model or track record. If you are the key driver of the business, investors will view this as a high risk, but if they can see that the business is driven by a quality team, that is competent, can drive growth and stretch their capabilities going forward, then this risk diminishes. going forward.
Partnering with the right professional team
Selling your business might be the largest transaction you undertake and having the right approach can make a fundamental difference in terms of its success and financial realisation. Positioning your company and process preparation are key to create an auction and because transactions are technical, appointing a quality advisor who understands you, your sector and the technicalities, is a major factor to drive value when selling your business.
This article comes courtesy of Avondale if you’re thinking about selling your business or looking for investment, please visit Avondale’s website to learn more about our services or call them for an exploratory discussion without obligation on +44 (0)1737 240888.