TGG Service: Preparing for a Merger or Acquisition (M&A)

Consider these things NOW – Before You Pursue Any M&A Deals!

When it comes time to sell a business, most owners know they must receive a certain price in order to achieve their exit goals. But when it’s time to finally list their companies, many owners often discover that their businesses are worth less than they had hoped. We can help you need to work on increasing the value of your business–before you pull the trigger on selling your company.

Companies that want to be attractive to potential investors or buyers seek out good advisors across all fronts.  Companies that want to acquire do the same.  They seek the advice of experienced financial advisors, lawyers, HR consultants, and investment bankers.  They are also among the 15% of firms have actual exit plans in place, and most of these probably have had these plans in place for some time. Their financial records are in order, they do not have any pending legal issues, and they have a solid understanding of what their company is worth.  And each key individual involved has a clear personal and financial goals.

Through our experience as strategists, we have learned that managing certain variables can help with strategic preparedness in securing a premium price for your business.  The same is true if you are interested in growing through acquisition.   Use these points evaluate your current situation.   Reverse the perspective to think about an acquisition candidate.

Your company should not be dependent on any one person.

If the future success of your business is dependent upon a few star employees or one person on the leadership team, that fact will almost always impact perceptions of valuation.  Documenting reliable and repeatable processes that can be executed by others when necessary makes it easier for a potential buyer or investor to envision how your organization could continue to grow and expand without the current owners or key employees.

Your company should be seen as a great place to work.

Investors are attracted to companies that are great places to work. If employees are excited and happy, turnover is usually lower than it would otherwise be. Employee compensation packages must be fair and tied to performance, and the organization should be recognized for its reputation of honesty, fairness, and ability to deliver.

You should have at least 3 revenue growth strategies identified at all times.

Only the companies that can demonstrate how they will grow, that they have considered strategy options that will provide them strategic flexibility, and that have articulated the rationale for their choices will sell for higher prices or be able to secure the capital needed to acquire and expand.

Your company must demonstrate an ability to adapt.

Technology is constantly changing, being enhanced, or getting displaced.  The most invested business owners know how they can adapt to technology changes, identify new markets, and continually retrain the workforce. Attractive companies know where they are going and have a definite plan to get there.

Your company should have at least one proprietary product or procedure.

Smart business owners develop new methods to accomplish everyday jobs in the most efficient manner possible – keeping in mind that “efficiency” should be measured in more than time spent or costs incurred.  Efficiency should be measured in terms of customer satisfaction and revenue growth and sustainability.  Really smart owners patent methods or technologies so they own these, and so these cannot or are less likely to be duplicated by competitors. This concept is proven almost daily when technology companies that have not even made money, sell for millions and sometimes billions. Owning proprietary technology or patents is a great way to boost the value of your company and attract investors.

Improve Business Value and Sale Price Potential – Before Pursuing Any Buyers or Sellers!

The longer you have to prepare, the more control you have over the value of your company (if you are selling) or the price you will have to pay (if you are acquiring).

Here are several ways we help to make your business more appealing – and more valuable – to today’s small business buyers.  You can also use these as guidelines when thinking about the value of an organization you might consider acquiring.

Increase profitability. It’s common sense that buyers are willing to pay more for companies that can quickly generate a profits. Showing buyers that you are profitable is a good first step, but it’s even better if you can show them that profits are increasing.  This will almost always drive up the price an acquirer is willing to pay. We can help you find new ways to cut costs or create efficiencies in order to make your business as attractive as possible.

Establish recurring revenue agreements. Sales are the engine that drive any business, and this especially true for small businesses. In advance of your exit, ideally three years before, we recommend you examine your exist strategy options, and consider ways to consistently increase sales and revenue with special attention on recurring revenue sources that would generate income for a owner right out of the gate.

Create seamless processes and routines. Smart buyers understand that in some businesses, the most valuable asset is the seller. As the seller, your job is to convince buyers that they can continue to successfully operate the business after you leave the scene. One of the most effective ways we do this for clients is to identify a small group of likely buyers of a client’s company well in advance – i.e., two to three years ahead of a target exit date.  Once we identify and research those companies, we then help each client develop airtight processes and routines for following each potential buyer.

Keep key employees on board. The last thing a new owner wants is employee turnover. Skilled employees bring stability to the business and generate real dollars for the company. By actively cultivating a high quality workforce, you can increase your company’s worth, especially if employees are committed to remaining with the company after exit. We help clients build long term incentives for key employees, such as equity ownerships that vest over time or bonus plans tied to profits that motivate key employees to stay on after a business sale.

Differentiate your product or services. Differentiation is an important priority for all businesses but especially for small business. In the business-for-sale marketplace, companies with differentiated products or services can command a premium. We can help you demonstrate that your company is uniquely positioned to dominate a slice of the market. To do this, we can help you determine how to most effectively promote patents, intellectual property, and all other unique features of your organization.

Tie up loose ends.  Before you list your business:  finalized leases, contracts, and other agreements can significantly increase business value, ensuring that you receive the price you need to move on to the next stage of your life.

Tidy up the business physically. Finally, don’t forget that oftentimes a buyer’s first impression of your business is the physical structure. Prior to listing your business, make sure your facility looks its best. If you’ve been considering renovations, new furniture purchases, or even just a fresh coat of paint, make sure this is completed before any candidate buyers step foot in the door.

To discuss you particular situation, contact us.