Forvis Mazars Capital Advisors proudly advises middle-market companies and/or their shareholders in mergers and acquisitions (M&A) transactions. Sell-side clients most often engage us, seeking our support in fully or partially monetizing the corporate wealth they have created. Transactions are concluded through negotiations when a seller and a buyer ultimately reach mutually acceptable terms, including the purchase price. While clearly not the sole factor (many clients choose not to sell to the highest bidder), valuation is a key factor—ultimately, the “market” has a resounding voice. Accordingly, we’re often proponents of market-clearing processes where prospective and diverse buying candidates with varying motivations, resources, and intentions are given the opportunity to assess and declare what a specific target might mean for their corporate future and prospective value accretion. This allows the market’s valuation dynamics to be better recognized while also gauging other critical non-economic factors.
Does the market see your business as a “nice” business or an “elite” business? Nice businesses are typically sold to a willing buyer. Elite businesses are more often sold to motivated buyers or, better yet, inspired buyers. Inspired buyers are those who often pursue and leverage strategic alignment within their business model and plan. Inspired buyers are more likely to pay premium prices to those targets that offer a more complete strategic fit and defined growth opportunities, along with enduring, stable, consistent, and predictable future cash flow generation. Further, the more influence a buyer has to accelerate or intensify future cash flow generation of the seller’s (or its own) business, the more attractive and valuable the target business will be.
We’ve shared insights on strategies helping clients “monetize excellence.” Time and again, companies are rewarded for outgrowing and outearning their industry peers (profit margins are a key measurable). These top-performing companies have used great care and discipline in their pursuit of being among the leaders in their industry or market. Elite companies are often those with a deep portfolio of excellence, and, foundationally and culturally, they would have checked off many of the “P” factors on the pathway to prosperity outlined below. Being purposeful, planning-centric, people-driven, progressive, and pre-emptive repeatedly leads to premier and perpetual performance and profitability.
The path to prosperity is a good macro view of the steps necessary to make your company elite and more valuable. However, your company likely mirrors most businesses, and your path has endured a few potholes and roadblocks. What are some of the most pressing aspects you can focus on to help move your business from “nice” to “elite”? Making meaningful modifications to every aspect of your business can take time, often more than you might have. Let’s dig deeper into some of the elements we believe are among the key enhancers and detractors of corporate value.
Below is a list developed from our extensive transactional experiences to help our clients understand some of the positive elements that will be viewed favorably in the market or, conversely, what factors might adversely impact corporate value. Overall, the more you fall on the right/enhancer side of the below image, the more likely you’ll be rewarded with an above average and potentially superior valuation.
General Factors that Often Influence Value
| Growth Achievements & Prospects |
|
| Source & Nature of Base Revenues |
|
| Human Capital |
|
| Dynamics Influencing Margins |
|
| Capital Investments |
|
In our middle-market M&A sector, we’ve been privileged to help many companies achieve meaningful, rewarding outcomes. Some were elite businesses, and we worked purposely to position them as such, and many achieved a top-quartile outcome. Others were nice businesses with a few more blemishes, and we helped close rewarding transactions that met or exceeded client objectives. Regardless of where you are on your ownership and value accretion journey, there are likely opportunities to enhance your value. We hope the points above help identify some of the metrics and measures useful in enhancing your standing as a more marketable and valuable enterprise.
How Forvis Mazars Can Help
We are prepared to help you consider the attributes that can make your company more attractive to prospective motivated or inspired buyers—those most willing to invest in strategically aligned, low-risk, low-maintenance, and high-earning businesses. Strive to earn, as fully as possible, the reputation of a peer group leader, or one who has great momentum when stacked up to the growth and earnings profiles of your competitors. Earning this status is almost always rewarded. If you have questions or need assistance, please contact a professional at Forvis Mazars.