Beyond Financials: A Look at Key Value Drivers

Make no mistake: Your company’s financial statements will be the primary reason buyers are attracted — or not attracted — to your business. However, other factors, commonly referred to as key value drivers, can boost your company’s M&A market prospects and possibly spark interest from buyers that would otherwise pass you by.

Key value drivers can range from a business’s cultural compatibility with a potential buyer to significant real estate holdings to desirable intellectual property. What’s important is that a seller’s drivers complement an already compelling financial story.

Customers and competitors
One of the best ways to demonstrate your company’s value is with customers. Most buyers like to see a diversified customer base. That’s because a company that depends on a limited number of key customers is vulnerable to financial disaster if it loses only one or two accounts. A customer base that extends across several geographic regions or market sectors also may appeal to some buyers concerned about concentration risk.

Your company’s industry can also be a value driver for some buyers — particularly if the sector is expanding rapidly. Large, established companies often prefer to buy a startup in a young, hot industry rather than attempt organic growth in an unfamiliar environment. Keep in mind, though, that you can’t use industry as your sole selling point. To get top dollar, your company must distinguish itself from its fast-growing competitors with, for example, unique intellectual property or unusually efficient supply chains.

Internal assets
Internal factors also drive buyers in your company’s direction. Depending on your suitor and its larger strategic goals, you might want to emphasize the following attributes:

• Management talent. Is your company’s management bench deep and capable of running the business successfully without its current owner? Have managers signed contracts or been offered incentives to remain after the sale? Many buyers consider key employees’ willingness to stay on critical to their offering price — and even to the deal’s viability. 
   
• Employee tenure and morale. Do you have many long-term employees or is your business plagued with high turnover? Have you clashed with employee unions or been hit with discrimination suits? Buyers generally prefer companies with happy and committed workforces that will be reasonably easy to integrate into their own organization.
   
• Physical appearance. Are your office, service and production facilities clean and well maintained? Are your website and social media pages up to date and easy to navigate? Is your software and hardware current and effective? A dated company logo, poorly maintaineddatabase or even worn reception-area furniture tells prospective buyers that your company has seen better days. On the other hand, good organization and a strong “curb appeal” can be key selling points with buyers looking for a turnkey opportunity.

Products that pay
Some buyers focus primarily on the products and services they’ll be acquiring. Goods backed by proprietary information (such as a special manufacturing process) will appeal to most buyers because they potentially offer higher profit margins and a unique marketing story.

Growth potential and market exclusivity are also attractive. Do your products have strong brand recognition? With an additional infusion of capital, a seller might be able to build on your brand and market position by adding products and expanding territories.

Making a future case
These are only a few of the many value drivers that can help you sell your business. Before putting your company on the market, look closely at all of your assets and strengths and decide which ones are most likely to appeal to potential buyers. 

Don’t overlook the opportunities you’ve been unable or unwilling to tap. A new owner with greater resources may regard even business challenges as valuable growth propositions. 

For questions about the determining your company’s value or other financial advisory services matters, please contact us.

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