Maximising a company’s equity value

by | 20 Apr 2020 | Executive boards

The question of when to sell a company is always a difficult one, according to Karen Thomas-Bland, founder at Seven, a business transformation consultancy based in London. She says in the best circumstances companies are acquired before they ever present themselves ‘for sale’ as they are already on the radar of the acquirers. The key for companies is to make sure they are positioned in the best possible way to maximise equity value. Whether an exit is intended three to four years or one year away, it is not too early to consider what needs to be in place to be successful. So differentiating what you do and the value you bring is critical.

Always of interest is when to sell in a company’s development lifecycle. There is no right or wrong answer — some companies sell pre-revenue and others when they are well established. Some early stage (pre-revenue) companies are likely of interest to trade buyers before they scale and mature. They want to buy IP and a team to differentiate in the market place without the infrastructure of a large company which makes integration challenging.We have personally observed this more as a US trend to acquire company’s early stage to secure competitive advantage.

The first half of 2013 saw a lower number of company sales for the same period in 2012 (Allen & Overy), but with an optimistic forecast for the remainder of 2013. Facebook, Google, Groupon, Twitter and Cisco were the most active buyers of private US technology companies in 2012 and the appetite for acquisitions to accelerate growth is ever present.

Having conducted and advised on numerous acquisitions, in my experience trade buyers are typically looking for acquisitions, that offer:

  • An ability to scale faster than organic growth would enable.
  • A fast way to enter a new market, whether it be a new geography, service, industry or product.
  • IP or assets available that are potentially globally scalable or have value creation potential.
  • A particular capability or product to enhance their existing value proposition.
  • A niche sweet spot where targeted hiring or a joint venture wouldn’t work.
  • Good synergy and cultural alignment where integration would be ‘relatively’ easy.

Too many companies come into due digilence and are not properly presented and therefore leave money on the table when it comes to achieving the optimum valuation and sale price. Creation of a plan, developed early to ensure focus on the right levers is critical. This typically involves a stock take and plan to focus on the following key areas:

  • Company strategy and vision.
  • Value creation pipeline — to include intellectual property, technology, patents, methods, tools and accelerators.
  • Go-to-market strategy and sales and marketing proposition.
  • Product or service detailed descriptions and qualities.
  • Positive customer experience and reputation, reference case studies and testimonials.
  • Secure financials — revenue, profit, pipeline and finance raising ability.
  • Leadership and people experience and expertise.
  • Operational rigour to reliably predict revenue and profit and ensure quality of service or product delivery.
  • The quality of relationships with, for example, business partners or suppliers.
  • Market eminence and brand awareness — how well the company is ‘known’.

Companies who plan and implement in these areas prior to being ‘for sale’ are likely to achieve a higher valuation and ultimately higher sale price.

Based in London and with over 24 years’ global experience, Karen Thomas-Bland is often cited as one of the top business transformation consultants and coaches in the world. She is a trusted, global board-level advisor and non-executive director, creating sustainable, long-term value for FTSE/Fortune businesses and PE funds. She writes for many publications including The Times, FT, Association of MBAs and Management Today.