By Robert Murphy, Senior Managing Director
Obtaining Premium Value for Your Company
A strong financial profile is one aspect to achieving premium value for your business. Companies with revenue growth rates and EBITDA margins above 10% for the trailing twelve-month period (or one above 12% and the other metric at least 8%), received a 26% higher EBITDA multiple compared to companies that did not meet these criteria, according to GF Data’s, August 2022 M&A report.
While higher profit margins and revenue growth rates drive valuation multiples, there are also steps you can take to achieve a premium value when selling your company. These include:
- Future Growth Plans – Be able to articulate specific growth/expansion opportunities for the business. Growth opportunities impact valuation assessment. Create a growth vision for the buyer with as much supporting detail as possible. For example, if additional salespeople could drive growth from existing products/services, then detail specifics such as: how many to hire, candidate profile, where they would be located, compensation structure, markets to focus on and revenue targets for Years 1 and 2.
- Risk Mitigation – Identify and mitigate potential risk/concerns a buyer may have about the business. Be prepared to address issues such as customer or vendor concentration, high employee turnover, a recent spike in sales, or other potential buyer concerns are not a risk to future revenue and earnings.
- Preparation – Get the house in order, from financial reporting to business metrics, compliance and legal matters, and all business-related documentation. You’ll need to be ready to answer challenging questions and information requests from buyers throughout an extensive due diligence process. You do not want a due diligence concern to re-price the deal or delay the closing. Time delays can kill a deal.
- Reaching All Buyers – To ensure you have found the best fit and obtained a premium value, all capable logical buyers should be contacted including, when applicable, those outside the U.S. Competition among buyers will help to drive value.
- Engage an M&A Firm – An experienced M&A firm should obtain a higher value for your business and significantly increase the odds of closing a successful transaction than you could accomplish on your own. If you are currently speaking with a potential buyer, you think is capable, it’s time to bring in an experienced M&A team to keep the buyer honest and push for a premium value.
Many factors contribute to determining a company’s value. Company characteristics such as, revenue/profit size, growth history, depth of management, customer base, stickiness of revenue and competitive advantages, along with industry developments and the current M&A landscape influence how buyers will value your company. .
By addressing the five points above, you can increase the odds of receiving a premium value for your company.
About PKF Investment Banking
PKF Investment Banking is the investment banking affiliate of PKF O’Connor Davies. Whether a business owner is ready to sell the company or seeking growth through acquisition, our investment banking team is committed and credentialed to help owners achieve their objectives. Our investment bankers provide guidance through every step of the process and bring the expertise to enhance certainty to close – while always staying focused on maximizing the value derived from the transaction.
Securities-related transactions are processed through an unaffiliated broker dealer, Burch & Company, Inc.
PKF O’Connor Davies, LLP is a full-service certified public accounting and advisory firm with a long history of serving clients both domestically and internationally. With roots tracing to 1891, the Firm has 19 offices in the United States and abroad with more than 1400 professionals who provide a complete range of accounting, auditing, tax and management advisory services.
Our Firm provides the information in this e-newsletter for general guidance only, and it does not constitute the provision of legal advice, tax advice, accounting services, or professional consulting of any kind.