An investor can view an acquisition as a value investment or a growth investment. The differentiator between the classifications is often the price paid for the asset. Value investors seek to acquire undervalued assets, while growth investors seek companies at fair prices that offer growth prospects. An acquirer of your business is investing in the future, so it is important to maximize your business valuation by demonstrating a culture of innovation, historical growth, and growth prospects.
Often, companies that innovate are leaders in their respective industry or market and will continue to develop competitive advantages. Innovation starts from the bottom up, so it is important to foster a culture that allows employees on the ground level to share their ideas about process improvements and cost savings. To achieve this, take an approach that rewards and celebrates employees at all levels for ideas that spark business efficiencies and innovations. These business innovations can be quantified through various means, such as patents, copyrights, revenue growth, workflow efficiencies, and financial improvement, all of which will increase the value of your company.
Ask yourself: Are there any innovative technologies that can increase business efficiency? Are you monitoring the impact innovations have on your business or industry? If not, this is an area that will quickly enhance your business value and make it more attractive to potential buyers.
Documented historical growth is a necessity if you wish to obtain maximum value for your company. It is important to demonstrate a history of steady growth and document the drivers of that growth. It is also important to illustrate both the historical growth of the broader industry and your niche market, as this assures buyers that the industry has sustained growth. It is even better if your documented historical growth exceeds the industry average. This will make your company more attractive than your competitors’, leading to a premium purchase price.
Buyers are often interested in high-growth niche markets, as these create a barrier to competition. Strategic buyers operating in tangential markets will be very interested and be more inclined to pay a premium for the potential cost-saving synergies. While the buyer is investing in future growth, demonstrating a history of company growth and industry growth supports possible tailwinds for future growth.
Potential buyers will often already have an interest in your industry or market. A potential buyer is seeking the best investment within your industry, so having evidence to support company growth potential above your industry average is critical. A financial forecast showing revenues growing faster than the industry average is highly appealing but will be scrutinized by potential buyers. Contract backlogs and sales pipelines can support the likelihood of generating forecasted revenue.
Equally as important is being able to clearly articulate your service offerings and why demand will continue to grow. No one knows your business or your customers better than you. You need to explain how you will grow your customer base and increase sales. Potential buyers want to know your vision for the future and how your company will shape the market and industry. Capitalizing on market opportunities is how your business will continue to grow well into the future.
Demonstrating that your business has solid growth prospects will ensure your business is viewed as a growth investment and maximize your business value. Focus on developing a culture of innovation, as these innovations will generate cost-saving efficiencies and drive future performance, commanding maximum valuation when it is time to sell your business. In the meantime, these innovations will give your company a competitive edge over your competitors, solidifying a market-leading position.
This is the seventh article in our Value Driver series. Click below to explore the other topics.