Understanding These 3 Concepts Will Help You Find A Strategic Buyer For Your Business
Walter Adamson
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Is your business better than the industry average?
Are you expecting more than an industry-average valuation when you sell?
If you answered yes to both questions, understanding three key concepts will help you prepare your business to sell to a strategic buyer.
Understanding the concepts will place your exit path in perspective as an outcome of a strategy that needs to be embedded in your business, starting today.
Concept 1: The Top 3% take 99% of the Top Dollars
If you aim to be in that 3%, then post this diagram on the wall of your home office. Make sure your effort, investment and focus take you up and across the line into the dark green zone.
Concept 2: Be Incomparable But Not Incomprehensible
Make your business incomparable.
The more buyers can compare your company to others, the more they will resort to price comparisons, e.g. average multiples for the industry.?
Invest in distinctive positioning with your customers, technology, culture and shifts in the market. And concurrently invest in bringing clarity to your operations and financial performance. The latter provides buyer insurance, which is especially important if buyers have to digest your distinctive positioning.
Concept 3: Leave the Offer To The Buyer. Don't Panic.
Companies at the bottom (Take) of the pyramid are those whose businesses are only worth the tangible net value of the physical assets (or the market value).??They have to take the best offer, and time is usually on the buyer's side.
At this level, the conversation starts with how much the buyer can buy the gear for somewhere else.
Companies in the Hope tier are bought for their pure accounting return on investment. As a result, buyers can readily benchmark these companies across a red ocean of investment opportunities. These companies live in the hope that buyers will prefer their business to others with equivalent financial returns. Think of accounting practices or larger restaurants.
At the Hope level, the conversation starts with how much the new owner could earn (as a job) with the business.
Companies in the Suggest category offer themselves for sale with a discounted value of future earnings added to the accounting valuation.
Here, the conversation starts with how much the company could potentially earn in the future. The future earnings are typically underwritten by a specific feature of the business but not necessarily a unique feature, e.g. a major project win or a recent renewal of period contracts.
The company will suggest a valuation to signal to buyers that they expect an offer higher than one based on a pure accounting valuation.
But the 3% of companies that have crossed into the dark green zone don't declare their price expectations. At this peak level, the conversation starts with "why" - "why we are selling, and why we think that you would make a great buyer".
Takeaway
Companies in the top 3% have committed against a benchmarked plan which positions them to bring value to a strategic buyer through a combination of bankable growth and the ironclad readiness of their operations. They have a compelling story ready for various types of acquirers.
The start the conversation with "why", and they leave each buyer to suggest a unique offer (often made with a deal structure related to the buyer's strategic objectives rather than just financial constraints).
Good exits happen when companies are bought, not sold
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This Week's Reading
Two articles from my reading list to help you grow and exit successfully.
Article 1: A Plan Is Not A Strategy
Strategy and execution aren’t opposites. They work together to help companies achieve success. But sometimes people confuse one for the other, and it leads to problems.
The strategy planning trap can ensnare any company because, at its root, execution is daunting. If you start thinking of strategy as something you just plan out once and execute on without much thought, you might end up getting bogged down in endless meetings and never actually executing what you planned. You might even find yourself trying to implement a strategy that isn’t ready.
Strategy is the art and science of making good choices that lead to success. It involves thinking through the steps needed to deliver on those choices. Those steps are embodied in tactical plans.
领英推荐
Roger Martin, former dean of the Rotman School of Management at the University of Toronto and one of the world’s leading thinkers on strategy, says developing strategy means going outside an organisation’s comfort zone and escaping the common traps of strategic planning.
Source (YouTube): A Plan is Not A Strategy
Article 2: Buy In is Not Enough for Successful Organisational Change - Think Transition
“We are ready, everyone has bought in.” I hear leaders use this or a similar type of statement as a signal their employees are ready for change. They are confusing buy-in with commitment, says Dr Dawn-Marie Turner.
When it comes to organisational change, “buy-in” and commitment are often used interchangeably, but they are very different. The difference between buy-in and commitment is important because buy-in is just intellectual understanding.
Commitment is about action. Buy-in is easy; commitment is hard. But once you commit to something, you're ready to do whatever it takes to make it happen. You've got to be willing to go beyond what you know and see things differently. If you want to achieve real change, you must become committed to making it happen.
There are three steps to becoming committed:
1. You must recognise that there is a problem. This is not a decision to act, but rather an acknowledgement that there is a problem to solve.
2. You must believe that you can solve the problem. This step involves believing in yourself.
3. You must decide to act. This is where you put into motion the steps necessary to accomplish your goal.
Only when your employees are committed to the change will they engage in the needed activities and, even more important, will they persevere through the discomfort of transition.
Source: ThinkTransition.com
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This Week's 3 Business Books
Free for you as a subscriber to my newsletter: Three of the world's most essential and popular business books in acclaimed 12-minute videos. Listen, or watch and listen, so you never miss another big idea.
Book 1: The Greatest Salesman In The World by Og Mandino (watch on Monday-Tuesday)
How do you become the greatest salesperson in the world? Learn the ten lessons you need to learn to get there.
Although written in 1968, all of the advice in it is timeless. In fact, if you've spent some time reading books in the personal development realm over the last 10 years, you'll notice a lot of the themes Mandino touches on being re-themed in a scientific manner e.g. belief - "the head chemist".
Book 2:?Willpower by Roy Baumeister (watch on Wednesday-Thursday)
Many scientists believe that there are only two things worth studying to improve humanity's collective well-being: intelligence and willpower.
Until recently, it was believed that there was nothing you could do to improve either. However, in this remarkable book, this myth is exploded. Baumeister explores the science of self-control and how we can use it to improve our lives.?
If you can apply the principles you learn here, you might be able to transform the trajectory of your life.
Book 3:?Think and Grow Rich by Napoleon Hill (watch on Friday-Sunday)
Along with How To Win Friends and Influence People (published a year earlier by Dale Carnegie), this book became one of the first best-selling personal development books. To date, it has sold over 100 million copies and is considered one of the best personal development books ever published.
Listen to the video and dive into the 14 principles that Hill tells us we need to learn if we want to be rich.
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? Previous Newsletter: Crucial Conversations: The Number One Reason M&A Firms Are Ghosting You
? Next Newsletter:?3 Horizons of Capability Investment for Your Business to be Bought Not Sold
Keep winning, Walter
P.S.?If you know you’re ready… it might be time to explore my?Proactive Exit Mastery?model, to see how you might capture the ultimate exit value for your business.?If you'd like to know a bit more, just message me or comment below with "Ultimate Exit Value".