Good businesses will always fetch a fair price – outstanding businesses have already sold at a premium. How can you put your enterprise in the latter? By TOM McKASKILL.
By Tom McKaskill
If you have something that is attractive to a large corporation, then you should take the time to work out how you can make it more valuable before you put yourself on the auction block.
Large corporations are especially interested in assets or capabilities that they can leverage quickly to create large revenue gains.
To secure a premium for such an asset or capability, however, you need to be able to provide the buyer with some reasonable proven period of competitive advantage during which this has been exploited.
Remember, something that can be readily copied, negated, created or purchased has little strategic value.
Once you have identified that you do have something that can be leveraged in a strategic sale, spend some time to work out how you can make it more valuable to the buyer and thereby increase your potential premium on sale.
Something would be worth more to a buyer if they could exploit it earlier and faster. Thus, if there were less issues to resolve post-acquisition, before the underlying asset or capability could be exploited, this would have a positive impact on the sale price.
A business that is well managed, efficient, with good governance and with few outstanding problems to resolve would clearly be more valuable. At the same time, a business that could be readily absorbed or integrated into the corporation’s organisation would be more attractive.
The major objective of the buyer is to exploit the opportunity. Where the underlying asset or capability has been structured so that it can be readily replicated or scaled, the opportunity can be more aggressively exploited. Where this results in higher growth revenue generation and earlier profits, the buyer generates an earlier payback on the acquisition investment. This in turn means that the investment has a higher present value and thus the seller has the opportunity of securing a higher premium on sale in a competitive bid.
When you have a specific buyer in your sights, you might spend some time working out how you can increase the strategic value of the assets and capabilities for that buyer. If the sales value to their customer has a certain price, what can you do to increase the price?
If your product has a number of features or components, can you add more to increase its revenue generating capability? If there is an after market for services, spare parts or complementary products, can you find additional services or products to add to the list?
If the product has an implementation or consulting requirement, can you increase the value of the revenue associated with that part of the sale? Your objective is to increase the revenue per unit and thus increase the revenue generating power of your offering.
The key to maximising the premium on sale with a strategic buyer is to confront them with a compelling opportunity to generate high levels of revenue and profits as soon as possible after the acquisition. The premium is, however, normally only secured by having multiple bidders after that opportunity.
This is especially effective if the revenue is either new revenue to all the bidders and provides them with a growth advantage or is a competitive weapon that will take market share away from the losing bidders.
Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia.