16 May Average Industry Multiples Were Meant to Be Shattered
A great deal of people think they’re above average which, of course, can’t possibly be true because it flies in the face of the very definition of a bell-curve. But, if rightly prepared, trained and worked the bell-curve could be appropriately moved to the right, thus boosting the average of everyone from what was once thought to be mediocre. That’s our mergers and acquisitions strategy. We assist to boost the average value of businesses beyond their normal pre-conceived limits. Admittedly, it’s easier for some companies than others, but the process is proven and repeatable. In short, averages were meant to improve and in our line of work that means business valuations can be boosted. Whether by adjustments and focus on sales, marketing and growth or by axing some of the non-essential expenses that may not be tied to the business. In some cases, the best bolster for valuation increases will come through the auction process.
Because a business exit involves both real value enhancement and what some might call “strategic financial engineering” (in a very legal and ethical way, of course), the value can and is often boosted above what typical low-ball averages are paid. This ensures less money is left on the seller, but even more importantly, it solidifies the symbiotic and necessary relationship between the business seller and the M&A advisor. This is just one of the many reasons, you should never–under any circumstances–attempt to sell your business by yourself.
Of course, each group of buyers will have their own individual limit as to where they are willing to go in terms of value. There has to be a real strategic fit and value for potential acquirers to want to pay a premium for the company. Boosting demand by bringing multiple buyers to the table, is only one principle that can be used to do it. Most of the others require strategic management consulting to breathe new life into the business and help it either grow or eliminate inefficiencies. Both methods are often required for business sellers who may be looking for a massive payout. This is especially true for sellers looking to retire early who may want a larger after-tax financial buffer. The value in such cases is required to be much, much higher.
It also depends on the type of interest the business generates when it’s taken to market and from whom and the industry niche in which you operate. Commodity-like businesses will have a more difficult time, especially if they’re working with a purely financial buyer with no differentiating strategic need for the business.
In sports, as in business, records and limits were meant to be shattered, but there will always be an upper bound. What will be your upper-limit?