15 Ways to Increase Your Microelectronics Company’s Value Before an Exit: Part Four
Throughout our series, we’ve emphasized the importance of taking steps to prepare for an exit, which runs parallel to helping increase the value of your company. In this installment, we discuss the importance of continuously honing your competitive advantage, the value of an opportunistic mindset, and the usefulness of documented systems.
10. Build a Sustainable Competitive Advantage in Your Niche
Companies that provide products and services of great value to customers are attractive to buyers, specifically ones where customers cannot and will not easily switch vendors. Buyers usually do not pay much for commodities. Niches are more valuable than commodities if the niche is growing and profitable. Niches can consist of superior technology, quality or service. Service in the U.S. PCB/EMS industry for example, can mean fast, reliable delivery, for which many customers are willing to pay more. Having a price advantage is usually not enough. Buyers are wary of a possible “race to the bottom” with your competitors, especially if you are in an international business such as PCB/EMS. Your niche(s) must be valuable to your target customers and be profitable to you. Having a good niche is great, but if they don’t perceive you have some competitive advantage, your value goes down.
Being able to sustain that advantage over time in buyers’ eyes enhances your value even more. How? Examples include intellectual property, which can either be formal/legal (i.e., patents, copyrights) or informal (trade secrets, such as proprietary manufacturing processes). Showing a formal Continuous Improvement Program also helps by showing that your company has and always will innovate to keep ahead of the pack to avoid the dreaded C word: Commoditization.
11. Be Aware of Acquisition Opportunities
Earlier in our series we covered the value of having a diversified customer base. One way to mitigate customer concentration is to operate with an opportunistic acquisition strategy, which can be beneficial for many reasons; if you want to immediately increase your EBITDA and value, buy a profitable direct competitor. You will accomplish several things at once: you will increase your profitability and value, add experienced people in our current tight labor market, position your company to improve efficiencies and productivity by at the least removing redundancies between the two companies, and remove a competitor from the market.
12. Document Your Systems
Document everything! From training materials to company legal materials to manufacturing processes, even to important events. Why?
On sale, the buyer will put you through due diligence, and will ask for written information on everything you can think of about your company (and some you can’t). Disorganized documentation slows down diligence and creates additional work for leadership and staff. Responding to detailed diligence questions with, “Here is our doc or process for that system” is much better than “Oh, we don’t have any docs for that, let me see what I can throw together.”
Running an efficient, continuously improving company is another reason. It has been proven time and again that up front work on understanding and documenting things like processes and workflow results in greater operational efficiency and happier, more engaged employees. Finally, carefully (under NDA) showing these documents to buyers will help put them at ease in being able to mitigate issues such as employee turnover.
Stay tuned for our final installment where we continue sharing ways to increase the value of your PCB/EMS company. If you’re considering an exit, would like to learn more about FOCUS’ offerings, or have questions about the transaction process for PCB/EMS companies, please contact Paul Dickson, FOCUS Managing Director in Advanced Manufacturing and EMS/PCB Team Lead, at firstname.lastname@example.org