PART 1: INDUSTRY/MARKET
You have spent years building your company. Time, energy and money, all in significant amounts have been put into the effort. Now you are starting to decide what to do going forward. There are generally three possible paths here and only you can decide which is right for you.
The middle path is to maintain what you have, a lifestyle business if you will. For some, this is a nice path to the rest of life. Unfortunately, life does not always stay the same. And for most business owners, the adage “if you don’t grow you die” is a personal conviction. The other two paths are to sell your company and exit the business or grow through acquisition along with your organic growth.
Generally, the goal of selling the business is to cash in on the equity built from growing a company to the level you have. And that cashing in must provide the financial independence you desire/require. Once you know what you want/need in the future you can then examine the difference between where you are now and where you want to be at exit. If there is a gap, then increasing the value of your company will be the major path to hitting your exit goals.
The reasons for buying a business are many and varied. Whether it is to gain market share, add new products and services, or enter a new market or industry, the overlying goal generally is to build value in your company.
In both the buy and sell side of things, there are value factors that will help you achieve either goal. These value factors are major drivers in the M&A world. Buyers of your companies will use them. Investment bankers and others who work in this arena will use them. Private equity firms will use them. They will be a significant part of any Confidential Information Memorandum (CIM). Thus, you should use them and manage to them as well
Do you need to be strong in ALL these areas? No, but you do need to be strong in quite a number of them. I recall a question to someone who was very successful in work and life. The question is: “Do you have to win at everything, be number one across the board?” The simple answer from the successful one is: “No, but I want to be top three to five in almost everything. All those add up to being in the top of the class.”
Segment: Meaningful market share and defensible position. You are playing in a specific space with a specific tool set. It could be an industry or a niche within an industry. It could be global or US or regional. It could be a set of products/services that span a spectrum of what is needed, or it could be a specific set of such. It could span the entire range from sourcing to end user or it could be within a certain area of the supply chain. No matter the place, you need to have a share of that market, YOUR market, that is meaningful. Your share must have some size and heft to it.
Additionally, it must be pretty defensible. Even if you are in a commodity-oriented space, you still must have something that keeps you above the fray. And it cannot be price alone. Buyers of your company are looking for a share of a market that has a meaningful size to them and that is defensible from all comers. Companies you are looking to buy must increase these two attributes in a significant way. Questions to ask yourself:
- What is your market and what share of it do you have (be as specific as possible here)?
- Is this a significant share of the market or is it too small or not important enough for anyone to care?
- Can you increase your share, either in the same market or in new ones?
- Can you increase it organically or is acquisition a more viable option?
- How defensible it your position?
- If someone with more money and more resources decides to come into your space will you survive the onslaught?
- What attributes make your position defensible (be specific)?
Competition: Thoroughly analyzed and advantages developed. Michael Corleone said in the movie, “The Godfather,”” …hold your friends close but your enemies closer.” Attributions to Sun-Tzu, Machiavelli, and even Petrarch all make sense as they all argued for knowing your enemy to best defend yourself and attack them. In business, knowing your competition and what they do will allow you to better place yourself within the market.
With this competitor knowledge, along with understanding your customer’s needs, you will be able to devise strategies, deliver products and services, and take actions that make you unique and thus valuable in your segment.
Companies buying you are looking at an asset and they want that asset to have value going forward…likely without you. Companies you are looking to buy should strengthen your ability to be unique as compared to your competition and value add to your client base. Questions to ask yourself:
- Who are your key competitors?
- What are the attributes they have that are different from yours?
- What can you do or what do you have that gives you a marketplace advantage?
- What else can you do or make or redesign or buy that will give you that advantage or add to the one you already have?
FOCUS Investment Banking is a trusted name in M&A advisory services with a nationwide footprint and a global reach. Our experienced team of bankers have helped hundreds of business owners sell their company, expand via acquisition, or raise capital. Learn more about our experience.