M&A Seller: Key Elements of Your Company

Copyright CFO Insight LLC. All rights reserved.


Middle-market executives are expert at managing their business, but quite often concentrate exclusively on tactical matters and don’t consider strategic opportunities.  When you prepare your business for sale, you should examine the operations as if you were a buyer – both strategically and tactically. 

One function often overlooked by entrepreneurs – technical experts in their field – is marketing.  This does not simply mean selling to customers, but rather thinking about your business strategically.

Several elements of marketing to consider when you prepare for sale:

  • Products & services (…product portfolio – age and distribution; life cycle)
  • Market growth rate & market segment
  • Market share
  • Competition – macro market
  • Competition – micro (individual competitors)
  • Etc.

Products or services:  Mid-size companies may not feel the pressure to continually develop new products or services.  Quite often, owners make comfortable salaries and receive the benefits of a business-owner - they may become complacent. Examine your product portfolio, and what do you see? … a stable full of stale outdated products that you often discount to meet competitive pressure?  When did you last introduce a new product – either acquired or developed in-house?  When did you last assess your product/line strengths & weaknesses?  And because your product line is tired, your primary competitive weapon is price discount?  If your product line is somewhat stale, will a potential buyer see a ‘non-competitive business’?  

Assess your current products’ life cycle.  Rather than be completely negative in your assessment, what if you accepted a strategic goal of ‘one-third of annual sales would be from products/services introduced in the last 5 years’?  And you managed that goal through semi-annual reviews that continually sought new products – either developed internally or through acquisition.  If one-third of your line were relatively new products, would that also require you to cull the old, non-essential non-strategic products from your portfolio?

And perhaps you also periodically review competitive products, and industry trends to develop products before your competitors.  What impression does that create for a potential buyer?

The simple answer is that you can substantially increase shareholder value when you periodically review the Company product line.  Shareholder value will increase:

Through improved sales and profits before the sale, which will likely affect the selling price through the multiple of earnings to be paid, and
Your organization will demonstrate a progressive strategic approach to product development... the Company will be more desirable to potential buyers.   

My challenge to you:

How will you enhance your product line through internal growth or acquisition?  Establish a challenge – improve Company profitability by 25%!

 Many of you will respond that it can’t be done, and avoid the challenge because the writer doesn’t understand your market.  Some will only improve profits by 10%... 15% and the naysayers will boast that, “I was right… I knew we couldn’t increase profits by 25%!”

Ten percent profit improvement doesn’t sound bad to me… and when an EBITDA multiple is applied, how much value have you created?