A few weeks ago the M&A Source hosted a webinar entitled “Value Drivers and Business Models” lead by James Darnell, a partner with KLH Capital. KLH Capital is a “fully capitalized SBIC-licensed private equity firm, which currently manages $165 million in capital across two funds. During their nearly 30-year business tenure, they have successfully completed more than 130 transactions, including recapitalizations, management buy-outs and buy-ins, family successions and retirement transitions, and corporate divestitures.”
Based on their track record, KLH’s perspective on the acquisition process can be quite enlightening. Their information was delivered from the viewpoint of a private equity firm actively acquiring privately held companies. Since many of our loyal readers are business owners who eventually will be looking for investors, I thought I would share with you KLH’s insight regarding how they view their targets, items that add value to an opportunity for them, and generally what they look for when they examine potential investments.
According to James Darnell, KLH looks for five key “value drivers” when they examine a potential target company:
Some key questions they ask for these five value drivers include:
KLH is not unique with the questions it asks about value drivers. Most equity firms and strategic buyers will ask you some variation of these same queries. The question only you can answer is this: Are you prepared to answer them?
This is one of the most important services that Generational Equity brings to its clients. We help to prepare you in advance for these questions and many more from business buyers during our initial evaluation stage.
Another point that Mr. Darnell made is how vital it is for the Offering Memorandum that you prepare for potential buyers to be designed to answer these questions in a format that clearly highlights the value proposition your opportunity provides. This is really essential and is usually not a focus of business owners who look for buyers without professional representation. Simply put, most business owners are experts in successfully running their businesses; however, more often than not, they are not experts in financial analysis, industry research, competitive analysis, and creative deal presentation.
Leading M&A advisors like Generational Equity are, and it is for this reason we have sold more lower middle-market companies in North America than anyone else the last several years.
A special thanks to the M&A Source and James Darnell from KLH Capital for presenting this incredibly vital information and giving us an inside view of how professional business buyers operate.
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