M&A Success – Preparing is the Key

By Generational Equity


Recently Firmex, a global provider of virtual data rooms and a secure document sharing platform, and Mergermarket, an independent, mergers & acquisitions proprietary intelligence tool, co-hosted a roundtable discussion focusing on current M&A conditions. Their point was that no matter what cycle the market is in, deals still close and according to one panelist, preparation is the key:

Mary Ann Travers, Principal, Crowe Horwath: Private company sellers need to make sure they’re putting their best foot forward. Part of that entails analyzing their operating expense bases and preparing financial statements that reflect their company’s operations in a favorable light. They should remove non-operating expenses; identify off-balance-sheet items; and make sure that their headcount is optimal, although not too lean, since they want to achieve their forecasts. When preparing their forecasts, they should make sure that they’re capturing growth opportunities and that they have supporting documentation to back up their assumptions.

Truer words have never been spoken. And what Travers is referring to is the process Generational Equity calls its evaluation; we conduct one of these on every client before we take them to market and we do this for two primary reasons:

  1. To determine the company’s current business enterprise value (BEV), also known as the company’s economic value, and
  2. To develop strategies to help position the company to be on the path of buyer readiness

The BEV is vital because every business owner should have an idea of the baseline value for their firm before approaching buyers. If sellers have no idea of the value of the company, how can they know which offers to take/reject/ignore/pursue? Realistically they can’t, so before we enter the market, we determine the BEV, which then leads us to point No. 2 above: Strategies which we call The Roadmap for Enhancing Value (REV). These are ideas/strategies that owners can implement even while in market that will enhance the company’s value and/or improve its sale-ability. This is how another participant of the roundtable describes the idea:

Jeff Cleveland, Managing Director, D.A. Davidson: We counsel all of our clients to take deliberate steps to properly prepare in advance of a transaction in order to optimize results … areas of focus tend to include business operations, customer and supplier relationships, market dynamics and growth opportunities, and facilities and equipment. Assessing and adjusting a business around these key areas can facilitate meaningful value creation by the time shareholders execute a sale. Fundamentally, this sort of preparation is simply about building a better business for the long-term. Investors will take note of these sorts of improvements, above most things.

Cleveland makes a great point at the end of his discussion on value improvement: Buyers will take note of the steps you are taking, even if the final goal of the strategic improvement has not been reached.

This is really important for business owners to comprehend. Too often entrepreneurs delay operational improvements assuming they are not worth the effort. But buyers see these moves in a much more positive light and will often be pleased to see efforts being implemented while negotiating with sellers. Typically it is the overcoming of inertia in business improvement that is the most critical to buyers.

Exit Planning

As both Travers and Cleveland point out, savvy, well prepared business owners that take steps today to make their businesses more attractive, healthy, vibrant, and operationally effective will reap the benefits of any market cycle.

Businesses are sold every day, in all market environments; if you would like to learn more about how you can prepare yours to participate, attending a Generational Equity exit planning seminar is a great first step. An investment of a few hours of your time could richly pay off in the long term as you learn from our M&A professionals about how to think like a buyer when preparing your company for sale. To learn more, follow these links:

Carl Doerksen is the Director of Corporate Development at Generational Equity, part of the Generational Group.

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