Insights

Obtaining Premium Value for Your Company

By Robert Murphy, Senior Managing Director

A strong financial profile is one aspect to achieving premium value for your business. Companies with revenue growth rates and EBITDA margins above 10% for the trailing 12-month period (or one above 12% and the other metric at least 8%) received a 26% higher EBITDA multiple compared to companies that did not meet these criteria, according to GF Data’s August 2022 M&A report.

Quality Premium – Buyouts Only

 

2003-2017

2018

2019

2020

2021

YTD 2022

Total

Above Average Financials

6.6

7.8

7.6

7.7

8.0

7.7

7.1

Other Buyouts

6.1

6.4

6.2

6.1

6.1

6.1

6.2

Premium(/Discount)

108%

123%

121%

126%

131%

126%

115%

Incidence

56%

59%

52%

55%

66%

68%

57%

Source: GF DATA an ACG Company

While higher profit margins and revenue growth rates drive valuation multiples, there are also steps you can take to achieve a premium value when selling your company. These include:

  • Future Growth Plans ‒ Be able to articulate specific growth/expansion opportunities for the business. Growth opportunities impact valuation assessment. Create a growth vision for the buyer with as much supporting detail as possible. For example, if additional salespeople could drive growth from existing products/services, then detail specifics such as: how many to hire, candidate profile, where they would be located, compensation structure, markets to focus on and revenue targets for Years 1 and 2.

  • Risk Mitigation ‒ Identify and mitigate potential risk/concerns a buyer may have about the business. Be prepared to address issues such as customer or vendor concentration, high employee turnover, a recent spike in sales, or other potential buyer concerns are not a risk to future revenue and earnings.

  • Preparation ‒ Get the house in order, from financial reporting to business metrics, compliance and legal matters, and all business-related documentation. You’ll need to be ready to answer challenging questions and information requests from buyers throughout an extensive due diligence process. You do not want a due diligence concern to re-price the deal or delay the closing. Time delays can kill a deal.

  • Reaching All Buyers ‒ To ensure you have found the best fit and obtained a premium value, all capable logical buyers should be contacted including, when applicable, those outside the U.S. Competition among buyers will help to drive value.

  • Engage an M&A Firm ‒ An experienced M&A firm should obtain a higher value for your business and significantly increase the odds of closing a successful transaction than you could accomplish on your own. If you are currently speaking with a potential buyer you think is capable, it’s time to bring in an experienced M&A team to keep the buyer honest and push for a premium value.

Many factors contribute to determining a company’s value. Company characteristics such as: revenue/profit size, growth history, depth of management, customer base, stickiness of revenue and competitive advantages, along with industry developments and the current M&A landscape influence how buyers will value your company.

By addressing the five points above, you can increase the odds of receiving a premium value for your company.

Contact Us

Robert Murphy
Senior Managing Director
[email protected]
561.337.5324 | 201.788.6844