Are Owners Takers or Makers of Market Value?

We hear all the time of extreme valuations that are awarded to certain companies in a merger or sale. The common wisdom is that we are all takers of market value and that private company owners have no control. Is it possible, however, to be a maker of your own valuation? I have no doubt that it is. Companies that win the highest valuations have planned, executed, obsessed over details and positioned themselves for such an outcome. The good news is that any business owner can drive significant appreciation by deliberately pursuing a course to position the company for maximum value. To do so we must remember that the most powerful determinant of value is the multiple the market assigns to your company’s cash flow. This multiple can be a mystery for private company owners and many feel helpless when it comes to driving for a higher multiple. It is a simple concept, however. Think of it this way: the multiple is a direct function of how excited the market gets about your company and its story. The more excited, the higher the multiple. That’s really all it is. So to strategically end up in a place where the market is as excited as possible about your company’s story, two key initiatives are required.

Identify and control the elements of value. Work to uncover the drivers of value that are unique to your company and industry. These are the characteristics serious buyers and investors value the most in your line of business. Your company will have other unique strategic assets and advantages as well. When you understand and strategically manage these factors, you will have the basis for a compelling story. Forge plans that purposefully maximize these factors— and the value of your company. This should form the foundation of your business strategy going forward.

Tell the story. Value is meaningless if no one else knows or agrees. While your team is executing plans to maximize the value drivers, you need to get the right people excited about your company’s story. Buyers, investors, bankers, investment bankers – this is your audience. Remember, the multiple you are awarded is simply a function of how excited this audience gets about your story. Be purposeful about developing relationships with the right audience and telling your story in a compelling way.

Are markets difficult right now? Absolutely. Will they continue to be challenging? No doubt. All the more reason to take control of your value story and start generating excitement. The market is always hungry for great stories and it will pay top dollar for the best, no matter what the environment.