By Drent J. Shields, Managing Director
A billionaire business magnate once said, “Succeeding in business is all about making connections.” Networking requires a commitment to connecting with people – the right people and the right opportunities – all for the benefit of clients. In its ongoing commitment to build and strengthen its network, PKF Advisory recently sponsored and attended the Association for Corporate Growth’s (ACG) annual conference with over 3,000 middle-market businesses in attendance. Attendees included investment bankers, sale-leaseback specialists, technology masterminds and private equity firms, among others. The event accommodated the advance scheduling of private meetings so attendees, like PKF Advisory, could form and strengthen relationships to further build-out synergies and connect clients with the best and brightest expertise for their deals.
Customized Resources Are Vital
We met people from all over the country – some who are directly involved in buying and selling businesses, private equity investors, business owners, people who can bring potential deals and specialized service providers. Being a part of the fabric of these premier events equips us to learn the strengths and weaknesses of providers in the market. It is important because specific service providers may be more effective in particular industries. For example, a client in the logistics and transportation industry may benefit from a specialist with industry expertise – such as an investment banker who can offer specialized transaction experience.
Industry knowledge, however, is not the only consideration when it comes to expertise. For example, companies with a net loss who are looking to sell may miss out and suffer lower valuations if they do not leverage the right brain trust.
The standard approach to measuring the value of a company is generally performed by using a multiple of EBITDA. Unfortunately, for companies in a loss position, that number is not helpful to their valuation. However, a specialist with the right expertise can point out other factors that can elevate the valuation in such circumstances. For example, IT companies and other technology startups bring significant intellectual capital to a potential transaction – and many times, they may have negative EBITDA. So, selling based on an EBITDA multiple is not effective for the seller. Experienced valuation specialists can identify other factors upon which the valuation can be based. While the valuation could be based on revenue or a recurring revenue multiple, sometimes it is based on an intangible that is specific to that particular industry – or even that particular company. Using a specialist who knows how to value a company’s unique profile or circumstances could save a business from its costliest mistake ever.
Specialization Is Priceless
Staying up-to-date, continuously enhancing market knowledge, being in-the-know about new solutions and having fresh information helps firms like PKF Advisory offer its clients access to the most effective resources. For example, we have a client who is a tech-enabled company that is in negotiations to sell their business. They defined an alternative approach that they’re looking to utilize for their valuation. We’ve been able to help them by aligning their valuation approach with GAAP accounting by identifying the variances from GAAP and helping them justify why their approach is appropriate. Understanding and addressing the unique nuances of their business has enabled us to arrive at a valuation that’s at least three times higher than a traditional valuation technique of the same numbers.
Cutting Corners Only Cuts into Gains
When a business attempts to cut out a service provider and performs certain transactional tasks themselves, problems arise. Either the deal falls apart because it is moving too slowly or the buyer/seller really does not know the market and whether or how to move forward. Just as catastrophic, buyers sometimes do not perform the appropriate level of due diligence and the deal fails because the numbers being relied on are not accurate. Unfortunately, the buyer becomes trapped with the purchase price already paid and may be at a complete loss of options in mitigating their losses.
Capital transactions are also frequently over or undervalued and can result in a complete waste of precious time or – the results can be disastrous. Overestimations of business worth frequently end in delays as business owners become disappointed or even insulted by offers that are lower than expected. For that reason, it is critical to have the right investment banker who can help find the right buyers for the sweet spot of offers that the business is seeking. The right investment banker knows:
- The market; and
- The buyers; and
- Where to find them.
The right resource can help sellers cut to the chase by bringing in a larger population of potential buyers to maximize the benefit to the seller.
A Comprehensive Network Is Priceless
It is clear that ensuring access to specialists who offer various options to clients looking to sell a business or attract capital is critical. Some may be interested in private equity investors looking for new platforms or add-on acquisitions. Some may need specialists who understand ESOPs and employee ownership while others find that selling to third parties or selling a minority interest while maintaining their existing management and ownership structure may be their most lucrative option.
Gaining a comprehensive understanding of all options is paramount – particularly when considering a capital transaction as funding can be stressful and hinge on time-sensitive action. PKF Advisory is deeply integrated into the capital transaction market and can connect clients – in a timely manner – to the specialists they need for optimized access to capital and investment options.
For more information contact:
Drent J. Shields