Best Practices in Understanding and Increasing Your Company Valuation


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Want to raise your company’s share price or valuation? Look beyond the benchmark. In this slide presentation from our October 2013 webinar with Proformative, RoseRyan CEO Kathy Ryan and Assay Founding Partner Adrian Bray reveal the science of increasing value throughout an organization and identify key factors that affect company valuation.

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Best Practices in Understanding and Increasing Your Company Valuation

  1. 1. Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals Best Practices in Understanding and Increasing Your Company’s Valuation
  2. 2. Learning Objectives A"er  par(cipa(ng  in  this  event  you  will  be  able  to:     Understand  the  key  factors  driving  your  company’s   valua(on,  and  the  importance  of  having  an  equity  strategy   in  place     Discover  ac(onable  advice  about  delivering  best  in  class   analyst  presenta(ons,  equity  storyboarding  and  more     Learn  how  investors  look  at  financial  integrity  and   accountability  and  its  impact  on  valua(ons  
  3. 3. Proformative Event Notes   Links  to  today's  presenta0on  and  the  recording  of  this  webinar  will  be  sent  out  to  all   aCendees  within  24  hours  of  the  event  and  the  presenta(on  is  already  posted  on   www.proforma(  for  free  download.     Those  who  would  like  CPE  credits  (through  NASBA)  will  need  to  answer  all  polling   ques(ons  during  the  event  and  should  have  pre-­‐registered  for  CPE  credit.    For  any   ques(ons  on  CPE  credits,  please  contact  CPE@proforma(     Please  ask  ques0ons  on  today's  topic  via  the  "Ques(ons"  box  in  your  GoToWebinar   control  panel  at  any  (me  during  the  event.  We  will  do  our  best  get  to  your  ques(ons   during  the  Q&A/panel  discussion  at  the  end  of  the  event.  If  we  do  not  get  to  your   ques(on,  a  speaker  or  webinar  sponsor  will  follow  up  with  you  directly  to  address  your   ques(on.     You  will  be  asked  to  take  a  short  survey  today  regarding  the  webinar,  and  we  would   greatly  appreciate  your  feedback  regarding  our  event  today  as  we  always  strive  to   improve  the  ROI  we  offer  our  event  aCendees  for  their  valuable  (me.   © 2013 Proformative. Proprietary and confidential
  4. 4. Welcome to Proformative Proforma(ve  is  the  largest  and  fastest  growing  online  resource   for  senior  level  corporate  finance,  treasury,  and  accoun(ng   professionals.   A  resource  where  corporate  finance  and  related  professionals   excel  in  their  careers  through:       Uniquely  valuable,  online  Peer  Network       Direct  subject-­‐maCer-­‐expert  advice     Valuable  Features  and  Resources   All  of  it  completely  noise-­‐free   Check  it  out  at  www.proforma(     © 2013 Proformative. Proprietary and confidential
  5. 5. Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals Best Practices in Understanding and Increasing Your Company’s Valuation Kathy Ryan CEO, RoseRyan Adrian Bray Founding Partner, Assay
  6. 6. Agenda •  Introduction •  Getting to Benchmark •  Building Blocks of Value •  Q&A
  7. 7. Very Wide Audience •  Public Companies – market response provides immediate quick response on how company is performing •  Private Companies – VC or Private Equity ownership –  Quarterly to annual conversations about exit •  Family built companies (e.g., first generation) –  No outside ownership –  Could be 20 years or a lifetime before valuation is known •  Nuances exist between each market segment •  However, underlying best practices are similar •  To maximize valuation you must prove you have mitigated your risks and that you have assets that someone would buy
  8. 8. Chutes and Ladders
  9. 9. Keeping Your Company at Benchmark •  All industry sectors have a benchmark –  Applies whether private or public •  Factors considered –  –  –  –  P&L: revenue and costs Balance sheet: assets and liabilities Management team External factors •  Best practices –  Financial integrity –  Prepare, prepare, prepare
  10. 10. How Not to Get Discounted •  Financial statements in good order •  How assets become liabilities •  How liabilities can take you out •  Risk mitigation •  Management team indicators •  External factors
  11. 11. Financial Statements in Good Order Private •  Completed –  Monthly basis –  Key financial metrics summarized –  Readily available •  Auditable systems •  US GAAP or IFRS –  Integrated financials: P&L, Balance Sheet, Cash Flow •  Audited financial statements –  Best practice is 3 years
  12. 12. Financial Statements in Good Order Public •  Ditto from private company slide •  Have systems in place •  Hone financial close process •  Address talent gaps in finance and accounting team •  Address technical issues early on •  Have an engaged disclosure committee
  13. 13. How Assets Become Liabilities •  Objectionable Assets –  Significant idle cash –  Obsolete assets –  Personal assets: yachts, airplanes, art collections, hobbies •  Intangible assets: know what you own –  –  –  –  Patents Trademarks Copyrights Intellectual property
  14. 14. Liabilities Can Take You Out •  Settle lawsuits •  Terminate unfavorable contracts – don’t hope they get better •  Document loans to shareholders and employees •  Lack of accounting systems and processes can create liabilities •  Contingent liabilities –  –  –  –  Workforce Warranty Lawsuit Guarantee of another party’s loan •  Foreign subsidiary •  Taxation
  15. 15. Risk Mitigation—Not Just for Big Companies •  Financial Planning & Management Discipline –  Build thoughtful projections to share –  Operating results relative to plan for recent past periods –  Key financial metrics that management uses to track the business –  Critical underpinnings of projections •  Corporate records in good order –  Board Minutes –  Cap Table – who owns what –  Corporation is in good standing with the filing “bodies” –  Articles have the right approved shares
  16. 16. Risk Mitigation—Corporate Governance •  Corporate governance –  Internal audit –  Sarbanes-Oxley •  ERM (Enterprise Risk Management) –  Identifies key business risks in every aspect of your operations –  Gives management knowledge needed to develop a plan to reduce risks
  17. 17. Confidence in Management Team •  Good financials •  Documents readily available •  Internal controls in place •  Having a plan and working to the plan •  Management succession, skills development and the right profile for your strategy
  18. 18. Example: Public company $35   $30   $25   FDA approval Missed distribution strategy = Lower revenue projections Proxy  fight  se@led;  new  CEO   $20   $15   Proxy  fight  begins   $10   $5   $0   Another  new  CEO  
  19. 19. So What Does This Mean •  Minimizing / mitigating risk •  Gives investors / buyers / banks confidence in your team and your business •  Systematic approach to achieving benchmark target •  These steps help you get to the industry benchmark •  Without them, you’re leaving a lot on the table
  20. 20. Thank  You   © 2012 Proformative. Proprietary and confidential
  21. 21. Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals Building Blocks of Value Adrian Bray Founding Partner, Assay
  22. 22. Drivers B/S
  23. 23. Drivers P&L B/S
  24. 24. Drivers Strategic Assets P&L B/S
  25. 25. Outperform   Neutral Underperform  
  26. 26. Strategic Assets P&L B/S
  27. 27. What’s in your control? Valua0on  =  Profit  X  Mul0ple  
  28. 28. Best Practices: Private / Family Owned •  •  •  •  •  •  •  •  •  Know  your  secret  sauce   Understand  drivers  for  today’s  &  tomorrow’s  revenue   Use  a  business  plan  (even  1  pager)   Monitor  the  variance  to  the  plan     Create  a  Valua(on  plan  -­‐>  mul(ple  &  secret  sauce   Hire  the  right  team  with  the  right  skills   Do  the  right  things   Understand  your  resource  alloca(on  mix   Know  your  risk  profile  versus  your  team’s  
  29. 29. Best Practices: Private Company with External Investor •  •  •  •  •  •  •  As  Private     Understand  financial  partners’  expecta(ons  and  (me  horizon   Have  /  Know  Equity  and  Valua(on  Strategy  Plan   Build  the  team  to  deliver  their  exit   Create  board  presenta(ons  from  their  perspec(ve       Financials  show  the  past  –  you  must  demonstrate  the  future   Prove  the  assets  you  are  building  
  30. 30. Best Practices – Public Company •  Have  a  Share  Price  Strategy  for  both  Profit  &  Mul(ple   •  Create  an  equity  story  board  -­‐>  Investor  Rela(ons   Messaging   •  Perform  investor  presenta(on  review   •  Conduct  external  benchmark  for  investor  impact   •  Understand  your  investors   •  Be  honest:  do  your  investors  understand  you?   •  Ensure  all  communica(ons  are  in  investor  language     •  Deliver  on  your  promise   •  Communicate  the  Strategic  Assets  and  their  value
  31. 31. Strategic Assets •  Future  profits   •  Philosophy  /  DNA   •  Creates  compe((ve  advantage   •  Scalable  model  that:   –  Creates  unique  opportunity   –  Repeatable   –  Harnesses  product  /  systems  innova(on  
  32. 32. Example of Strategic Assets: Talent Talent/  Culture    
  33. 33. Example of Strategic Assets: Talent •  Gateway  to  the  other  ladder  rungs   •  Determine  the  right  talent   •  Manage  current  talent  issues   •  Have  and  manage  your  talent  philosophy     /  culture   •  Understand  what  is  different  for  $10M,   $20M,  $200M  or  $5B  business   •  Must  be  PROVED  –  develop  quan(ta(ve   proof  points  to  support  your  claims
  34. 34. Talent Example #1 (Private Company) Company  A   •  Telecommunica(ons  services  company   •  •  Owners  were  husband  and  wife  team   Strong  technical  and  project  management  skills     •  •  Internal  training  programs  -­‐>  at  least  two  systems   Delivery  checklists  to  ensure  components  to  deliver  98%  comple(on  rate  during  the   first  visit   •  Off-­‐the-­‐shelf  job  dispatching  system  married  with  a  predic(ve  tool  to  guarantee   technician  shows  up  exactly  at  appointed  (me  (not  the  2  to  4-­‐hour  window  standard   in  the  industry)   •  The  system  also  enabled  3  hour  emergency  call  responsiveness   •  Hired  engineers  who  were  aligned  with  their  customer  service  philosophy   Sold  company  for  7.5x  EBITDA,     a  premium  of  39%  over  the  industry  average  of  5.4x  
  35. 35. Talent Example #2 (Private Company) Company  B   •  Same  Industry  -­‐>  wanted  to  acquire  an  IT  services  firm   •  15  local  firms  -­‐>  2    serious  nego(a(ons    with  Companies  B  &  C   •  Companies  B  &  C  were  similar  revenue  size   •  B  growing  ~  10%  per  year;  C  stagnant  for  a  number  of  years   •  Company  B  young,  invigorated  workforce,  management  team  using     technology  to  provide  services  remotely  =  fix  more  client  issues  per   hour,  genera(ng  more  revenue  per  employee  than  compe((on;  on-­‐ site  visits  were  scheduled  only  when  necessary     •  Conversely,  Company  C  used  its  original  system  and  approach  to  solve   customer  problems  on-­‐site.  Everyone  thought  being  in  front  of  the   customer  was  just  as  important  as  solving  their  problems.    It  was,  once.   •  Lot  of  customer  dissa(sfac(on  with  C  as  user  expecta(ons  evolved,   poor  response  (me  as  they  over  serviced  clients  and  increasingly  were   unable  to  solve  a  problem  the  first  (me  around.   Company  B  :       Acquired  and  was   rewarded  with  a  8x   mul(ple,  or  a  48%   premium.     Company  C:     Enterprise  value  was   in  the  range  of   2.75x-­‐3x,  a  44-­‐49%   discount  from  the   5.4x  industry   average.   Company  C  was   considered  too  high   risk,  requiring  too   much  investment  
  36. 36. Other examples In every sector there is a player that focuses on the talent and culture: –  Finance Sector –  Real Estate –  Aggregates
  37. 37. Talent and Management Team •  Double  edged  sword!   –  Business  Management  -­‐>  More  than  ensuring  profit   •  Build  capability  for  tomorrow   •  Create  the  talent  philosophy  underpinning  the  culture       •  Ensure  that  the  talent  delivers   •  Ac(vely  manage  the  culture  from  both  the  top  down  and  delivered   via  the  boCom  up     •  Example:  Move  away  from  Print  to  Online   –  Board  were  all  print  people  and  resistant  to  having  online  people  on   the  board  as  they  were  not  aligned  with  the  ‘old  culture’   –  Valua(on  of  the  business  reduced  by  over  50%  in  2  years    
  38. 38. Summary •  Get your financial statements in order •  Manage your assets wisely •  Mitigate your risks •  Improve your valuation by focusing on the Multiple •  Develop an actionable “share price strategy” •  Know the key drivers of your share price strategy, and in which order to build upon them, to maximize your outcome Contact Us: Learn more: Kathy Ryan, Watch the valuation video: Adrian Bray, Read the valuation paper:
  39. 39. Thank  You   © 2012 Proformative. Proprietary and confidential