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Growing your private company’s value in a time of uncertainty

Baker Tilly and Family Business Magazine joined together to host the webinar “Growing the value of the business back: positioning your family business for value creation” which prescribed practical steps family business owners can take now to handle the “next normal” and the future of their business.

Featuring Baker Tilly’s Erich Bergen and Gary Plaster and moderated by Family Business Magazine’s David Shaw, the group discussed strategies on how to leverage uncertainty to your advantage by preserving and creating value in the current market. 

Impact of COVID-19

The impact of the COVID-19 pandemic has been far-reaching, both in the United States and worldwide. As federal, state and local governments contemplate the best ways to lift lockdowns, many family-owned businesses are beginning to shift their focus to revising their strategies to address the next normal and rebuild lost value.

Unfortunately, many family-owned businesses have been adversely impacted by the pandemic and are reporting a decrease in revenue and profitability. This has led to a corresponding negative impact on valuation.

How has the pandemic influenced transition/succession plans of the senior generation?

Additionally, due to the pandemic, many current generation owners are reevaluating their plans to continue in the business.

  • 31% will accelerate a sale to a nonfamily buyer
  • 24% will accelerate ownership transition to the next generation
  • 19% will accelerate leadership to the next generation
  • 8% will step back into a leadership role

What do we know so far?

Before the pandemic:

  • 4.5 million businesses owned by baby boomers were expected to sell within the next 5 years
  • During the economic boom of the last three years, many families delayed their decision to sell

Source: Exit Planning Institute

Since the pandemic:

  • 74% have reported a negative impact on profitability
  • 40% have reported a negative impact on valuation
  • 55% of current generation owners will accelerate their plans to transfer ownership to nonfamily buyers or the next generation

Source: Baker Tilly COVID-19 Recovery Preparedness Assessments

What family businesses plan to do next

Family businesses need to begin to recover their lost value and drive growth. When looking at how to influence value, business owners should take the outside-in perspective.. Owners should be thinking about the following questions from the buyer’s perspective: What would be important to me? What factors would lead me to pay more or less for the company?

Ultimately market value is impacted by a variety of factors – some are controllable and some are not:

Uncontrollable factors

  • M&A market dynamics
  • Amount of “dry powder” available for deals
  • Demand for deals vs. supply
  • Stability of lending markets/interest rates industry
  • Some industries trade at higher multiples
  • Overall economic cycle and growth rates
  • Pandemics

Seller controllable factors - value drivers

  • EBITDA
  • Sustainable competitive advantage
  • Barriers to entry
  • Scalable business model adjusted for the next normal
  • Participation in growth markets
  • Recurring revenue streams
  • Diverse customer base
  • Proprietary products
  • Robust operating systems
  • Stable, predictable and growing cash flow
  • Availability of quality workforce
  • Good management team

Approach to grow value in your business

In order to grow the value of your business there are steps that can be implemented.

Step one: Discovery process

  • Determine the “valuation gap” between the valuation of the business now and what the valuation could be in the future.
  • Compare your company’s performance against the performance of tens of thousands of other companies.
  • Analyze the “red flags” on the company’s financial and operating performance.

Step two: Deep dive analysis

  • Quantifiably assess how the value drivers are impacting the valuation of the business.
  • Identify red flag financial and operating indicators that may detract from value.
  • Identify which value drivers will result in the greatest increase in value.

Step three: Value growth plan

  •  Develop a detailed plan to increase the value of the enterprise, including strategic, operational and financial components
  • Develop a dashboard to monitor and track progress.

Key takeaways

  • Many family businesses have been impacted negatively by the pandemic.
  • Key strategies are being developed to address growth and profitability as companies move into the next normal.
  • Current generation owners are re-assessing their future involvement with the business.
  • Some family business owners will accelerate plans to sell – unfortunately, some business values have decreased during the pandemic.
  • In order to increase value, a comprehensive strategy must be developed to close the valuation gap in order to increase the company’s enterprise value in the future. 
  • View the full webinar recording

Contact us to learn more about how to navigate these uncertain times and grow the value of your business.

Michael Milani
Executive Managing Director, Principal
Gary A. Plaster
Principal, MBA
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