Mergers & Acquisitions           You Can't Measure A Company's Value Until You First Build It        Text By John M. Collard Baltimore Business Journal Special Edition: Mergers & Acquisitions SECTIONS: Article Text Other Versions About the Author About the Firm PDF Version

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By John M. Collard

Valuing a company is the easy part; creating that value in the first place so that you can measure it is a more formidable task. Creating a value equation can build worth into an underperforming company.

Buyers and sellers look at the component makeup of a company differently, and therefore, place different values on these ingredients and on the whole. To enhance real company value, analyze components as they relate to worth in the mind of potential buyers. Value to one buyer does not necessarily hold the same value for another. Establish multiple buyer profiles depending upon the circumstances and prepare to build value each would be willing to pay for.

Buyers of distressed companies look for core value upon which they can base a turnaround. They want to install management, implement new strategies, rid the company of excess and legacy costs and build revenue. This purchase is strategic, yet opportunistic in nature. They want to rebuild, then sell at increased value.

Free cash flow and the continued ability to produce it with reliable probability creates the greatest value.  This is not as easy as it sounds. In fact, it can be complicated, is often misunderstood and frequently is bungled.

Going concern value, or GCV, is where the fun begins in all transactions.  The going concern value and goodwill, or soft assets, will always draw the most controversy and discussion in terms of their valuation.

So build enterprises that buyers want to invest in. Future Buyers look for:

• Businesses that create value. Consistency is the key. You must demonstrate growth in revenue, profit and cash flow.

• High probability of future cash flows.
• A marketing-oriented, motivated management team and human capital.
• The ability to sell, compete, distribute, produce and develop products and thrive.

The directors’ and management’s role must be to build going concern value.  The GCV can be best maximized with stable leadership, setting and following sound strategies to consistently bring products and services to market, all the while nurturing resources and implementing processes to manage the company.

Create reasons for buyers to want to buy. Buyers want fair entry valuation so they can expect realistic return potential.  There must be exit options to realize high ROI at the time they resell. Once that underperforming entity has been turned and is operating profitably, buyers will resume their interest in the company.

The better the company is at creating stakeholder value and shareholder return, the more interest there will be in buying some or all of the stock.  While investors often buy on hope and promise, the dot-com market sector collapse demonstrates a need to ultimately produce returns to substantiate investment. Had many of the dot-com managers built GCV to support their promising technologies, they might still be around today.

Those that did have strong balance sheets weathered the storm, and found opportunities to gobble up assets from those who didn’t. Just like in “Field of Dreams,“ if you build it, they will buy it.

  You Can't Measure A Company's Value Until You First Build It

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About the Author

John M. Collard is chairman of Annapolis, Maryland-based Strategic Management Partners, Inc., a nationally recognized turnaround management specializing in interim executive CEO leadership, asset recovery, and investing into underperforming companies. He is past chairman of the Turnaround Management Association, a Certified Turnaround Professional, and brings 35 years senior operating leadership, $85M asset recovery, 40-plus transactions worth $780M, and $80M fund management expertise to advise company boards, litigators, institutional and private equity investors. For more information about Strategic Management Partners, call (410) 263-9100 or log on at www.StrategicMgtPartners.com

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Strategic Management Partners has substantial experience advising corporations and individuals on the strategic and mechanical issues of corporate development and governance, operating management and turnarounds for asset recovery. Our principal has over 30 years experience in P/L Management, Strategic Planning and Repositioning, M&A for Strategic Advantage, Finance, Investing, Raising Funds, Sales/Business Development, Building Selling and Marketing Teams, and Operational Auditing = In Public & Private companies = In healthy and crisis situations.

We work with and support the equity capital community to provide assessment studies to determine the situation, planning and strategy development to direct the company, crisis management to oversee that assets are not squandered away, workout teams that recover assets, and board level oversight to keep the client headed in the right direction.

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John M. Collard, Chairman
Strategic Management Partners, Inc.
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