When selling your company one of the major aspects that create value for a buyer is scalability. To release the value of assets or capabilities, the buyer needs to be able to deploy the product or service throughout their organisation or through their distribution channels. The faster that can be done, the quicker the buyer releases the potential profits from the acquisition.
What does this mean for the seller? Basically, the more easily and quickly the buyer can exploit the inherent potential of the acquisition, the more it is worth to the buyer – if you look at the investment in terms of the present value of a stream of future earnings.
The basic premise is that the larger and earlier profits generated from the acquisition are more valuable than smaller and later profits. If you translate this into the value of the acquisition, it is obvious that the acquisition is worth more to the buyer at the point of acquisition if the benefits can be released earlier.
Getting this right means that your business will be more valuable and therefore can be sold for a higher price.
Following this logic, a seller can best prepare the business for sale by recognising the need of the buyer to quickly integrate the new acquisition and then rapidly deploy the acquired asset or capability. Thus the more easily the products or services can be scaled, the abler the buyer is to exploit the acquisition potential.
The seller should thus examine the business to ascertain what it would take to dramatically scale up the appropriate strategic value asset or capability. So, given unlimited resources, what should the product or service look like at the point of acquisition? How should the business itself be structured to provide the best launch platform for integration and then scalability of the strategic asset or capability?
Scalability might involve many aspects of the business. For example, documentation, monitoring systems, specialised equipment, training aids for salespersons, demonstrators, installers, available capacity, lining up suppliers and distribution channels. Ask yourself — what would need to be done to scale the activity by 50 to 100 times?
Through ensuring the company is able to be scaled quickly and effectively the business owner will be able to maximise the sale price of their company from a potential strategic acquisition.
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At Quinn M&A, our expert team of M&A advisors can assist you to prepare your business for the market to ensure it can be easily scaled by an acquirer. We also have a proven track record of negotiating company sales to strategic acquirers that have the capacity and capability to scale medium-sized companies into large companies. Call us on 1300 784 667 or submit an Express Enquiry to schedule a FREE confidential consultation with one of our senior staff.