Best Practices in Understanding and Increasing Your Company Valuation

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Best Practices in Understanding and Increasing Your Company’s Valuation

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

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Best Practices in Understanding and Increasing Your Company’s Valuation Kathy Ryan Adrian Bray CEO, RoseRyan Founding Partner, Assay

Agenda

•  Introduction •  Getting to Benchmark •  Building Blocks of Value •  Q&A

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

Chutes and Ladders

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

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

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

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

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

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

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

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

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

Example: Public company

$0

$5

$10

$15

$20

$25

$30

$35

Missed distribution strategy = Lower revenue projections

Proxy fight begins

Proxy fight se@led; new CEO

Another new CEO

FDA approval

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


Thank You


Building Blocks of Value Adrian Bray Founding Partner, Assay

Drivers

B / S

Drivers

B / S P & L

Drivers

Strategic Assets

B / S P & L

Outperform

Underperform

Neutral

B / S P & L

Strategic Assets

What’s in your control?

Valua0on = Profit X Mul0ple

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

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

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

Strategic Assets

•  Future profits •  Philosophy / DNA •  Creates compe((ve advantage

•  Scalable model that:

–  Creates unique opportunity –  Repeatable –  Harnesses product / systems innova(on

Talent/ Culture

Example of Strategic Assets: Talent

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

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

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

Other examples

In every sector there is a player that focuses on the talent and culture:

–  Finance Sector –  Real Estate –  Aggregates

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

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

Kathy Ryan, [email protected] www.roseryan.com

Adrian Bray, [email protected] www.assayip.com

Watch the valuation video: www.bitly.com/valuation2

Read the valuation paper: www.bitly.com/valuation3

Contact Us: Learn more:


Thank You

Investor Relations

Best Practices in Understanding and Increasing Your Company Valuation