Realising Value. I’m sure that you find that’s what you seek when you are considering setting up your company for sale.
All businesses are up for sale, whether now or in the future. It is in helping to build, and guarantee, increased and ongoing value in your business that you will be able to demonstrate that extra worth that will complement your carefully prepared sale dossier.
As I’m sure you are aware, the offer prices for a business vary widely, up to two and a half times between different bids is not out of the way. So how do you get the top bids in when you are selling, and make it an easy sale as well?
All businesses depend upon customers. And it is where a business can demonstrate a strong and ongoing relationship with its customers through its Customer Engagement Index™ that the business can show it’s a reliable and ongoing source of profit – and that’s what leads to confidence –and value – for the current owners and, in turn, for the future purchasers.
Do mergers and acquisitions create shareholder value or destroy it?
A recent study by the DePaul University of Chicago, Illinois, reported an interesting finding. The sellers of the target business make a profit, estimated at from 10 to 30 percent. This means that the value of the seller’s equity increases by about that margin on or around the date the transaction is announced. The DePaul scholars politely decline to mention cases where the profit surge occurs before the announcement, though we all know that happens.
The experience of the buyers in contrast varies widely according to different studies examined by the DePaul academics. But the debate is just about how much on average the buyers lose, not how much they gain. Most M&A transactions are a device for transferring unearned capital value from one set of shareholders to another – and always in the same direction, towards the seller. No wonder buyers are increasingly getting tough in negotiations!
These figures reflect the experience of many participants in and observers of the capital transaction market. It’s very hard to spot a winning acquisition. To persuade shareholders to part with their stock, you have to offer them something over and above the current market. It’s easy to talk yourself into a rosy view of the synergistic potential of the transaction – either in saved cost or increased revenue.
Flawed purchase processes
Often companies have the option to bid or not to bid. But here is a huge paradox. A company is bought or not bought on the basis of its hoped-for future performance. You buy a business not because you admire its past but because you believe it adds to future profits. Yet the process of due diligence is fatally flawed. The buyer and the buyer’s advisers spend endless hours going over the report and accounts, looking for weaknesses such as contingent liabilities. Yet they spend very little time looking at the future.
- What if the customers of the target firm are only weakly engaged with it? What if their loyalty is to the current board rather than the brand?
- What if a substantial number of their customers go AWOL before the ink is dry on the deal?
- Customer churn is, after all, recognized as the number one XXI century devourer of profit and share value.
Concentrating on past performance alone is like steering a boat by examining the wake. What’s true of M&A transactions is also, of course, true of an IPO. Why ask investors to stump up cash without offering some comfort about the durability of the customer base?
Here is the punch line. The process of due diligence should focus serious attention on the issue of Customer Engagement, which determines future profits. The extent to which customers are seriously engaged with a supplier can be measured, if the measuring mechanisms are precise and subtle enough. Remedies can be applied if weaknesses are found. But there’s always been a problem. Customer Engagement has always been difficult to measure – until now.
Make the measurement, do the analysis, build up your Customer Engagement Index™ and achieve current cost savings, a better future for your business plus an enhanced price for the business when you come to sell.
Discover more information about how to make Customer Engagement and its measurement work for your business by clicking this link to =>> http://www.tripleic.com now.