Category: Business Transformation & Success

Picture this: Your business has enjoyed an excellent run over the past couple of years. Revenue is following an upward trend, and EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization) is keeping pace with your growth.

If a private equity fund owns the business you are running, there is a good chance the owners are contemplating a sale. A sale may be based on considerations such as how long the fund has owned the business and the perceived attractiveness to interested buyers.

On the other hand, if you personally own the business, you may be looking at bringing on fresh equity and operational know-how to expand your success.

Whatever the motives driving change may be, a tremendous amount of incremental value may be unlocked through the way you approach the process of selling your business. The most attractive valuation can be achieved by focusing on a number of key factors during preparation and execution of the sale.

Jozef Opdeweegh, a Miami businessman with over 17 years of experience as CEO, Chairman and Board Member of private and public companies discuss how to sell your business at the most attractive valuation.

7 Key factors for valuation

1. Timing

The right time to sell is when: (1) there are many prospective buyers, (2) there is a significant amount of private equity money (that has yet to be deployed and is actively pursuing new deals), (3) the IPO market is hot (if you are contemplating going public) and (4) the general economic climate is attractive (specifically in relation to the industry vertical(s) your company serves).

2. Business Performance Sustainability

Business performance in the years preceding the sale process is a main driver in maximizing enterprise value. Simply put, a buyer will only be willing to pay a certain multiple on your EBITDA if that buyer is sufficiently convinced the run-rate level of cash flow is sustainable in the future. By way of example, not a single buyer will pay a 10 times multiple of cash flow without conviction that the company will be able to generate that cash-flow level for at least 10 years.

3. Investment Bank Expertise

First, it is important to select an investment bank (or a broker) with a proven track record in your industry. When selecting an investment banker, exercise balanced judgment of your valuation expectation – do not simply pick the banker who promises the highest valuation.

Having access to a competitive set of bidders for your business will likely yield a positive impact on the obtainable valuation. Therefore, it is typically advisable to organize an auction with a broad set of participants.

4. Memorandum and Management Presentation Effectiveness

You will command the highest price if you spend a large amount of time on preparation. You simply need to produce the most comprehensive, compelling and best Information Memorandum and Management Presentation. You, along with your fellow presenters, should excel and be confident in front of an audience. Demonstrate knowledge of every detail related to the business, and be agile and quick in your thinking. Eloquently answer all the questions from the buyers’ community. Be enthusiastic, perseverant and energetic. It is a worthy investment to practice presentation skills with your team.

5. Team Strength and Cohesion

When you are selling your business, you are also selling your management team. It is important the buyers are exposed to the entire senior team at some point during the sale process. The management team should be fully aligned on culture, core behaviors and strategic vision. Any dissonance will be viewed as a weakness, which may negatively impact price. If you are planning on selling your business, avoid making meaningful management changes in the 12-months prior to the sale. A tenured leadership team reflects stability. It also reflects your ability to plan for the long run and to provide the best, most scalable team to a buyer.

6. Strategic Plan Integration

The ability to work well with a new ownership team depends on the business’s strategic plan. The sale process, which typically runs over an extended period, allows for extensive conversation around this topic. Therefore, the level of consensus surrounding the business’s strategic plan (post-ownership change) becomes clear.

If you, as the business owner, are in the position of being able to singlehandedly select the buyer, you can vigorously drive this point home. If you are running a company owned by a PE investor, you typically do not have the luxury of weighing in on the future ownership decision. In the latter scenario, spend sufficient time with the acquirer to demonstrate the merits of your strategic perspective and proposed direction.

7. Cultural Alignment

You and your new shareholders should share the same value set. Disparate perspective on culture and core behaviors will lead to significant future issues with your new shareholders. Often, this is the reason for failed acquisitions. Again, during the sale process, focus on corporate culture to assess alignment to maximize future success.

All kinds of companies – both publicly and privately listed – fail to reach their full potential for a myriad of reasons. Perhaps the business is family owned, but the ownership group is content with generating an adequate level of recurring cash flow, despite underperforming against peer groups. Or, perhaps the business is publicly owned, but the management and the board are not incentivized to explore new avenues of growth and diversification. Rather, they are compensated to remain risk averse.

In both cases, there is the potential to unlock incremental shareholder value. And in the case of public companies, the board and the leadership team may even have a fiduciary obligation to do just that.

It can be empirically argued that for most businesses, there is a direct correlation between the size and level of diversification on one hand and the enterprise value of that organization on the other hand. Additionally, key drivers of shareholders’ wealth creation are cash-flow resilience and the comparative performance in terms of growth and profit margin versus direct competitors.

Common Business Issues & How to Successfully Address Them

No Well-Defined Strategic Plan

If a company does not have a clearly articulated strategic plan and a shared end goal, it is rudderless and its employees are unable to cooperatively work towards a future state.

An effective strategic plan describes what the company should ideally look like in a defined period (typically 5 years), and it sets key milestones.

The strategic plan needs to be simple, focused on no more than 5 key criteria, and it should be universally understood throughout the organization. It is imperative for the leadership to actively go out to its workforce to explain the strategic plan, its merits for all involved, and the importance of the contribution of each employee to the achievement of the end goal.

Lack of Organic Growth

Companies that fail to grow organically will risk a weakening of their position in the marketplace. For many organizations, mediocre performance essentially becomes institutionalized. The sales force lacks the right sales playbook because these companies fail to sufficiently invest in the training and assessment of their sales force, and they have incentive schemes that do not incent the right behaviors.

Key to turning around the revenue trend of an organization is the continuous comparative assessment of salespeople based on objective criteria, combined with (1) tailored sales force training, (2) a redesigned and simple incentive opportunity, and (3) a clear program of relevant KPIs to assess performance quality. In a situation where the sales force as a whole is underperforming and requires upgrading, forced ranking of talent with predetermined levels of attrition and inflow of new talent may offer an effective tool to enhance the overall quality of the sales effort.

Outgrowing the Leadership Talent

As a company grows and becomes more diversified in terms of its product/service offerings and geography, it is certainly not unusual to have to upgrade the leadership team in tandem. The demands on the executive team of a small and geographically concentrated business are vastly different from those imposed on the leadership of a rapidly growing and geographically expanding organization. It is important to ensure the quality of the leadership team is in sync with the ambitions of the company. The recruiting policy must be such that the talent attracted is scalable to lead the company through the 5-year horizon of its strategic plan.

Lack of Aligned Culture and Core Values

Once a company has clearly defined its mission, its vision, and the supporting behaviors through a process of consultation, it is imperative that the leaders of the organization demonstrate those behaviors in their professional and personal lives. Any form of lack of adherence or dissenting behavior should be addressed in a direct conversation. If the individual continues to openly or otherwise fight the agreed-upon core behaviors, the individual should be let go (in a fair and respectful manner). The biggest threat to the strategic plan is to allow festering passive-aggressive behavior – especially at the leadership level. While cultural alignment is extremely important between the associates, it is equally important that this alignment extends to the board and, in the case of a privately owned corporation, the shareholders of the company. Too often a cultural divide, and not the performance of the team and the company, inspires ownership groups or their representatives to make impulsive management changes.

Inconsistent Quality in Operations

The long-term future of a business is negatively impacted if it does not provide world-class levels of quality in its products and services. The company should develop a detailed operating system that is prescriptive in nature and that defines how its facilities and back-office functions should operate across each geography or location. Such a system will guarantee a predictable and excellent customer experience. The operating system should focus heavily on concepts of lean manufacturing, six sigma, continuous flow and first-time-through quality.

Lagging IT Infrastructure and Business Analytics

Any business benefits greatly from a thorough and modern ERP solution that covers the entire spectrum of financial accounting, distribution or supply chain management, manufacturing, human resources and CRM. Businesses also benefit from access to relevant business analytics in each of these areas. While boards are often reluctant to implement a new ERP solution (it can be costly and can cause distracting business interruption), the ERP solution is truly the engine of the business. Not only should a business invest in modern ERP solutions, it should also expect to constantly reinvest in modernization and to upgrade every 10 to 15 years.

SG&A Overhang

A company needs to identify how much it is willing to spend on the sum of support functions, based on a comparison to its peer group and its strategic ambitions. It also needs to institutionalize the notion that SG&A is scalable, up and down, and to think of it as a semi-variable expense. When a company hits a rough patch, the impact on its cash flow – and even its survival – is often defined by its ability to scale down SG&A. Conversely, when a company grows, it should take advantage of the scalability of support function. SG&A-costs, expressed as a percentage of sales, should decrease as the company grows.

All kinds of companies – both publicly and privately listed – fail to reach their full potential for a myriad of reasons. Perhaps the business is family owned, but the ownership group is content with generating an adequate level of recurring cash flow, despite underperforming against peer groups. Or, perhaps the business is publicly owned, but the management and the board are not incentivized to explore new avenues of growth and diversification. Rather, they are compensated to remain risk averse.

In both cases, there is the potential to unlock incremental shareholder value. And in the case of public companies, the board and the leadership team may even have a fiduciary obligation to do just that.

It can be empirically argued that for most businesses, there is a direct correlation between the size and level of diversification on one hand and the enterprise value of that organization on the other hand. Additionally, key drivers of shareholders’ wealth creation are cash-flow resilience and the comparative performance in terms of growth and profit margin versus direct competitors.

Common Business Issues & How to Successfully Address Them

1. No Well-Defined Strategic Plan

If a company does not have a clearly articulated strategic plan and a shared end goal, it is rudderless and its employees are unable to cooperatively work towards a future state.

An effective strategic plan describes what the company should ideally look like in a defined period (typically 5 years), and it sets key milestones.

The strategic plan needs to be simple, focused on no more than 5 key criteria, and it should be universally understood throughout the organization. It is imperative for the leadership to actively go out to its workforce to explain the strategic plan, its merits for all involved, and the importance of the contribution of each employee to the achievement of the end goal.

2. Lack of Organic Growth

Companies that fail to grow organically will risk a weakening of their position in the marketplace. For many organizations, mediocre performance essentially becomes institutionalized. The sales force lacks the right sales playbook because these companies fail to sufficiently invest in the training and assessment of their sales force, and they have incentive schemes that do not incent the right behaviors.

Key to turning around the revenue trend of an organization is the continuous comparative assessment of salespeople based on objective criteria, combined with (1) tailored sales force training, (2) a redesigned and simple incentive opportunity, and (3) a clear program of relevant KPIs to assess performance quality. In a situation where the sales force as a whole is underperforming and requires upgrading, forced ranking of talent with predetermined levels of attrition and inflow of new talent may offer an effective tool to enhance the overall quality of the sales effort.

3. Outgrowing the Leadership Talent

As a company grows and becomes more diversified in terms of its product/service offerings and geography, it is certainly not unusual to have to upgrade the leadership team in tandem. The demands on the executive team of a small and geographically concentrated business are vastly different from those imposed on the leadership of a rapidly growing and geographically expanding organization. It is important to ensure the quality of the leadership team is in sync with the ambitions of the company. The recruiting policy must be such that the talent attracted is scalable to lead the company through the 5-year horizon of its strategic plan.

4. Lack of Aligned Culture and Core Values

Once a company has clearly defined its mission, its vision, and the supporting behaviors through a process of consultation, it is imperative that the leaders of the organization demonstrate those behaviors in their professional and personal lives. Any form of lack of adherence or dissenting behavior should be addressed in a direct conversation. If the individual continues to openly or otherwise fight the agreed-upon core behaviors, the individual should be let go (in a fair and respectful manner). The biggest threat to the strategic plan is to allow festering passive-aggressive behavior – especially at the leadership level. While cultural alignment is extremely important between the associates, it is equally important that this alignment extends to the board and, in the case of a privately owned corporation, the shareholders of the company. Too often a cultural divide, and not the performance of the team and the company, inspires ownership groups or their representatives to make impulsive management changes.

5. Inconsistent Quality in Operations

The long-term future of a business is negatively impacted if it does not provide world-class levels of quality in its products and services. The company should develop a detailed operating system that is prescriptive in nature and that defines how its facilities and back-office functions should operate across each geography or location. Such a system will guarantee a predictable and excellent customer experience. The operating system should focus heavily on concepts of lean manufacturing, six sigma, continuous flow and first-time-through quality.

6. Lagging IT Infrastructure and Business Analytics

Any business benefits greatly from a thorough and modern ERP solution that covers the entire spectrum of financial accounting, distribution or supply chain management, manufacturing, human resources and CRM. Businesses also benefit from access to relevant business analytics in each of these areas. While boards are often reluctant to implement a new ERP solution (it can be costly and can cause distracting business interruption), the ERP solution is truly the engine of the business. Not only should a business invest in modern ERP solutions, it should also expect to constantly reinvest in modernization and to upgrade every 10 to 15 years.

7. SG&A Overhang

A company needs to identify how much it is willing to spend on the sum of support functions, based on a comparison to its peer group and its strategic ambitions. It also needs to institutionalize the notion that SG&A is scalable, up and down, and to think of it as a semi-variable expense. When a company hits a rough patch, the impact on its cash flow – and even its survival – is often defined by its ability to scale down SG&A. Conversely, when a company grows, it should take advantage of the scalability of support function. SG&A-costs, expressed as a percentage of sales, should decrease as the company grows.

Jozef Opdeweegh

About Jozef:

Jozef Opdeweegh, also known as Jos, has served as CEO for over 17 years of global technology, distribution, and supply chain optimization companies with 5,000 to 20,000 employees, public or privately held. Opdeweegh has extensive board membership experience on 4 continents with related and unrelated companies.

Website – http://jozef-j-opdeweegh.com/
LinkedIn – https://www.linkedin.com/in/jos-jozef-j-opdeweegh-13986b70/
Related Articles: Jozef Opdeweegh- 6 Core Organizational Values and the Importance of Corporate Culture
Jozef Opdeweegh – 9 Key Characteristics of a Successful Distribution Business

Jozef Opdeweegh

All kinds of companies – both publicly and privately listed – fail to reach their full potential for a myriad of reasons. Perhaps the business is family-owned, but the ownership group is content with generating an adequate level of recurring cash flow, despite underperforming against peer groups. Or, perhaps the business is publicly owned, but the management and the board are not incentivized to explore new avenues of growth and diversification. Rather, they are compensated for remaining risk-averse.

In both cases, there is the potential to unlock incremental shareholder value. And in the case of public companies, the board and the leadership team may even have a fiduciary obligation to do just that.

It can be empirically argued that for most businesses, there is a direct correlation between the size and level of diversification on the one hand and the enterprise value of that organization on the other hand. Additionally, key drivers of shareholders’ wealth creation are cash-flow resilience and comparative performance in terms of growth and profit margin versus direct competitors.

Common Business Issues & How to Successfully Address Them

1. No Well-Defined Strategic Plan

If a company does not have a clearly articulated strategic plan and a shared end goal, it is rudderless, and its employees are unable to cooperatively work towards a future state.

An effective strategic plan describes what the company should ideally look like in a defined period (typically 5 years), and it sets key milestones.

The strategic plan needs to be simple, focused on no more than 5 key criteria, and it should be universally understood throughout the organization. It is imperative for the leadership to actively go out to its workforce to explain the strategic plan, its merits for all involved, and the importance of the contribution of each employee to the achievement of the end goal.

2. Lack of Organic Growth

Companies that fail to grow organically will risk a weakening of their position in the marketplace. For many organizations, mediocre performance essentially becomes institutionalized. The sales force lacks the right sales playbook because these companies fail to sufficiently invest in the training and assessment of their sales force, and they have incentive schemes that do not incent the right behaviors.

Key to turning around the revenue trend of an organization is the continuous comparative assessment of salespeople based on objective criteria, combined with (1) tailored sales force training, (2) a redesigned and simple incentive opportunity, and (3) a clear program of relevant KPIs to assess performance quality. In a situation where the sales force as a whole is underperforming and requires upgrading, forced ranking of talent with predetermined levels of attrition and inflow of new talent may offer an effective tool to enhance the overall quality of the sales effort.

3. Outgrowing the Leadership Talent

As a company grows and becomes more diversified in terms of its product/service offerings and geography, it is certainly not unusual to have to upgrade the leadership team in tandem. The demands on the executive team of a small and geographically concentrated business are vastly different from those imposed on the leadership of a rapidly growing and geographically expanding organization. It is important to ensure the quality of the leadership team is in sync with the ambitions of the company. The recruiting policy must be such that the talent attracted is scalable to lead the company through the 5-year horizon of its strategic plan.

4. Lack of Aligned Culture and Core Values

Once a company has clearly defined its mission, its vision, and the supporting behaviors through a process of consultation, it is imperative that the leaders of the organization demonstrate those behaviors in their professional and personal lives. Any form of lack of adherence or dissenting behavior should be addressed in a direct conversation. If the individual continues to openly or otherwise fight the agreed-upon core behaviors, the individual should be let go (in a fair and respectful manner). The biggest threat to the strategic plan is to allow festering passive-aggressive behavior – especially at the leadership level. While cultural alignment is extremely important between the associates, it is equally important that this alignment extends to the board and, in the case of a privately owned corporation, the shareholders of the company. Too often, a cultural divide, and not the performance of the team and the company, inspires ownership groups or their representatives to make impulsive management changes.

5. Inconsistent Quality in Operations

The long-term future of a business is negatively impacted if it does not provide world-class levels of quality in its products and services. The company should develop a detailed operating system that is prescriptive in nature, and that defines how its facilities and back-office functions should operate across each geography or location. Such a system will guarantee a predictable and excellent customer experience. The operating system should focus heavily on concepts of lean manufacturing, six sigma, continuous flow, and first-time-through quality.

6. Lagging IT Infrastructure and Business Analytics

Any business benefits greatly from a thorough and modern ERP solution that covers the entire spectrum of financial accounting, distribution or supply chain management, manufacturing, human resources, and CRM. Businesses also benefit from access to relevant business analytics in each of these areas. While boards are often reluctant to implement a new ERP solution (it can be costly and can cause distracting business interruption), the ERP solution is truly the engine of the business. Not only should a business invest in modern ERP solutions, it should also expect to constantly reinvest in modernization and upgrade every 10 to 15 years.

7. SG&A Overhang

A company needs to identify how much it is willing to spend on the sum of support functions based on a comparison to its peer group and its strategic ambitions. It also needs to institutionalize the notion that SG&A is scalable, up and down, and to think of it as a semi-variable expense. When a company hits a rough patch, the impact on its cash flow – and even its survival – is often defined by its ability to scale down SG&A. Conversely, when a company grows, it should take advantage of the scalability of support function. SG&A costs, expressed as a percentage of sales, should decrease as the company grows.

Jozef Opdeweegh

About Jozef:

Jozef Opdeweegh, also known as Jos, has served as CEO for over 17 years of global technology, distribution, and supply chain optimization companies with 5,000 to 20,000 employees, public or privately held. Opdeweegh has extensive board membership experience on 4 continents with related and unrelated companies.

Website – https://atomic-temporary-177054903.wpcomstaging.com/
LinkedIn – https://www.linkedin.com/in/jos-jozef-j-opdeweegh-13986b70/
Related Articles: Jozef Opdeweegh- 6 Core Organizational Values and the Importance of Corporate Culture
Jozef Opdeweegh – 9 Key Characteristics of a Successful Distribution Business

Jozef Opdeweegh

“Trust…but verify.” The phrase famously used by US President Ronald Reagan at the 1986 Reykjavik Summit, serves to illustrate that a counterintuitive tension is often the most effective way to break down barriers that prevent progress. This type of wisdom is now commonplace in business, aided by the growth of technology that gives confidence to efficiency arrangements between established partners.

Drawing inspiration from the ideal of trust, Jozef “Jos” Opdeweegh, a seasoned C-suite executive with over 20 years of experience developing, leading, and growing public and private global companies, shared his insight on what teams can do to foster their relationships and excel in an environment that supports further progress.

As someone with a true passion for talent development and business transformation, Jos Opdeweegh has demonstrated and repeated success in complex business and cultural transformations where strong teamwork mechanisms are essential. His commitment to finding the right balance in his work has been fundamental in the striking success of his career. This balance has come from finding enough room for both innovation and data to grow together and complement as a one…rather than siloed approaches.

“Fresh thinking is essential to human flourishing”, Opdeweegh assured. “Without it, we stagnate, our horizons narrow and in business, our competitors overtake us”. For Opdeweegh, when innovation becomes absent or curtailed by strict guidelines and dogmas, there is more likeliness for the environment to feel enclosed — or immersed in the ‘dark ages’ as he pointed out — and stagnant from new fresh ideas.

But the reality is that when it comes to our own circumstances, creative leaps can be scary, evoking the sequence of “disruption, resistance and uncertainty” which characterized progress in the scientific and industrial revolutions. Today, that same pattern continues, most obviously in the digital sphere, which has supercharged the speed, reach, and risks of creative innovation.

It is a mistake, however, to think of creativity purely in terms of inspirational genius. Opdeweegh has closely observed patterns of creative pioneers and leaders in various industries such as the prominent engineer and inventor, James Dyson, whom he recalls pointing out that “practical progress is seldom made in the manner of Isaac Newton under the apple tree”. Rather, it’s an iterative journey, which sharpens our notions and intuition through a process of trial and error. For Opdeweegh, Dyson’s brilliance isn’t just his creative vision, it’s also his commitment to testing, adjustment, and utilizing data to analyze and solve problems.

Opdeweegh also agrees that achieving progress is often subtly different than reinvention, and it requires a blend of aspirational and logical mindsets.

“Under this model, the creative and analytic approaches work together to make marginal gains with measurable impact by repeating the process time and again,” Opdeweegh noted. “I’ve seen this in practice, and would observe that the most analytical people I’ve worked with are among the best innovators, while almost all creatives I know are deeply analytical in their approach.”

Moreover, Opdeweegh also remarked how Dyson allowed innovation to flourish under an atmosphere of creative tension, where ideas are robustly and competitively challenged, in pursuit of a common goal. For Opdeweegh, he agrees to this proposition after experiencing this firsthand with his teams who have most effectively come up with the most productive ideas when being subject to the same standards.

The relevance for business leaders is that innovation works best when creativity and analytics are integral to, and not isolated from, the day to day realities of the organization.

“Analysis is, therefore, the bedfellow and not the bugaboo of practical creativity,” says Opdeweegh. “By measuring and learning, not only do we sort the wheat from the chaff, we also help the good become great – or more often, just that little bit better.”