July 27, 2016

A few weeks ago, I attended a ProVisors ODAM (Ontario-region based distributors and manufacturers group – don’t you love the name?!) session on the current state of the M&A market in Southern California – and specifically in the Inland Empire for manufacturers and distributors.  The bottom line is that it remains a good time for M&A.

However, what I see frequently is business owners who think about M&A “too late” – if you want to sell for top dollar, you must start strategizing YEARS in advance.  It can make a significant difference to the multiple of EBITDA (earnings before interest, taxes and depreciation) or revenue earned.  For example, in the first quarter of 2016, the low multiple for EBITDA was 9.6 and the high end was 11.0.  If you have even just a few million in EBITDA, this difference is interesting.  And, this doesn’t get into the fact that if you have the right advisors and are proactively thinking about these concepts, you can significantly raise the multiple over the top end. There are countless examples.

Even if you don’t plan to sell, shouldn’t you be interested in increasing the value of your business for an ESOP (employee stock ownership plan), to recognize your top talent and to reinvest in business growth?  There is something to be said for acting as though you will sell no matter your plans.  When I was VP of Operations, we went through a preparation for sale process, and it was invaluable in understanding the business and profit drivers – something we should have dug into regardless of any potential sale!

One tip to implement this week:
So, I bet you are wondering what could possibly be done with M&A in a week.  You wouldn’t be alone; however, you have to start sometime.  Why not this week?  If you are a business owner or executive of a privately held company, think about your long-term plans – what do you want to do with the business eventually?  Or what can you do to help realize these plans?  I’m sure there are countless activities.  Pick one that you think is particuarily important and start there.  Gather your team and talk about it.

If you are in a public company, the key is to think about stock value.  Almost all of the same initiatives are important to increasing the value of your stock.  Pick one and start.

If you are not in a leadership position, don’t despair.  Do you know what the plans are within your organization?  If not, find out.  Ask questions.  Find out how you can contribute.  If you are in the loop, find a way that you can contribute to increasing the value of the company and start doing it.  Run it by your manager if you need resources and to keep him/her in the loop.  But, who is going to stop you from increasing value?  To increase value, you have to provide better service, discover new markets, increase profitability, find ways to automate etc.  Aren’t they all “no-brainers”?