Building Enterprise Value

A slow down in the economy is often seen by acquisitive businesses as an opportunity to grow. There are many reasons why companies acquire other businesses.

An acquisition may bring the benefits of growing profit through economies of scale or growth in market share, or it could provide the Buyer access to new technology which would be otherwise too expensive and time consuming to create itself. Other benefits could be growth in geographical reach, a foothold in a new market or an increase in cross selling opportunities.

Acquisitions are not always successful and those who are serial acquirors have usually had some experience of an acquisition not generating the value they thought it might but if they have not been put off, they soon become sophisticated Buyers and are very adept at spotting where the value is in the enterprise they are looking at. Owner managers need therefore to be clear on where the value is in their business and be proactive in protecting it.

Enterprise value is more than just the profit the business can generate; it’s customer relationships, longevity of income (subscription model), bespoke sales and marketing processes, brand value, supply chain sustainability, strategic positions, and of course intellectual property.

Business owners need to consider how they have locked these valuable parts of their business into the business and be confident that it can be demonstrated when scrutinised by a prospective Buyer.

This will often necessitate a review of the contractual arrangements which sit behind the trade and our Commercial Team at Geldards are very well placed to assist with this whether it be looking at customer supply contracts, carrying out IP audits, protecting the IP and/or restructuring important contracts. Being conscious of where the enterprise value is in a business and having a focus on strengthening it will pay dividends in and uncertain economy.