By Jack Bailey, Managing Director and Co-Founder of Bailey Southwell & Co.
The M&A market remains very active. Deal activity is strong with larger industry players pursuing strategic acquisitions to enhance their offerings and private equity investors actively seeking out compelling businesses of scale for purchase or investment.
As quality businesses continue to get snapped up, the question we most often get as advisors is: what drives valuation and marketability of businesses besides the normal financial metrics? Yes, financial metrics such as adjusted EBITDA, revenue growth, and customer concentration will continue to be key factors that buyers will look at closely. But there is more to achieving a successful sale of a business than just focusing on the numbers. Other important factors are often the key to ensuring a sale will yield an attractive result.
Three Important Drivers of Value – Beyond the Numbers
We believe there are three key factors that help drive the value of a business: (1) brand equity, (2) culture, and (3) talent. In this article, we will discuss the important role of brand equity, and stay tuned for next week’s article where we will cover culture and talent.
Brand equity refers to a value premium associated with choosing one company over another. So, what are the key steps for creating brand equity?
Deliver a Differentiated Solution: Why is your service different? What do you offer that your competitors do not? It is important for a business to understand how to differentiate by something other than pricing – competing solely based on price does not lead to a sticky customer base and makes a business especially susceptible to competition.
Tighten Branding and Messaging: A company’s brand and key messaging are often overlooked. Ensure the value proposition your brand represents is as clear as possible; this is a simple step that is often forgotten. Working with a branding consultant to tighten messaging to ensure the brand is communicated and consistently delivered is money well spent.
Invest in Marketing: Similar to branding, marketing is an area that is often neglected. While it may be easy to rationalize that things are going well given existing business and word-of-mouth customer referrals, companies must invest in marketing to maximize performance. Marketing does cost money, but it can generate an enormous benefit. There are many avenues of marketing to consider as a vendor – conferences, charity events, industry publications/websites, email marketing, etc. Focus on the marketing avenues that have the highest ROI. While marketing spend can directly lead to new business opportunities, the benefits are much broader. Marketing spend further develops the brand and its reputation in the industry.
In addition, do not lose sight of basic principles essential in the workers’ comp space: delivering a quality product/service, displaying impeccable reliability, and operating with integrity. Failure to to adhere to these principles will destroy your brand equity and depress the value of you business.
Ultimately, acquirers are not simply buying financials. Ensuring the company is delivering a differentiated solution while improving the brand messaging and investing in marketing will help to increase the value of your company.
Next week’s Part 2 installment of Beyond the Numbers will focus on culture and talent.
About Jack Bailey
Jack Bailey is a Managing Director and Co-Founder of Bailey Southwell & Co., a Nashville headquartered investment banking firm focused on the payer services, healthcare, and tech-enabled services industries.
With over 20 years of middle-market deal experience, Jack has worked on over 75 sell-side, buy-side, and capital raising transactions for both public and private companies. He has a focus on the payer services industry, with the majority of his recent experience working with founder-led companies in the workers’ comp industry.
Jack’s depth of experience and extensive network has enabled him to provide ideas, solutions, and processes that result in exemplary outcomes for Bailey Southwell clients.
Jack received his J.D. from Vanderbilt Law School and served as Corporate and Securities Counsel in a national law firm and in a Fortune 500 company. He holds his Series 24, 79, 62, and 63 securities registrations and is registered with StillPoint Capital, member of FINRA/SIPC.
About Bailey Southwell & Co.
Headquartered in Nashville, Tennessee, Bailey Southwell & Co. is a partner-owned investment bank focused on middle-market healthcare and tech-enabled services businesses. We provide customized M&A advisory solutions for middle-market change of control transactions and growth capital raises from $10-$50mm. Since our founding in 2005, our senior bankers have closed over 200 transactions representing more than $15B in value. We also manage BSC Capital Partners, a co-investment fund supporting high-growth healthcare and technology companies with flexible capital and strategic insights to accelerate growth. View our website for further information: www.baileysouthwell.com.