Growing in the Shadows
I turned down a prospect the other day.
The owner of a small company reached out for assistance in marketing his firm to a group of potential acquirers. We aren’t brokers, of course, but we do offer pre-sale positioning programs; essentially, corporate marketing efforts that raise client profiles and valuations with targeted buyers.
As we discussed the various details, though, it became clear that the company in question is several steps away from the kind of valuation the ownership team is seeking.
As the company exists today, any buyer will discount an offering price to reflect the warts and blemishes that the buyer will need to remove after the close. That discount will incorporate the buyer’s perception of risk, including the perception that the company will still not live up to its promise even after the corrections are made.
As a result, I noted, the company is less likely to find buyers, less likely to receive multiple offers, and less likely to command the type of valuation the ownership group is seeking for its exit.
We could begin our marketing now, of course, but I suggested that the more profitable approach is to keep a low profile, catalog the issues that would reduce buyers’ interest, and cure those failings outside of the limelight. Then, with the company’s performance and stability strengthened, we could begin the pre-sale positioning process.
By delaying our start, we could present a stronger, more profitable, less risky investment to our targeted buyers. We could demonstrate that the management team has the ability to recognize and resolve issues that would limit enterprise value. We could, quite simply, turn on the spotlight when we would be illuminating a prize.
He’s an entrepreneur, though, and it has taken him a long time to get to the state of mind he has today. Having arrived, he wants to move now. Maybe things will work out for him.
Maybe.
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