How to Maximise Shareholder Value

Julian Costley is a partner of Heaton Camillo, the investment and advisory firm that brings angel investors together with entrepreneurs.

Julian has invested in 13 companies and became chairman/NED or adviser to many more focusing on the financial services, media, telecoms and internet markets in UK, Netherlands, Scandinavia, France, Canada and China. The follwing was presented at the Going International Conference hosted by CorkBIC in October 2013.

Top 20 factors that maximise shareholder value:

1.    Unique and sustainable market positioning – what do you do that others don’t?  Why will customers keep coming back to you? Have you ensured your proposition is continually developed ahead of the competition?

2.    A revenue model that indicates that the company will become more profitable as it grows – so that revenues and the gross margins arising will outgrow the increase in cost of sales and fixed costs.

3.    High proportion of contracted and recurring revenues – one off project revenue is valued lower that recurring revenue because of the repeated cost of customer acquisition and because it undermines the shareholder value that can be deduced from assured business going forward.

4.    Simple story – a core product/service line that is performing well with no clutter such as significant (untested) new product lines draining EBITDA or expensive forays into new markets including new geographic territories.

5.    Competent, successful, stable and motivated senior management team – plus a plan for succession in each operational discipline.  And/or the ability to be convincing that there can be continuity of key management if that’s what the buyer wants.

6.    Strong and sustained growth – such that the acquirer can count on continued shareholder value growth and so that the NPV of that growth can be expressed in present sale price.  The more this is evidenced by the forward order book the better.

7.    Embedded upside or strategic advantage for buyer – impressive, credible and content customer base with potential to increase their spend, management team with capabilities beyond current organisation (ideally already known as individuals to buyer), operating cost savings, intellectual property, geographic presence (implying local know-how).

8.    Operating in a hot sector – like social networking or climate change/renewable energy but if not then find a link, however tenuous to those hot sectors.

9.    Generating cash – doing so from a good EBIT margin % at a sufficient level to be entirely self-funding for future growth from working capital for capex enhancements to product/service development.

10.    Build barriers to entry – It could be your price point for services, your ‘must have’ technologies, your IP, your dominant market share, your exclusive agreements with leading suppliers or simply a locked in customer base, but your value will increase if your future revenue is less threatened by new competition.

11.    Maximise the number of ‘Blue Chip’ clients – valuations can double if the bulk of your revenue is with recognised solid successful client organisations.

12.    Gain an insight into the buyer’s motivation and needs – the more you know about their business and which of their needs acquiring you solves, the more you can play up those attributes of your company the better. It could be you are ‘in the way’ of a buyer executing an industry roll-up strategy who wants to ‘bulk up’ fast.

13.    High market profile – already on the radar of potential buyers for some while.  High profile so that its noticed and high profile in terms of being company that’s obviously written or spoken about as a being successful and ‘one to watch’.  This can be enhanced by overt endorsements from major trusted branded partners or from awards.

14.    A rival bidder – the more the better, and if they know each other better still. An auction conducted by advisers is best.

15.    Get ready to sell – who’s taking the lead in negotiations, are all the ’actors’ in the campaign fully briefed, do you have ‘sales collateral’ prepared (PPT and business plans plus all financials that make it easy to understand the business), are all the company secretarial docs up to date including monthly CEO reports etc. is there complete file of customer, supplier and staff contracts gathered together. Appoint an M&A adviser early in the process.  

16.    Credible reason why you want to sell – an answer to ‘if you’re growing that fast or doing that well why are you selling, and why now?’  Show strength in purpose and don’t give any sign of desperation – buyers detect weakness quickly.

17.    No poison pills or factors that will cause transaction delays – operating costs (particularly staff costs) out of line with market competition (either under or over paid), complex and over generous options agreements, high accumulated potential redundancy costs, spider web of personal guarantees or agreements that will be expensive/impossible to unwind quickly, litigation, lack of IP protection from URLs to registered trademarks to patents, weak or unsubstantiated data in the due diligence pack.  

18.    Impressive board and shareholder register with one or more high profile name NEDs – gives buyer opportunity to retain the benefit of their contribution, and implicitly lends gravitas to the company by their presence on the board or investor list.

19.    Commitment to sell – be convincing that you are going to sell to the highest bidder and that you’re not testing the market for a valuation.

20.    Evidence of long term relationships with professional service providers – banks, lawyers, accountants etc.

Copyright © 2013 CorkBIC in conjunction with Julian Costley, Heaton Camillo