CREATING STRATEGIC VALUE. Generating a Strategic Plan that Works, Drives Sustainable Growth, & Creates Value

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1 CREATING STRATEGIC VALUE Generating a Strategic Plan that Works, Drives Sustainable Growth, & Creates Value 1

2 Catching a falling Unicorn

3 Interest in acquisitions at an all-time high, yet the number of deals has fallen. Source: - Mergermarket, The Valuation Gap, March,

4 4

5 January 2016 was the worst Jan. in 10 Years Source: Pepperdine Private Capital Markets Report,

6 The trend is continuing through Q1 & Q2 Source: - MergerMarket 6

7 Buyers Cautious; Pay Up For Bankable Deals 7

8 The desire for transactions are very high and there s lots of CASH sitting on the sideline, waiting to be invested: $1.5 Trillion in S&P 500 $500+ Billion in PEGs More than $4 Trillion in Sovereign Wealth Funds Plus lots of cash in companies not represented in the S&P 500 Valuations are High -- On a relative basis Deal Volume is Down Debt is VERY cheap and is readily available for bankable deals Competition for Bankable Deals (esp. lower middle market) is very strong Source: - Mergermarket, The Valuation Gap, March,

9 Sellers Missing the Target 9

10 Transactions Terminated without Closing Not Transacted Transacted Source: Pepperdine Private Capital Markets Report,

11 Major reasons for Deal Termination 1. Valuation gap too large (Price / Value) 2. Unreasonable seller expectation 3. Insufficient company cash flow 4. Surprises in confirmatory due diligence 5. Loss of seller business or contracts, anticipated revenues Sources: - Pepperdine Private Capital Markets Study Mergers & Acquisitions: An Insider's Guide to the Purchase and Sale of Middle Market Business Interests, Roberts - Mergermarket data,

12 Valuation 12

13 The Essence of Value Value is influenced by the potential for future, sustainable earnings and the perceived level of risk + Value = Benefit Risk 13

14 Multiple Realities Usual range (2x - 6x); Possible range (1x - 12x, ++); Higher ranges may be justifiable in hot industries with high growth rates, and Lower Multiples are more likely in professional services, resellers, commodity and buggy whip businesses). 14

15 Failure To Launch 15

16 Reasons for Strategic Plan Failure 1. No real commitment 2. Inability to change / Risk adverse culture 3. Not enough experience in execution or a model to follow 4. Strategic plan not realistic 5. Wrong people / No one owned the process (Lack of accountability) 6. Poor / Inadequate communications between responsible parties 7. Lack of buy-in from key-employees and rank and file 8. Strategy goes against current power / hierarchy structure Sources: Harvard, Warton, Forbes, FT: consolidated list ordered numerically as mentioned by these sources 16

17 Failure to Plan Creates a Legacy of Regret Two-thirds of business owners do not have a formal succession plan, including seven in 10 business owners over age percent of boomer business owners agreed that having an exit strategy was important but 87 percent did not have a written plan 2 78% of business owners who do exit profoundly regret their exit within 12 months of the close 3 Sources: 1 U.S. Trust insights on wealth and worth survey, Vistage International, White Horse Advisors, Smart Strategies for Ownership Succession, PricewaterhouseCoopers LLP,

18 Baby Boomer Businesses Stats: 65 70% of all companies in the US are owned or controlled by Baby Boomers* $10 trillion of private company wealth to be transferred* $4 trillion in private company wealth for companies $2.5M to $100M in annual sales** Source: * U.S. Census ** The $10 Trillion Opportunity, Jackim, Christman *** The $4 Trillion Opportunity for Business Ownership Transition, Mercer 18

19 Group Exercise 19

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21 Prioritizing Strategic Initiatives 21

22 Risk / Reward Matrix 22

23 Effort / Impact Matrix 23

24 Prioritize Strategic Initiatives through Scoring 10 Dimensions of Growth/Value 24

25 Strategic Value Roadmap (Growth / Value Drivers) 10 Dimensions of Growth/Value 25

26 Pump UP The Value Of Your Client s Business

27 OPERATIONAL Strategies for Value Enhancement 1. Streamline mission-critical processes 2. Outsource the things you don t do well 3. Build brand identity 4. Develop a tax minimization strategy 5. Reduce owner perks 6. Check / Negotiate better pricing from suppliers 7. Focus/Better Control costs and monitor margins 8. Introduce New Product Line with better margins 9. Discover New Markets where you can charge higher fees/prices 10. Diversify revenue (customer) base

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29 Arguments for Outsourcing Increase Efficiency When it comes to specific support functions, it is nearly impossible for your company to be as efficient as a company that specializes in that function exclusively. In almost every case, the specialized provider will have superior systems, processes, technology and experience. As your business grows, it becomes increasingly complex. It becomes increasingly difficult for you to maintain efficiency on a consistent basis. By outsourcing you gain the benefit of superior systems without capital investment, and you avoid overburdening current staff, increasing headcount or bringing in outside consultants. Increase Effectiveness Experts who are Specialized in a certain area will do the job right the first time at a much higher rate than the trial and error that inexperienced people internally can due to experience and knowledge gained through functional specialization (Legal and Accounting are obvious ones). For the High Growth Company, Strategy, Sales and Marketing although often affectively managed internally, will have regular increases in demand for the departments that are responsible for Branding, Marketing and Sales. Hire On-Demand for increased periods of activity and for needs outside the capacity or capability of internal staff You can pick and choose what you need on an a-lacarte basis from Outsourced providers in those areas. Maintain Focus Every hour you re focused on an administrative, technical or back office issue is an hour of opportunity lost. When the support systems and services are solidly in place and the distractions they create are eliminated, you can focus more time, energy and resources exclusively on revenue-driving activities, like business development, marketing and sales strategies, customer relations and account penetration, networking, recruiting and so on. Increased focus produces increased results. Lower Costs Through specialization, aggregation and automation, most business process outsourcers can reduce transaction, systems and management costs. Outsourcing lets you leverage the provider s investments and economies of scale, and it is most often less expensive than handling the same tasks internally. Reduce Risk As employment and payroll and benefits regulation rapidly expands at the federal, state and local level, compliance becomes increasingly challenging particularly for those doing business in multiple states. The right provider accepts responsibility for compliance in the functional areas it manages and the transactions it processes, effectively shielding you from risk.

30 Arguments for Outsourcing Scalability The right outsourced provider can give your company instant scalability. With an outside provider and a third-party team to handle all the workload and manage the systems, you need little or no lead time to accommodate rapid growth or support new and special needs. Maintain Compliance HR may have to maintain compliance and reporting for up to 20 U.S. DOL and other agency regulations. There s Securities; State; HIIPA; PCI;, Privacy; and now Cyber Security and other areas that most businesses are required to monitor and maintain reporting for. Outsourcing some of these compliance functions, can keep you on top of ever changing regulations. Expertise Outsourced service providers specialize in specific operational areas. That specialization and the volumes they manage in their specific areas let these companies develop and maintain very specialized expertise expertise that can benefit you. Best of all, their superior expertise will usually come at little or no added cost to you. Maintain Flexibility Outsourcing allows you to commit to only what you need to at the time you are engaged in any business effort. Especially a large transformational initiative where if you execute everything internally, you are required to dedicate a large amount of financial, human, operations, personal, and intellectual capital to ensure success. By outsourcing some or a lot of the execution, you don t have to build up new infrastructure to try a new tact. If over time a new initiative is successful, you can determine if it s more profitable to bring internally and it will allow you to staff and organize more effectively as you will learn from the experience where your strengths and weaknesses are, and where you need to shore up areas that need it. Grow Faster Over time, you can test more initiatives without having to dedicate too many resources to any one idea. By keeping some of your powder dry and being able to pivot easier, you should have more opportunities that are successful. It becomes a numbers game. Increase Profitability By making better decisions, taking more chances and having more successes without dedicating a relatively large amount of capital to each initiative, the increase in success rates over time should lead to higher profitability, faster!

31 More information

32 For Further Study Recommended Reading BOOKS FOR GROWING COMPANIES: 1. The Breakthrough Company, Keith McFarland, Grown Business Press 2. Good to Great, Jim Collins, Harper Business 3. The Great Game of Business, Jack Stack, Bo Burlingham, Crown Business 4. Scaling Up, Rockefeller Habits 2.0, Verne Harnish, Gazelles, Inc. 5. No Man s Land, Where Growing Companies Fail, Doug Tatum, Portfolio 6. Building Business Value, Martin O Neill, Third Bridge Press 7. Mergers and Acquisitions, Dennis Roberts, Wiley 8. Sell Your Business Your Way, Rickersten, AMACOM 9. Mergers and Acquisitions from A to Z, Andrew Sherman, AMACOM 10. Five Frogs on a Log, Feldman, Spratt, Harper Business 11. Exit Right, Barre Pearson, Thorogood 12. The Smartest Guys in Town, Boucher, Pending 32

33 Other Recommended Resources Resources (Strategic Planning / Value Assessment & Enhancement): 1. ProfitCents / SageWorks Software 5565 Centerview Drive Raleigh, NC P x596 F One Page Strategic Plan 3. Core Value Software 4. Value Opportunity Profile 5. Growth and Value Enhancement through Add-On Acquisitions uction_to_add-on_acquisitions.pdf?t=