Matt Gilbert
December 15, 2023
In the wake of the Covid disruption, some businesses experienced unanticipated spikes in revenue, defying the odds and displaying resilience. While having a surge in this direction is undoubtedly a positive, this situation has served to raise skepticism among interested buyers. The challenge lies in assuring potential buyers – and their capital sources – that this success was not just a fleeting moment but rather a testament to the business's adaptability and strength. This month’s Gap Insights aims at providing strategies on how to showcase the sustainability of post-Covid success – focusing on five key elements that instill confidence.
Recognizing and addressing buyer skepticism is a crucial step in manifesting sustainable success. An owner should start by acknowledging the potential concerns that prospective buyers may harbor regarding the consistency of recent achievements. This acknowledgment demonstrates a keen awareness of the questions that might arise and sets the stage for open and transparent dialogue. Business owners looking to sell must demonstrate a solid understanding of the market dynamics that surround their companies’ industries. They must highlight the factors that contributed to any recent success and clarify how these factors align with the company’s long-term growth strategy. By providing clear and insightful narrative, owners can paint a vivid picture of the company's solid foundation and reinforce the idea that recent success was not an isolated event but a result of careful planning, strategic foresight, and bold action that capitalized on an unanticipated market dynamic, all of which proved to be a game-changer for the company.
Underscoring the adaptability that a business demonstrated during Covid involves emphasizing strategic plans that were in place (prior to the pandemic) which set the stage for this increased success. An owner should state the specifics of operational shifts, cash reserves used, and vendor networks leveraged which enabled the business to evolve dynamically in real-time. Discussing innovative initiatives and successful pivots – ones that were instrumental in not just weathering the storm but thriving in the face of adversity – is an important task.
This isn't just about highlighting flexibility. It's about illustrating the depth of a business's agility and its capacity to navigate uncertainty with skill. An owner should elaborate on how management’s collective resilience played an important role in executing adaptive measures. By providing concrete examples of how the business responded to unexpected changes, a narrative of proactiveness and forward thinking – that contributed significantly to success – can be portrayed. The focus here is on illustrating that a business doesn't merely react to challenges but actively shapes its trajectory through strategic and adaptable decision making.
When explaining customer retention and market positioning, it's essential to highlight the unique factors that contributed toa business's standout performance. Beyond emphasizing loyalty, an owner should dig into the personalized approach that fostered enduring relationships with the customer base.
An owner should discuss how the business has created a community around its offerings. Illustrating instances where the company went above and beyond to understand and fulfill customer needs and create an emotional connection is important. This approach displays a commitment to customer satisfaction that goes beyond the conventional, setting a business apart from its peers in the eyes of potential buyers.
In terms of market positioning, an owner should provide a detailed narrative which highlights strategic decisions that solidified the company's standing in the market. This should include value propositions, niche targeting, or innovative approaches to product and/or service delivery. By accentuating deliberate efforts put into carving out a distinct position, owners convey to potential buyers that success is not just a result of market trends but a strategic and intentional effort that was the result of management processes and which therefore adds long-term value.
In essence, this aspect of the narrative isn't just about customer numbers or market share. It's about the qualitative aspects that showcase a deep understanding of the market and a genuine commitment to meeting customer demands. This view serves to reinforce the credibility of a business in the eyes of potential buyers and highlights the relationships and strategic market positioning that underpin the sustainability of success. It demonstrates management’s aptitude for foresight and execution, a trait that buyers will need to lean on in order to grow the business once they assume control.
Demonstrating the financial health of a business goes beyond mere disclosure. It’s about creating a narrative that speaks to the sustainability of success. When providing a comprehensive view of a company’s financial landscape, an owner should go into specifics of the sources that fueled the revenue increase. Listing the quantitative aspects, along with the qualitative factors, which contributed to the financial upswing is vital.
To improve transparency, an owner should detail cost structure particulars. This is about demonstrating the efficiency and strategic allocation of resources. Offering a clear breakdown of how a business manages its financial resources not only provides insights into operational acumen but establishes trust by highlighting responsible financial stewardship.
When projecting future performance, an owner should maintain a realistic, yet optimistic, tone. This can offer potential buyers a glimpse into the strategic roadmap that guides company financial decisions. It’s about demonstrating a forward-thinking approach to financial planning. By openly sharing the business's future projections, an owner will instill confidence regarding continuity of success and the financial strategies that exist to navigate evolving market dynamics.
Financial transparency then becomes a narrative of resilience and foresight. It's a tale which provides a snapshot of current financial health and weaves a story of responsible management mixed with high-quality strategic planning. This, in turn, reinforces the company’s financial foundation trustworthiness and lays the groundwork for a confident and informed buyer perspective.
Buyers can only pay for a recent jump in revenue and EBITDA if they see credible, verifiable proof that the new, heightened level of business is sustainable. This can be accomplished by showing contracted backlog, purchase orders for future goods and services, and other business that has been locked in. Remember, most buyers must grow a business once they assume control in order to service debt. Therefore, buyer and lender scrutiny of a company’s quality of earnings will be intense.
When crafting a long-term narrative, an owner should envision it as an evergreen journey, extending beyond any recent spikes in success. Going beyond immediate achievements and delving into the roots of the business's long-term vision will be paramount. It's about outlining a trajectory that aligns with the sustainability of recent performance.
The narrative should discuss growth strategies and illustrate deliberate decisions that form the backbone of any expansion plans. How does the business propose to evolve in response to changing market landscapes? What unique pathways have been identified to stay ahead of the curve? By detailing these growth strategies, an owner can show ambition and intentionality toward sustained success. Highlighting commitment to continuous improvement and innovation as integral components of business ethos is key. Showing instances where the business has proactively embraced change and innovation is also important. An owner should forget about buzzwords and focus on the genuine culture of improvement that permeates every aspect of the company’s operations.
Lessons learned during Covid become a pivotal part of the long-term narrative. These lessons likely enabled the ability to overcome challenges and extract valuable insights which contributed to the business’s upward evolution. An owner should reflect on how these lessons shaped future strategies, enhanced resilience, and fortified a position in the market. The narrative should serve as a testament to the company’s adaptability and capacity to turn adversity into opportunity. Discussing how the business stays abreast of industry trends, anticipates shifts, and positions itself as a proactive player in the market will be useful for potential buyers and provide evidence of a business management process that thrives on anticipation of changes and strategic foresight.
The complete narrative explaining post-Covid induced profits will become a powerful tool in building confidence with potential buyers and demonstrate an owner’s hope to find a great buyer whose expertise will assist management in taking the company to the next level.
If any of this resonates with you, we encourage you to complete our M&A Discovery Questionnaire and talk with us to see if your business makes the cut as one who can still command a great exit in this M&A environment. We will be in touch quickly to discuss the results. Click here to take the assessment.
Gilbert & Pardue Transaction Advisors (GaP) is a Houston-based business advisory firm serving lower middle and middle market business owners from coast to coast through representation for Mergers & Acquisitions (Matt Gilbert and Bret Pardue established GaP to provide owners of privately-held businesses – those businesses generally enjoying annual revenue of $10-$80 million – with the quality of M&A representation and value-enhancement services previously only available to upper middle and large businesses. GaP brings highly experienced executives, sophisticated financial and marketing products, proven-effective processes, and fully-integrated expertise to every engagement. No other M&A firm serving the lower middle and middle market provides the quality of representation and transactional expertise that we do.
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