Creating value in a company that drives multiples begins at day one, says RTC Partners Partner Tony Brindisi.
"So, from the time we're reviewing a sim, we're thinking about the interconnectedness of the organizations, how they'll integrate and where potential value is going to be unlocked," Brindisi says. "The way that we ultimately are successful in achieving it is by front loading as much of that integration throughout the deal process as possible."
To do that, he says as they're working through financial and legal diligence they're also engineering opportunities to get the management and sales organizations together and have them start sharing work, competing for jobs in a joint perspective and really testing the thesis prior to ever inking the deal.
"We found the more you can front load that work, the more real answers you're going to get through your diligence, both in terms of your cultural fit and how the management teams are going to work together, and whether your thesis as to whether these two organizations can pursue work more effectively together," he says. "And then you're set up to hit the ground running as you move into the post-acquisition integration work."
RSM Director, Synergy and Cost Savings Luis Galarza says, whether you're serving someone on the buy side or someone on the sell side, there are different levels at which each side can articulate value. But in general, the idea is that you're looking for the right buyer, the right seller that can meaningfully combine their businesses.
"For a lot of these sellers, this is their life's work," he says. "They have a legacy they've built and to them that's value. And for a lot of buyers, they want to look through a list of costs, through a list of operational initiatives and be able to see immediately which ones they can take advantage of and which ones are cost drivers for them, and which ones are our cost savers."
Plumb Line Capital Managing Partner Matt Lindberg says part of value creation is de-risking as many things as you can.
"If you're looking at putting two companies together and you are doing that in the pre-close stage and you find out that it's not a good fit, it saves you from doing a bad deal that obviously just destroys value or you got to play catch up on the value creation at that point," Lindberg says.
That can mean quickly moving on from a cash-based accounting system run on Quickbooks to a real financial reporting system in the cloud that's able to be accessed from multiple locations, having a CFO that can produce GAAP audited financials.
"We're always spending that money up front and that bandwidth up front to make sure that we have our ducks in a row because if not it's difficult to create the value going forward once you actually own the asset," he says.
Brindisi, Galarza and Lindberg, along with RSM's Steve Menaker, spoke at last year's Charlotte Smart Business Dealmakers Conference about how they approach valuation creation, as well as current trends you can apply to your next deal.