Private equity is fueling an M&A boom after a disappointing 2020. Will your business be ready to make the best deal if PE comes calling?

By Kemp Moyer, Director, Advisory

Merger and acquisition activity in 2020 was down sharply from the previous year. That should not shock anyone, considering the effect the COVID-19 pandemic had on the economy. Millions of people lost jobs, hundreds of thousands of businesses closed their doors, and the public equity markets plunged — only to rebound and close at record highs. Many organizations were focused on survival, shoring up the balance sheet while looking for ways to maximize liquidity. However, now that the vaccine rollout has started, interest rates remain at historic lows, and substantial dry powder remains ready to be deployed, M&A deals are booming.

On the buy side of the market, private equity firms and, increasingly, special purpose acquisition companies (SPACs) are actively seeking growth and value targets. On top of that, strategic acquirers are looking for targeted add-ons to increase their market share, add to their portfolio, offer niche products, or expand geographies.

With certain key market participants relatively flush with cash and looking to acquire, the potential for a deal makes having a valuation essential for any consumer-oriented business. Knowing the true worth of an asset is vital for any transaction, regardless of whether you are buying or selling. Nobody wants to massively overpay for something or leave money on the table when they sell. Having a reliable understanding of your company’s value is essential for consumer business owners, even if they have no plans to sell. Armed with knowledge of the current value and key drivers for potential appreciation, business owner’s can intelligently improve the company’s value for when the time comes for the ultimate liquidity event.

Know Your Company’s True Value

Hiring an outside professional to help identify your business’s value may feel like a burden on top of the long list of to-do’s. Business owners and executives understand a focus on growing sales and attracting new customers is critical, and they may prefer to allocate their time accordingly. However, for a balanced strategic process, understanding a recurrent indication of business value can be critical to success. Think of it as a check-up with a doctor: even if you feel fine, it is still worth getting a professional opinion. It is the same for a business. Having a professional review the company’s situation, key trends, market position, assets, sales and cash flow can show where things are going well or highlight areas for improvement — as does understanding some of the key dynamics in the broader equity and M&A marketplace.

A proper professional valuation can develop metrics and understanding to help increase the value of the company. The process can help identify key risk factors, further home in on critical opportunities, and develop an understanding of the business in context of market comparables to identify areas of improvement — or relative strength.

Securing a professional third-party valuation can help a business measure its progress. When used in conjunction with a strategic business plan, it can help drive strategic decision-making. When the goal is to increase value, and the key metrics are better understood, it can clarify which courses of action will help boost the bottom line, reduce risk, or allow an owner or management to set measurable goals and hold people accountable.

Finally, an accurate understanding of valuation is vital to raise capital from investors or get a loan from a financial institution. Any market transaction will require a fundamental understanding of valuation.

Getting an accurate valuation is not something that ought to be done in a rush when the chips are already being lined up at the table. The process takes time and should be a part of a strategic process. With a proper process, an objective business valuation will give owners and executives a deeper understanding of what drives their business and ways to improve upon that. The process will also help prepare these decision makers with fundamental knowledge in the case that an unexpected offer materializes in today’s fast-paced market environment.

BPM Valuations for Consumer Businesses

Whether you are pursuing an acquisition, complying with regulatory requirements, or just looking to identify opportunities for growth, valuations are a fact of life for consumer companies. The credentialed professionals in BPM’s Valuations are at the ready to provide independent and objective assessments that your business can depend on. Leveraging our depth of understanding of business, markets and best practices, our Valuations team works efficiently to produce rigorous, compliant valuations for clients. To learn more about how BPM can assist with your valuations needs, contact Kemp Moyer, Valuations and Appraisals Team Leader, today.


Headshot of Kemp Moyer.