#311: Strategic Transaction Value - The Value of a Business Based on the Buyer's Purpose of the Deal

Ep. #3 [THEME THREE]

So far in this series, we’ve been demystifying business valuations by focusing on how a company is valued–as it stands today based on the risk of its cash flow–so you can view and run your company like a financial asset. By focusing on growing the intrinsic financial value–and how the net proceeds correlate to your timeline and ability to hit your financial targets–you will have choices in the future.

With that context in mind, we’re now going to dive into what you can do to maximize your valuation and net proceeds if you want to sell your company to a third party (e.g., strategic buyer or private equity firm). Today’s show focuses on the strategic transaction value which is driven by the reasons buyers buy a company or as we call it “the purpose of the deal…”

What happens if the current company financials are not the primary reason behind the buyer’s purpose of the deal?

Every entrepreneur and business owner can tell one heck of a story–about the history and future potential of the company. And when it comes to a strategic buyer, we’ve barely ever met an owner who doesn’t know why a strategic buyer would buy their company and what they should do with it. Too often, during the sale to a third party, this story is left to “finance people” to show the numbers and explain the story.

On today’s show we have Ted Schlueter and Eric Coonrod who have partnered up to solve this issue. They help companies maximize value to a third party buyer through “Branding for Buyout.” Ted helps companies market themselves by increasing the perceived value to a buyer through strategic branding with the target buyers in mind. Eric is an investment banker who focuses on the transactional value and deal structure side of a deal.

We discuss how the story of a company can increase the purchase price of a business (branding), why past marketing data is a huge metric that buyers will look at when acquiring a company, and how successful (pilot) market penetration campaigns can open up opportunities to a buyer and increase desirability and the multiple of your business. Overall, this episode really clarifies how marketing and deal structures fit hand in hand and put more money in your pocket.

//WATCH THE INTERVIEW ON YOUTUBE: Intentional Growth™ Podcast

What You Will Learn

What buyers look for in an acquisition and why they actually buy a company.
Ways Ted and Eric figure out the “purpose of the deal” and why the buyer wants to buy the company and how to leverage that reason to increase the sale price.
Why the role of marketing is so important when getting ready for a buyout.
Ways to increase the intrinsic value using M&A trends and past marketing data.
How “Branding for Buyout” combines a marketer’s and investment banker’s skillset.
The process of positioning a company to maximize purchase price by targeting buyers with your marketing.
How to fuse the numbers and perception of a company to grow the intrinsic and transactional value.
How the “Branding for Buyout” process helps with negotiations at the deal table as it relates to the deal structure (not just the purchase price).
How your brand’s story can increase the multiple if it’s told right.
Why the intrinsic value of your company needs to hit your financial targets before you go to market and why that can–and should–be your “Plan B” if you don’t get what you want from the third party offers.

// USE YOUR FINANCIALS TO CLARIFY A PATH TOWARDS A MORE VALUABLE BUSINESS: https://arkona.io/intentional-growth-financial-assessment

Bio:

Ted drives growth initiatives for The Grist’s B2B and B2C Clients as well as spearheading internal business development efforts. Before The Grist, Ted spent over 20 years driving integrated marketing initiatives for his own award-winning agency, Crunch Brands and subsequently Breakaway Marketing.

Eric has over 19 years of experience originating and executing transactions in the Health & Wellness, Food & Beverage, Consumer, and Healthcare Services industries. Before founding Integral, he was a Senior Vice President at Cascadia Capital. There he founded the firm’s Health & Wellness practice and was responsible for initiating coverage for Healthcare Services transactions within the firm’s Healthcare Group. He has also been a part of numerous corporate finance and capital market transactions, including mergers and acquisitions, follow-on equity offerings, initial public offerings, leveraged buyouts, and equity private placements. Eric graduated from Washington University in St. Louis with a B.S. in Business Administration and is registered with FINRA holding the Series 79 and 63 licenses.

Interview Quotes:

12:06 - “Marketing and branding has always existed to sell more product, service, or technology to a customer. That’s its whole sole goal should be that: to increase sales and to help companies grow. But after branding myself out of a job with Repetitively over ten years, I realized, like an epiphany, that there’s actually a new target audience, who are the potential buyers of a business.” - Ted

12:45 - “The thing I realized with a new audience is that you have to run a bimodal track. You have to run track one as you always have (sell more product or service or technology to increase sales) but there is another work track where we now intersect with Eric, which is, if you know who the potential buyers could be, you can actually position the brand and aggregate, not only so it’s appealing to customers but it’s also appealing to buyers and what they want to buy.” - Ted

20:18 - “The way to win in B2B tech, by the way, is to humanizing the story and getting away from all of the technical stuff.” - Ted

23:32 - “And by the way, with digital marketing, you can basically get into the ecosystem and brain of a buyer and put your content in front of them, if nothing else, just for awareness.” - Ted

26:18 - “You do a lot of prep in advance so you make the sell process easier because–you’ve done it yourself, Ryan–selling your company is unbelievably difficult. It’s unbelievably time consuming.” - Eric

27:28 - “It’s the things that are the soft things that are the most important. That’s what increases value.” - Eric

40:43 - “When you ask the question, ‘Why buyers buy?’ nine times out of ten, or maybe -99 times out of 100, the answer is potential. They are buying potential.” - Ted

53:50 - “The brands themselves have a story that’s waiting to be told. It’s just being told really poorly.” - Ted

54:40 - “Not only do you have to sell to the customers but the buyers are looking for something very specific. If you have a brand that can do both, then there’s more of a chance of getting to that negotiation table.” - Ted