May 27, 2014

Managing the Business Life Cycle to Maximize Shareholder Value

Andrew Winick

Businesses, like people, are, in a sense, living, breathing organisms. Like people, businesses have their ups and downs. Just as we all should visit with our doctor for an annual check-up on our health, the business owner should periodically assess the health of their business to address any weaknesses, risks and opportunities. Doing so regularly can ensure that, when the business owner finally decides to exit the business, he or she receives the maximum value. Whether a business is successful and is generating abundant cash flow, or facing challenging financial and operational circumstances, business owners need to take the time during each annual budgeting cycle to assess the shareholders’ long-term goals, expected return on capital, idiosyncratic risk (internal risks specific to the business) and systematic risks (risks associated with the entire market and industry). The goal is, of course, to maximize shareholder value when the owner sells the business.

Facing Business Challenges

Business challenges, such as declining sales and profits as a result of the economy (a systematic risk), or the loss of customers to a competitor (an idiosyncratic risk), can rapidly destroy shareholder value. Consulting with an investment banker when a crisis looms on the horizon – before it has struck – enables the owner to address challenges before they become crises, while he or she still has negotiating leverage. Engaging an investment banker to strategically assess a company’s value and position in the marketplace can give a business owner an objective perspective and uncover ways to enhance the business’ potential value to a buyer. A good investment banker understands and will communicate to the owner what aspects of the business will enhance value from a buyer’s perspective and what may diminish value. Moreover, the banker can guide the owner regarding what steps to take to address the latter. The investment banker will also work with the owner’s other key advisors, such as accountants, attorneys and consultants, to craft a plan that positions the company for a transaction at the greatest possible value. When owners work with their investment banker well in advance of a sale, they greatly increase the chance of the shareholders receiving appropriate value for their business. This is especially important given that the M&A and capital raising process takes time. The investment banker can provide actionable, objective and helpful options, which the business owner can implement in time to meaningfully boost the value that the shareholders obtain.

About the Author

Andrew Winick is a Managing Partner at the Westbury Group, a middle market investment bank located in Westport, Connecticut.

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