Many factors are involved in pushing those multiples ever higher, but here are four big ones:
1. Operating a profitable, strategically-aligned niche business. Not to overstate the obvious, but just because Wall Street is in a buying mood these days doesn’t mean they’ll buy stupid. The wounds of 2008 are still fresh in everyone’s minds, so don’t expect private investors to open up their checkbooks at the slightest hint of a profit. They want companies that are not only profitable today, but have been in the past and look to be in the future.
The key to high, sustainable margins is to find a specific niche, and dominate it. For 9 out of 10 companies, that’s far easier said than done.
2. Fielding an exceptional management team. In the days of high tech wizardry, the notion that talent alone can increase multiples may seem far-fetched, yet it’s the truth. Ask any merger and acquisition firm: Nothing can sink a deal like a poor management team. Not only do you need a team to have built your business in the past, but an investor will want to see the right people in place to transition into the future.
People will pay a premium for talent, especially within a niche industry.
3. Maintaining a cohesive workforce. In my recent L&NW collumn “The Bottom Line," I talk about Tursso Companies, a Minnesota-based company with a penchant for taking on challenging print jobs within the pharmaceutical and medical device industry. One of the true draws to this company is its workforce, which embraces the culture of solving difficult problems for clients. Organizations that can create this kind of shared culture can assure an investor that the people are in place to move a company forward.
4. Having a vision for your own future. Wall Street is on the hunt for people willing to sell their companies, but they’re having a hard time finding targets. Why? Because many company owners are clinging to the reins, and refusing to move on into retirement. They are sticking to the one thing they know - their company - because the thought of life after retirement seems empty without it.
Investors would love to find sellers who have a solid vision of their own personal retirement. That’s a solid indicator the owner wants to create a legacy, and is working to assure that the next generation is ready to fill his shoes.
Put together those four attributes, and you can name your price for Wall Street.
Rock LaManna, President and CEO of LaManna Alliance, helps printing owners and CEOs use their company financials to prioritize and choose the proper strategic path. Rock can be reached by email at firstname.lastname@example.org.