Acquisitions, sale of a business or division, intergenerational succession, and liquidity-focused transactions are capital transaction strategies used by successful businesses. Often, little planning is undertaken in advance of implementing these strategies. This can lead to suboptimal results, even when a transaction is successfully closed.

The economic slowdown and tight credit markets have slowed all forms of capital transactions. This provides an excellent opportunity for companies contemplating a capital transaction to implement a process that will improve the positioning for and outcome of the strategy. P&M Corporate Finance has designed a program to assist clients with this process: the Value Optimization Assessment (VOA). 

How Does It Work?

The VOA program will provide your company with a set of recommendations that, when implemented, will increase the likelihood of successfully completing a capital transaction. It’s composed of a three-step process that typically takes eight to 10 weeks to complete.

Considerations may include evaluating:

• The value of the business today and a gap analysis that quantifies the financial performance improvements required to achieve enhanced value outcomes.
• The available credit capacity of the business under alternative capital structures. This can be instrumental in evaluating ownership transition or growth through acquisition strategies.
• A summary of opportunities to improve the positioning of the business for a successful capital transaction. The evaluation includes management organization, financial reports and metrics, key operating considerations, and trend analysis.

What Are the Benefits?

First and foremost, a VOA helps business owners determine the worth and/or credit capacity of the business compared to owner expectations. These are often two very disparate figures. This is particularly important knowledge for a sale situation where owners are looking to take liquidity out of the company in order to retire. A VOA will let owners know if their expectations are reasonable and provide the data to drive strategic initiatives to bridge any gaps that exist. Effective strategies take time to implement and produce results; early identification of value gaps enables any disparity to be addressed in a sustainable, nondisruptive manner.

Second, a VOA will flag considerations that may increase buyer/investor perception of risk and provide recommendations to eliminate these risks. The high level operational assessment includes a review of management team depth and continuity, intellectual property exposures, and financial metrics and recommendations to consider in addressing any gaps. Potential deal structure implications resulting from the analysis are also assessed. 

In Conclusion

A VOA helps business owners contemplating a capital transaction consider their personal and business objectives based on specific ownership objectives, strategic direction, and financial characteristics.