By Chris Frevert, Managing Director
Make it worth less? Yep, you’ve read that correctly. The most requested consulting assignment that we’re working with various companies on right now is helping them to assess growth “opportunities” through the downturn. The reason that I surround opportunities in quotes is that most of these acquisitions will do little or nothing to actually improve the salability or value in the company going forward. In fact, the wrong service, product, or geographic extension could actually decrease the chances of finding an acquirer or investor in the future or devalue the current operating company. So how can that be?
Let me use an analogy that is very familiar to me; staying on the fairway. Now, that’s familiar to me because I’m a really poor golfer and find myself in the rough on most tee shots. However, as most golfers are judged, especially those in the pro ranks, the better and more consistent your fairway placement, the better golfer you are. The same is true for potential acquirers or investors as they size up your viability as a company and you as a company manager. You will be judged in the marketplace on many factors, not the least of which is your ‘story’ and that story has to be cohesive and all of the moving parts must be complementary.
So, if you’re presented with an “opportunity” to grow your business through the acquisition of an additional service line, product line, or geographic expansion remember this: additional cash flow does not necessarily translate into additional value. Proper acquisition opportunities must be carefully chosen; there is no silver bullet. If you’d like to talk more about growth strategies that will make your company worth more in the future, give us a call, we’d enjoy the conversation.