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Know Your Business Value Before an M&A Venture

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Gradual approach

Knowing your business value can mean the difference between a successful and failed merger or acquisition.

That was a key message during this week’s Channel Partners Business Success Workshop: Planning for the Future. The goal was to teach channel businesses critical M&A skills. Those include correctly calculating your business value, performing a GAP analysis, and successfully negotiating a merger or acquisition.

Everbridge sponsored the workshop.

Seth Collins is managing director and head of LMM Group at Martinwolf M&A Advisors. He spoke about the critical need to know your business value before considering any M&A.

martinwolf's Seth Collins

Martinwolf’s Seth Collins

“You need to understand the value of your business to increase the likelihood of success at the end of a transaction,” he said. “When you run a process, when you sell your company, it’s so emotionally draining and physically draining. And it’s such a physical distraction to your business that if you are going to pursue it, you have to increase the odds and maximize the likelihood that you’ll be successful. And one of the ways to do that is to understand what you’re worth, not what you want or not what you need to live on post-transaction. It’s not what your buddy down the block sold his company for, but what you’re worth in terms of your business as it pertains to the market.”

As long as you have close alignment with that, the offers you get will allow you to actually close on your deal, Collins said.

Emotional Toll

Juan Fernandez is vice president of managed IT services at ImageNet, a managed service provider. He said everyone underestimates the emotion toll associated with M&A.

Juan Fernandez of ImageNet Consulting

ImageNet’s Juan Fernandez

“Coming from the field, I’ve been in a position where I had an opportunity to sell my company,” he said. “And you don’t realize the emotional drain it’s going to take on not just you, but your family and everyone that’s invested in your success. You just can’t comprehend that. So being mentally prepared is one of the biggest things that I advise people when they’re looking to sell, or are thinking about it or asking how I did it or they’re looking to buy a company.”

Fernandez also stressed the importance of knowing your business value.

“What are you made up of?” he said. “How much am I worth? What’s the true value of my organization? If you’re a break-fix company, it’s going to change you drastically comparing yourself to a managed services company. So it’s definitely understanding your numbers, knowing where you’re coming from, and then really being emotionally prepared.”

The first step to determining your business value is talking to others, Collins said.

“What I would do is talk to some bankers,” he said. “Talk to people within the industry and some of your peer groups, and talk about experiences and whatnot. But it’s important to learn the drivers of value, more so than just how much you are. I would focus on understanding how buyers value companies. Talk about what key factors drive or influence valuation. Ultimately your value’s going to be determined by the market. But if you understand the drivers behind it, understand the behavior of buyers … I think you’ll be in a better position to understand what your value range ultimately will be.”

The Pandemic Effect

Dave Dyson is CEO of Eclipse Telecom, the telecom consulting and management provider. He addressed how the ongoing COVID-19 pandemic could impact business valuation. Dealing with the pandemic has pivoted from “let’s deal with it” to …

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