Research

Survey of M&A Professionals

In 2020, the youngest baby boomers will turn 55 years old, and baby boomer business owners, who own over 75% of the 6million+ private businesses in the US with payroll, will need to transition their companies to new owners.  Seventy percent of M&A professionals surveyed said that business owners are minimally prepared or not prepared at all to sell or transfer their companies.

White Papers

 Transferable Enterprise Value: The Importance of Quantifying Intangible Value Drivers in Small to Medium Size Enterprises (SMEs)

Small to medium size enterprises (SMEs) comprise 99% of all businesses in the United States.  Over the last decade, they accounted for about 64% of net new jobs annually and approximately half the Gross Domestic Product (GDP) generated by the private nonagricultural sectors.  SMEs are truly the backbone of the U.S. economy, and a crucial source of jobs for Americans. With the majority of SMEs in the hands of baby boomer business owners nearing retirement, the need to transfer private business over the next decade will accelerate.

This white paper discusses the importance of quantifying intangible SME value drivers, and lays out a three-point way forward for the public and private sectors to address the issues of business tranfership.
 

  Quantifying Transferable Enterprise Value in Small to Medium Size Enterprises (SMEs): The Value Driver Methodology

Enterprise value measures the “true worth” or “economic value” of a business.  More specifically, it is a measure of the actual takeover price that an investor would have to pay in order to acquire a particular firm. To calculate enterprise value, investors and buyers look ‘under the hood’ of a business and analyze the operations or ‘business engine’, typically as part of a due diligence process. However, how much (if any) of that value is transferable is determined largely by whether the business can dependably generate revenue and profit at or above its current rate, even without the current business owner(s) in charge.

This white paper outlines a new framework and methodology to quantify transferable enterprise value in SMEs. This methodology provides actionable transparency to the operations of a private business – an often missing yet critical component in financial valuations – to enable companies to improve value, communicate among owners, boards, and management teams, and successfully transfer to new owners.
 

 Enterprise Value and Operational Excellence: A Reasonable Starting Point

The ‘fundamental responsibility’ of the CEO is to build enterprise value. To accomplish this, a CEO must have a ‘reliable, continuous and actionable measure of enterprise value.’ The public company CEO has such a measure, the publicly quoted stock price; the private company CEO does not. The lack of such a measure for 99% of the businesses in the US economy has created significant inefficiency in the capital markets.

This white paper illustrates that a ‘reliable, continuous and actionable measure of enterprise value’ requires a generally accepted measure of both financial performance and operational excellence.