51 PRINTITRESELLER.UK 19 BUSINESS BRIEFING M&A Inside Track In our previous article, we explored the significant potential for M&A activity in the managed print sector, highlighting how, despite this area being similar to the comms and IT channels, there has been much lower volumes of deals within the managed print sector. This suggests that there is an untapped opportunity for business owners and investors alike. As we continue this series, we delve into understanding what makes a technology business valuable and what business owners in the sector need to consider to maximise value. What Drives Value in My Technology Business? As a business owner understanding the drivers of value can guide your strategic decision making, influence growth plans, and help you make informed investment choices. Here, we break down the key factors that impact your business' value. q Size Size does matter, and larger companies generally command higher multiples due to their established track records, operational stability, and lower perceived risk. These businesses are often seen as safer investments because they are less likely to rely on a single customer or supplier. w Organic Growth A strong growth rate enhances your business's appeal. Buyers are particularly interested in businesses that demonstrate a consistent upward trajectory, as this indicates robust market demand and competitive strength and are naturally going to be valued more highly than those that are flat or declining. e Recurring Revenue Managed print resellers tend to have high levels of recurring revenues, which presents less risk to a buyer or investor given that it gives far more certainty about the future financial performance. High recurring revenues also tend to lead to consistent cash generation. r Customer Profile Customers are the bedrock of your business. They validate your strategy and proposition, serving as proof that your business holds value. A loyal and diverse customer base reduces risk and enhances the attractiveness of your business to potential buyers. t Product Proposition The ability to offer innovate solutions from credible partners is attractive to trade buyers that utilise the same model. Vendor independence in a constantly changing technological environment is seen as a ‘positive’ for most buyers. y Management Team Whilst not all buyers will want to retain a management team post deal, having a management team in place does demonstrate that the business is not overly reliant on founders who are unlikely to remain post deal. If a private equity transaction is being considered, the quality of the management team is crucial. Valuation Metrics In today's market, the value of a managed print business is more often than not based on a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation). This metric serves as a proxy for the cash-generating ability of the business. The actual multiple paid will depend on how the business scores on the 6 key factors above. Whilst every buyer will have different priorities, and you do not need to be ‘perfect’ on all 6, the better positioned you are with all 6 will undoubtedly help generate a higher value. Strategic Steps for Business Owners Selling a business is often one the most significant events that a business owner will ever go though. It’s essential to be well-prepared and understand your strategic options. Here are key steps to consider: q Start with Your Goals Clearly define your financial and personal goals. Whether you aim for financial independence, funds to start a new venture, or a secure retirement, understanding your objectives, including the value you want to achieve, will shape your strategic direction. w Understand Your Business’ Value Drivers Identify and enhance the elements of your business that create value. Focus on building a loyal customer base, protecting your intellectual property, innovating your product offerings, and sustaining growth. e Prepare for the Sale Process The sale process can be lengthy and demanding. Ensure your business is well-prepared, with robust financial information, and recognising what will enhance value and what might be detrimental to value before you start a process. r Focus on Value, Not Just Multiples We always say to clients it is the number that matters, not the multiple; a higher multiple of a smaller EBITDA may not be as beneficial as a slightly lower multiple of a significantly higher EBITDA. Understanding the value of your business and the factors that drive this value is crucial for making strategic decisions. Whether you're considering a sale or planning for future growth, aligning your strategy with these value drivers can help you achieve your business aspirations. At Knight Corporate Finance, we specialise in working with business owners well in advance of an eventual exit, allowing us to then guide them through this complex process when the right time arises, ensuring that you realise the full potential of your hard work and investment. If you’d like to discuss what the next step for you and your business could look like, and arrange a confidential call, please email me [email protected] or visit our website at www.KnightCF.com in association with Understanding the Value of Your Technology Business: Key Drivers and Strategic Insights By Nikki Freeman
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