Business Valuation & the effect of global sales

Ed Marsh | Sep 26, 2012

Begin, Double Down or Get Out?

McKinsey Quarterly recently republished a 2008 article "Learning to let go:  Making better exit decisions".

I'll admit that I see international business development implications in many places others don't - that's my gig.  But I really saw several in this worth taking a quick look into.

The exploration of tough strategic business decisions fits in three ways with topics we often discuss.
  1. For companies that are accidental exporters - who sell some internationally but haven't committed to a full scale strategic component of their business plan - the question is whether to really commit to a global sales initiative.
  2. For companies that are already active in foreign markets, but struggling to produce the anticipated return and debating whether to withdraw - the question is what markets are they in and why.
  3. As business gets tougher and tougher owners and executives start to ponder the exit options they have.  Selling a business can be an amazing opportunity for wealth creation, but your valuation will be determined by many factors.  A vibrant global sales component of your business can substantially enhance your valuation.

Time to commit to an export program?

More and more American companies are taking the export plunge.  Great resources are available to support their efforts, and projections of global consumption and GDP growth are clear.  The domestic American market will be relatively stagnant for some time.  In contrast, amazing growth opportunities exist in various foreign markets.  They may be much easier to enter profitably than you realize.

Burned by the BRICs?

Tragically (not some melodramatic crap - it really is) many companies that take the international leap do so by entering the BRICs.  And before long they wonder what horrible mistake they've made.  The BRIC markets offer seductive statistics that support great projections.  But actually achieving ongoing, stable, FCPA compliant profitable business in the BRICs is a daunting challenge.

Companies with these frustrations should consider refocusing their efforts on growth markets with great potential and lower barriers.

Distressed or enhanced valuation

One of the least discussed and most compelling implications of international business development is the impact on company valuation.  It's a pretty simple proposition that boils down to two elements.
  • If it's a global economy, and every company needs to be global to thrive, then by extrapolation, any company which isn't global is distressed.  
  • If valuation is a factor applied to EBITDA, and earnings trends are important, then larger earnings growing consistently contribute to a healthier valuation.
Global sales drive both.  By being well diversified companies are more resilient and avoid the correction factor that can be applied to solely domestic companies during a sale negotiation.  Further, while domestic markets stagnate creating a challenging environment for consistent revenue growth, global markets offer greenfield opportunities for substantial growth.

Company owners often hesitate to consider the implications of business decisions from the perspective of a future liquidity event.  That's understandable.  They're busy - and often in the weeds.

But a global sales initiative offers short and medium term benefits as well - and takes some time to undertake before the full value is realized.

Therefore it's too late to start as one considers a sale - the time to start is now.

Contact Consilium Global Business Advisors to learn how we can help you launch a global sales initiative that will enhance your business in many ways.

And download our free eBook for more detail on how exporting can boost your business valuation. 

Global Sales Business Valuation