Potential value waiting to be unlockedAs sad as it can be to see a vibrant American company slowly stagnate and decay because of management that was too "traditional" the beauty of "the market" is that it can also provide the resources (cash, experience, strategy, expertise, management) to unlock the latent value in otherwise solid companies.
And one of the most compelling ways to do so is to focus on B2B (often industrial) companies that have stagnated due to a solely domestic focus amidst market evolutions and the transition of growth from North America to emerging markets.
Funky MetricsNow, all you numbers jockeys, before you get your knickers in knots let me acknowledge...cash flow. I get it. You're not buying companies out of charity. The deal has to stand on its merits.
But let's back up. Unless we're talking about a strategic acquisition that promises accretive earnings as a bolt-on business unit, then the deal is predicated on unlocking some value. Now, that value is often in operational efficiencies and other various areas of performance that will improve with capable management.
But why are those the primary areas of value that get considered? What if......
Global BlowoutWhat if the company was stagnating, not because they didn't know how to purchase properly or negotiate favorable credit terms, but rather because they didn't know how to sell? Taken a step further, if their selling had been stuck in an 80s model - built for the "go go" days of American B2B business growth - that was built around silos of ineffective marketing and decreasingly effective direct sales...all focused on domestic market growth.
Given that we're talking about stagnating companies, they are in industries which are domestically maturing - or at least slowing to no more than the background rates of GDP growth. You know the type I mean - many still have wood paneling on office walls which exhibit the must of the days when the office atmosphere was thick with cigarette smoke.
But those companies that seem destined for irrelevancy here have, in many cases, IP and product and application expertise which is precisely what is needed in emerging markets. And given the chance, there are certainly other creative and entrepreneurial folks domestically who could take that kernel and apply it in new, exciting and profitable ways.
In other words, if you market it in a way that allows folks outside of the traditional circle to learn about a solution, they will find ways to use it and clamor to buy it. And if you introduce it to folks in emerging markets, after they hammer you on the price, they'll likely buy a ton of it.
Enterprise valuation and business growth
If you have strong financial and operational management, and grow a company at 10, 20 or 25%, you're going to increase valuation. Open up new verticals and expand into diverse, rapidly growing new geographical markets and you'll enhance the metrics that contribute to valuation.
Is this potentially a longer process than simply cutting the fat? Probably. Maybe it's a 5-7 year window to the next liquidity event rather than 3-5. But it's also a far more dynamic process likely to reward owners both in the interim as well as in the sale.
But here's the question. Why aren't there PE funds that focus on this opportunity? America's industrial base hasn't been eviscerated as many assert, but it is beginning to wither. Here's a huge opportunity to create substantial investor and enterprise value.
If you know of a fund that is in this space, or if you'd like to discuss the opportunity, contact me at +1 978.238.9898 or firstname.lastname@example.org.
And if you want to skip the PE buyout trauma and create blowout growth for your company, contact Consilium to discuss the parallel approaches of evolutionary marketing and new markets.