We help companies to realise their value-creating potential. In a world where Covid-19 has seriously disrupted the business dynamic, it is ever-more important to identify the value-driving and value-destroying areas and behaviours within companies. Adopting a value-driven set of objectives benefits all stakeholders ie business owners, shareholders and employees. It puts a business on a more robust financial footing and if executed correctly can lead to higher and more (economically) profitable rates of growth and an increase in the overall business value.
To achieve this, we focus on two areas;
- Business Performance
- Strategic Development
Everything we do is evidence-based. The starting point is the balance sheet. Our business performance analysis process (otherwise known as the Value Audit) will initially examine the balance sheet over time to identify value-creating areas within the business and the trends therein.
Our preferred unit of measure is Economic Profit. This metric accounts for all costs incurred by the business including tax and that of equity capital. The latter cost is commonly ignored by the accountancy profession. Thus the decisions influenced by earnings-based measures such as EBITDA may in fact be incorrect for the future health of the business given its underlying and undiscovered value position.
Given that we have a number of proprietary tools at our disposal, our data outputs will be both revealing and challenging as our approach will uncover those previously unseen trends and performance profiles which in turn will inevitably question the accepted view of how the business has been doing. In fact, we usually end up knowing more about a business than the owner(s) or major shareholders do at this point.
Alongside the company-specific business performance analysis, we will also produce a peer group/industrial sector comparable view in order to position and rank the business against a number of key value-based measures including economic profit performance, efficiency rates in converting revenue into economic profit, total shareholder returns and share price performance. No two businesses are alike and this is certainly true in a value-driven context.
Our extensive work in football provides an excellent example of the degree of understanding that can be achieved in terms of market dynamics through the use of value-based metrics. And even though our early predictions based on the available economic profit data were largely criticised, we now find that almost all of our predictions have come true.
Our capability in providing a new and alternative analytical perspective regarding business performance lends itself to inclusion in merger and acquisition activities, particularly with regard to the question of whether or not the intended target business will actually add value or end up destroying value over time post-purchase. Therefore, our value-identifying business performance analytical expertise should be a vital component in any Due Diligence process especially when seeking suitable elements to acquire.
Indeed, our valuation expertise has been called upon by intermediaries involved in the purchase and sale of English football clubs as well as a number of other companies.
Our own Governing Objective is to transform the business in question into a self-reliant and self sufficient value-creating enterprise.
But what is your Governing Objective? Do you have one? If not, what is/are the guiding principle(s) by which your business is operating. A mission statement perhaps, or a set of Key Performance Indicators? How are they measured? How do they benefit the business? Are they designed to create value? How is value measured in the organisation currently, if at all?
Lots of questions….but in the first instance we usually find no clear and defining value-creating objective…
Once we are armed with a clear understanding of the company value dynamic, whether good or bad, we get to work in developing a clear value-driving bespoke set of objectives and behaviours, all positioned under the umbrella of a single Governing Objective. As we said, no two businesses are the same just as no two solutions are the same.
We provide support and guidance in both the implementation of the new regime and the ongoing management of the new strategy with regular reviews of business performance to the point at which the senior management team will be able to navigate the business with a value-driven ethos on their own terms.
And we are always available to give help and advice.
So why would you put your business through this process? Firstly, if you are not aware of the value dynamic for your business, then it may be the case that the accounting perspective could be giving you incorrect signals about the overall health of the enterprise. Consequently, you and your executives’ decisions regarding the strategic direction of the business could be wholly incorrect. Too often we have seen examples of senior executive teams misreading a business through the accounting lens when a value audit would have signalled imminent danger and avoided catastrophic consequences.
Again, a good example are the English Premier League clubs. Long term trends as measured by economic profit metric clearly demonstrate an inability to generate value with regular economic losses. The data was clear in that even a minor shock to the revenue stream would be highly damaging to the underlying economic/value performance of the clubs. And so it proved in the year BEFORE Covid19 when the clubs achieved record economic losses. Not the best position to be in going into a pandemic with games cancelled and media rights and associated revenues in decline as a result. Early indications from the club balance sheets released so far prove our point.
The second aspect is that in adopting a value-driven approach, the business is positioning itself on a much firmer financial footing as well as implementing behaviours and objectives designed to create value. This approach benefits both shareholders and other internal stakeholders.
The best example of a significant return when working within a value-creating framework is Roberto Goizueta’s reign at Coca-Cola in the 1980s and 90s. During his tenure, the share price of the business increased by 7,200%, due primarily to the adoption of value-creating objectives and behaviours. And as he said, ‘When you start charging people for their cost of capital, all sorts of good things happen’.
And finally, two questions for you;
Do you know what the true value drivers are in your business?
Then do get in touch with us via the form on our home page.