Equity Value – Drivers of Equity Value – Be appropriately Corporate
Companies are in business to create profit and equity value, a pursuit that occupies countless hours in boardrooms and executive suites around the world. Selective companies get it right as they set the correct value creation course and sustain it over time. But many do not. Some companies cannot find the right strategic path; others cannot execute their strategy. The ones who execute well for a while often lose their way.
The development of a corporate strategy is more than the aggregation of business unit strategies. The best corporate strategies force a company to make clear choices about its portfolio and the allocation of its resources. For larger companies, especially public companies, the challenge to have an effective corporate strategy intensifies by quarterly reporting requirements and the demands of a vastly larger and more vocal group of stakeholders.
The challenge for a smaller company owner or manager is what to do when. They may have experience from a larger corporation. They may have good knowledge from the business gurus of the day. But what works for a large corporation is not always applicable and can be dangerous for a smaller company.
We have previously described the characteristics of a corporate company. The challenge is to be appropriately corporate. To constantly strive for growth and sustainability, for improvement in all aspects of the business, through strategy, technology, marketing and sales, operations and finance.
Changes within the business add rigour, consistency, sophistication and transparency – and reduce risk. Each change is a step improvement from the previous position. But not too big a step and not too soon.
The best companies are constantly investing and improving, are not satisfied with their current position, and are willing to tear down previous investments when the time is right.
In the Australian market we notice distinct changes for organisations that grow through staff numbers of about 15. What works for a company of say 5-15 staff does not work for a company of about 15-50 staff. Dramatic changes are required to the organisation to be able to sustain growth through the 15 barrier to 20 and then 25 staff and beyond. Failure to restructure and reinvest usually results in a decline back to the “ceiling” of around 15 staff.
And all of that work and investment needs to be repeated when staff numbers get up to the 50-person level.
Companies that find themselves in the acquisition spotlight become exposed if they have not been undertaking the right investment to manage the current and near future requirements. If management structures, financing arrangements and technology systems are failing it will be obvious and will reflect in both “attractiveness” and equity value.
Acquirers react negatively to companies that have under-invested over time, or stopped investment to boost profits prior to sale.
The opportunity for recruitment agency owners and managers is to learn from their environment. Benchmark your performance and productivity (In Australia we recommend the RIB Report, watch your peers, network and travel to conferences. Constantly be reviewing your business for weaknesses and risks as well as being open to new ideas and new work methods.For small to medium companies the challenge is even harder. The media, academia and suppliers often showcase the larger companies and the successes they have achieved. That doesn't always help smaller recruitment agencies decide how to make the right investment at the right time at the right level.
HHMC Global provides advisory services to the recruitment and staffing industry and is best known for its work on M&A transactions. HHMC is based in Australia and works with clients globally. To discuss your business future contact Rod Hore or Richard Hayward.