Edson Gissoni – Executive Partner of DMS PARTNERS
A significant number of executives and business owners, when faced with calculating the economic value of their organizations (“valuation”) or even with the value offered by a potential buyer or investor, whether in a formal process of conducting a total or partial sale, or just out of curiosity, feel disappointed or frustrated, as they expected a value much higher than that resulting from calculations carried out by recognized market techniques such as: Discounted Cash Flow and/or Market Multiples.
This disappointment or frustration is often due to the fact that most executives or business owners dedicate much of their focus and attention mainly to the company's financial indicators (revenue, profit, sales volume, etc.), which It is
obviously important and impact the value of the company, but they forget about other variables that may be generating loss of value or perception of risk in the acquisition, from the point of view of a potential buyer or investor.
The approach suggested by the Management Solution presented here aims to support company managers in identifying possible detractors of the company's economic value and potential opportunities to leverage this value.
How is the process of identifying value leveraging opportunities carried out?
Based on the analysis of the company's current situation in relation to its business model and its current economic value (“valuation AS IS”), possible detractors that are impacting this value are identified, followed by a review of the business plan. current business in order to contemplate the implementation of potential opportunities to mitigate detractors and improvements that can increase the company's value.
Considering the implementation of improvement opportunities as a premise, the company’s “valuation” is calculated again, this time, using the “TO BE” model.
In which situations should companies conduct a process to identify value leveraging opportunities?
• When there is a perception of low economic value of the company, when
compared to other “players” in the market in the same segment.
• Companies with positive financial results, but with operational risks that
when reflected in the WACC (Average Cost of Capital), they increase the discount rate to
values that reduce the final economic value of the company.
• Companies with high growth rates in the main indicators of
revenue/margin, but cannot achieve the same growth impact
in the economic value of the company.
• Companies where the performance metrics of executive managers do not
necessarily serve the interests of the partners/owners.
What are the main benefits of a process for identifying value leveraging opportunities?
• Review of the company's business model in order to meet business objectives
growth in company value and not just revenue and margin.
• Generation of a leverage plan with more tangible metrics and objectives and
focused on measurable results.
• Focus on the interests of the main shareholders and owners.
• Preparation for a future total or partial sale operation with greater
probability of success.
What is the profile of companies that can benefit from this process?
• Medium and large companies, from all segments, with an interest in
increase the economic value of the company for future sale.
• Companies with Shareholders and/or Owners interested in monitoring and
monitor not only short-term financial results metrics, but
concerned with generating medium/long-term value.
• Companies interested in knowing their current economic value and potential
value leverage.
How can DMS help?
DMS Partners and its team of senior partners, from the most diverse segments
of industries and with solid knowledge in business planning and modeling,
as well as in the process of assessing the economic value of companies, have the
expertise needed to identify opportunities to leverage value
of companies, in order to provide them not only with better
operational efficiency, but also that can increase its economic value.
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