Part 5: The Ravinia Approach -- Finding Hidden Value

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When we sell a company, we aim to sell it for the best value possible, not necessarily in the fastest time frame.  That surprises our clients, especially when they realize that we are willing to stick with them while they work to increase the value of their company, which can take months or sometimes years before we go to market. We do this because it’s what’s best for our client.

So how do we get companies to become a better version of themselves?

The first thing is to understand the objectives of the sellers, followed by a deep dive into the company and its industry to understand what it is like now, and what it could be like in the future.  We ask what will enhance the sale and what will detract from it?  What will the buyer see when they look it? What are its strengths and weaknesses?  If the company has three profitable plants, but the fourth is losing money, should it shut down before the company goes to market?

Early in the process, we usually bring in a third party accounting firm to do a complete analysis and quality of earnings of our client and prepare an objective, independent report that reflects a thorough diligence of the company.  We know buyers will do that later during exclusivity, when it could be a problem; anything not disclosed could be used against the seller during the negotiations process.

We also know that frequently buyers want to see a pathway to growth.  Since the price will be based off the stream of future cash flows, we work with our client to create a plan that details how that growth can be achieved.  We also help the seller codify its way of doing business to make it a plug and play for the buyer, an especially important item if the buyer is looking for a franchise opportunity.

As we work exhaustively with our client, we always keep in mind that middle market companies have very few buffers.  They are not big enough to have brands that can withstand huge bumps in the road, they often rely on a few critical customers and they can be subjected to lots of shock waves. It’s important to remember that the sale of the company and our desire to see the best possible value may be a time versus money question. We can make the case that by making a few changes over the course of several months we can generate a better price.  However, time has its own cost. There’s a black box of things out there that we can’t even anticipate that can negatively affect the deal. And sometimes, the world can change on a dime.

Whatever we do, it is not a cookie cutter approach; everything has to be tailored to our client.  We also have to find that balance between the seller’s directions and the knowledge we bring based on experience and success.  Sometimes – even against our best counsel – we may do what the seller wants and then let the idea fall on its own sword. Regardless, we stick with our client until we are able to get to a satisfactory conclusion for them.

Write back and let me know how you find hidden value in your clients.

Ben Schmidt