For companies that operate in the workers’ comp industry, Jack shares important factors that can help drive the value of a business, over and above financial metrics. The first article of Jack’s two-part series titled “Beyond the Numbers” is focused on brand equity. Read the full article below.
Beyond the Numbers – Brand Equity
The M&A market remains very active. Deal activity is strong with larger industry players pursuing strategic acquisitions to enhance their offerings and private equity investors actively seeking out compelling businesses of scale for purchase or investment.
As quality businesses continue to get snapped up, the question we most often get as advisors is: what drives valuation and marketability of businesses besides the normal financial metrics? Yes, financial metrics such as adjusted EBITDA, revenue growth, and customer concentration will continue to be key factors that buyers will look at closely. But there is more to achieving a successful sale of a business than just focusing on the numbers. Other important factors are often the key to ensuring a sale will yield an attractive result.
Three Important Drivers of Value – Beyond the Numbers
We believe there are three key factors that help drive the value of a business: (1) brand equity, (2) culture, and (3) talent. In this article, we will discuss the important role of brand equity, and stay tuned for next week’s article where we will cover culture and talent.
Brand equity refers to a value premium associated with choosing one company over another. So, what are the key steps for creating brand equity?
- Deliver a Differentiated Solution: Why is your service different? What do you offer that your competitors do not? It is important for a business to understand how to differentiate by something other than pricing – competing solely based on price does not lead to a sticky customer base and makes a business especially susceptible to competition.
- Tighten Branding and Messaging:A company’s brand and key messaging are often overlooked. Ensure the value proposition your brand represents is as clear as possible; this is a simple step that is often forgotten. Working with a branding consultant to tighten messaging to ensure the brand is communicated and consistently delivered is money well spent.
- Invest in Marketing: Similar to branding, marketing is an area that is often neglected. While it may be easy to rationalize that things are going well given existing business and word-of-mouth customer referrals, companies must invest in marketing to maximize performance. Marketing does cost money, but it can generate an enormous benefit. There are many avenues of marketing to consider as a vendor – conferences, charity events, industry publications/websites, email marketing, etc. Focus on the marketing avenues that have the highest ROI. While marketing spend can directly lead to new business opportunities, the benefits are much broader. Marketing spend further develops the brand and its reputation in the industry.
In addition, do not lose sight of basic principles essential in the workers’ comp space: delivering a quality product/service, displaying impeccable reliability, and operating with integrity. Failure to to adhere to these principles will destroy your brand equity and depress the value of you business.
Ultimately, acquirers are not simply buying financials. Ensuring the company is delivering a differentiated solution while improving the brand messaging and investing in marketing will help to increase the value of your company.
Next week’s Part 2 installment of Beyond the Numbers will focus on culture and talent.