Maximising Your Business Valuation Through Acquisitive Growth

Have you ever considered buying a business, to rapidly expand the size and profitability of your business? Perhaps you have thought about such a ‘buy and build’ strategy as part of your growth plans, but you were nervous about the risk or the process.

As members of The Corporate Finance Network, we can support our clients with a streamlined process and market-leading business intelligence.

This article explains why strategic acquisitions can be an excellent way to also address and mitigate existing challenges, weaknesses, or threats in your own company.

Why size matters in business valuations

Purchasers typically use a multiple of EBITDA (earnings before interest, taxes, depreciation, and amortization) or a multiple of revenue to assess the value of a company.

The multiple varies depending upon several factors, such as the sector, growth prospects, market conditions and the potential purchaser’s assessment of the risk.

If you are looking towards your own exit in the coming years, you will want to maximize your own valuation.

The impact of business size on valuation multiple

One significant factor that can influence the valuation multiple of a business is its size. Larger businesses often command higher multiples in their valuations. This is due to several reasons:

• Economies of scale:

Larger businesses can achieve economies of scale, reducing per-unit costs and increasing profitability. This makes them more attractive, leading to higher multiples.

• Market presence:

Bigger businesses typically have a more substantial market presence, brand recognition, and customer loyalty. These factors contribute to higher perceived value and, consequently, higher multiples.

• Segregation of duties and management capabilities:

Companies which are reliant on a single person, such as the founder, create concerns for potential purchasers, and this will reduce the valuation. Larger teams can ensure that the roles are delegated and the management team is capable of running the business without the founder’s direct daily input.

• Diversification:

Larger companies usually have diversified revenue streams, reducing their dependency on a single product or market. This diversification lowers risk and increases valuation multiples.

• Access to capital:

Large businesses often have better access to more financial products and capital markets, enabling them to secure financing at more favourable terms. This financial strength is reflected in higher valuation multiples.

Strategic acquisitions: a path to faster growth

Acquiring another business can be a powerful strategy to increase the size of your business and, in turn, its valuation multiple. However, not all acquisitions are created equal. The key is to identify and pursue acquisitions that align with your growth objectives and address existing challenges, weaknesses, or threats.

Conclusion

Expanding your business can significantly enhance its valuation multiple and drive long-term growth, so that you achieve the most successful result when it is your time to exit. Organic growth is difficult and takes a long time, whereas growing through strategic acquisitions is much faster and impactful.

By addressing operational weaknesses, expanding market reach, enhancing product offerings, gaining competitive advantage, and realising financial benefits, the right acquisition can transform your business and unlock new opportunities.

Get In Touch

If you would like to understand more about buying businesses, financing the deal and how we measure and mitigate potential risks during the process, contact your local Whitings LLP office today.

Disclaimer - All information in this post was correct at time of writing.