|
Strategic Alternative Review
Click HERE to view the "Strategic Alternatives Review" Presentation. All businesses whether family owned, publicly traded or owned by a private equity group, should continually assess how best to reinvest the inherent equity accumulated in their business. The equity we are referring to is not the book equity of the company but its "market equity", or the equity value an owner could realize if the company were sold today. Theoretically, the business owner should view this investment like any other investment portfolio asset by considering all capital market alternatives pertaining to that equity value.
Strategic Advisors will rollout its "Strategic Alternatives Review" product which is designed to provide a framework and methodology to help business owners look at their investment in their business as a portfolio asset and to develop strategic alternatives to enhance the wealth creation potential of that investment. The approach takes into consideration several alternatives projected out over a 5 year period to determine which alternative best meets the owners strategic objectives.
Consider a business owner who started the company 30 years ago and has built it to an EBITDA level of $10MM with no debt. The owner has a potential market investment in his company of $60MM with a modest relative return, and little outside wealth. The owner lacks diversity in his "portfolio" and any decline in EBITDA is a direct hit to his personal wealth by a multiple of 5 to 7 times.
Most likely the owner is also considering a sale at some point down the road to realize his wealth or take care of generational transfer issues. Instead of a sale, the owner could explore a recapitalization thereby diversifing wealth while giving up little or no equity in the company and substantially increasing the rate of return on the reinvested capital. Alternativley, the owner could use the equity in the company to purchase another company using only debt financing. This could mitigate some of the risks associated with his business while diversifying holdings and increasing the rate of return of the invested capital through the use of leverage. Finally there is the sale alternative which is not always one dimensional. Owners may desire to liquidate holdings but want to reward the management team by offering them the ability to purchase the company through a Management Buyout.
Our seven step process is designed to assist owners in considering all capital market alternatives. Please call if you would like to discuss this product.
|
|