Corporate Value for the Private Company
| Corporate or shareholder value is a concept closely identified with public companies. Value of a public company is measured by stock price. The price of a stock reflects a public company’s past earnings but also takes into account the value seen by analysts and the market in general of the company’s industry, competitive position, growth potential and management. While private companies are happily free of the pressures of the public markets, they should not ignore the lessons that they can learn by looking at their own companies from a value perspective. There are two good reasons for this.
First of all, value is an important metric for success. Everyone accepts financial results as “a” or even “the” critical measure of a company’s success. But, as every businessperson knows, financial results are a measure of past performance and tell only part of the story. Future performance and value are dependent on the dynamics of a company’s market, the strength of its competition, the changing needs of its customers, its strengths as well as its weaknesses. Seen this way, corporate value is really just a way of measuring and focusing your efforts to maximize your future success. [Michael’s column this month gives you an exercise on how to identify and improve your company’s value drivers.] Secondly, value is critical to your exit strategy. Every private business owner or shareholder must eventually make an exit of one kind or another. For most owners, the anticipated exit value of their investment in their company represents a significant portion of their personal net worth. The value that you will receive for that asset will be based, in large part, on how well you have built value that is attractive to potential buyers, investors or successors. Planning is the best way to preserve and maximize the value of this investment. Even a family succession exit strategy should focus on value—the factors that influence value are tied to long-term success, which is clearly the goal for the next generation’s ownership. A more detailed discussion of our ideas on building value is in an article I recently wrote for Mergers & Acquisitions magazine, “Exit Payoffs for the Entrepreneur.” -Mary Adams 2004 |
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