Posted: 01 / 04 / 2022

Article by Harris Jones, Corporate Finance Associate at Sedulo


The right deal for your business depends upon a number of factors, including the maturity of the business, cash flow, size, and your personal goals as an owner and in wider life.

Every business is unique, and as such, a business owners’ requirements and considerations must equally be met with a tailor-made approach. We take time to devise a strategy and execute a deal with optimal valuation, results, and pragmatic relationships.

 

 

Launch Stage

Start-up firms typically demonstrate low sales, low profit, and low cash due to investing in their own infrastructure, creating momentum, and developing innovative ideas or a quality team. However, this makes them ideal candidates for bolt-on acquisitions as they are lower valuation but able to add strategic value to companies within the same line of business.

Typically, the acquirer may be a private equity firm, and due to the cumulative effect of adding bolt-on acquisitions, it allows a company to grow quickly in a relatively short period of time.

 

Growth Stage

Companies within the growth stage are attractive to larger companies due to being more established within the industry through the ability to generate higher sales, becoming profit-making and retaining cash within the business. However, these companies typically aren’t buying other firms. There is a plethora of opportunity for growth-stage firms to grow organically and use the cash they have generated to invest in their own business. These firms can also employ, or be subject to, corporate finance strategic decisions such as defensive acquisitions, whereby a company seeks to acquire target firms and assets as a defensive manoeuvre to hedge against the risk of market downturns or possible takeovers.

 

Maturity Stage

Companies at this stage of the business cycle frequently acquire the Launch stage and growth-stage companies. Due to higher levels of cash and resources, inorganic growth is a method used to maintain a competitive advantage. However, these businesses also participate in Mergers with companies that have similar values and corporate strategies, consequently bolstering their market share and increasing their ability to deal with overcapacity. Furthermore, another type of transaction that can be seen at this stage is a Leveraged Buyout, using debt such as bonds or loans to fulfil the cost of an acquisition, typically with a 90% debt to 10% equity and using the sellers’ assets as collateral against the debt.

 

Declining Stage

Companies which have declining sales, profits, and cash within this stage of the business life cycle are not as attractive for growth prospects or future profitability. However, they may have the quality infrastructure, a solid reputation within the industry, patents, expert technical knowledge, and relationships along the supply chain. Therefore, they are still viable to companies looking to improve within these areas. Alternatively, established businesses that can no longer provide a competitive advantage and are losing out due to factors such as outdated methodologies, lack of strong leadership or financial difficulties may become obsolete and could warrant the need for restructuring.

 


What can we help you with?

If you are currently considering the benefit of acquiring another firm, merging, raising capital for investment, or potentially realising the investment you’ve made into your company through a sale, get in touch with us at Sedulo, and we can help guide you through the process.

Download your Deal Advisory brochure to learn more.

 

Get in touch and connect with me for more information.

LinkedIn – Harris Jones

Phone number – 0113 518 7952

Email – [email protected]