Valuations and other ways to sell your company short...

At a recent breakfast forum I attended, the central topic was private equity valuation, investment and growth in 2011. The panel was staffed with financiers, the audience mostly bankers and lawyers. Discussions encompassed all the ways valuations are conducted, factoring in such things as customer concentrations and bookings.

During the closing Q&A, I asked the panel whether any of their due diligence measures included marketing excellence. One of the panelists began to suggest how this might occur, citing how research of a prospective investment's customers once revealed no expectations for increased volumes, refuting the candidate company's contention of 40% growth in the coming year; when, as though to hastily recover this moment of lost sanity, another panelist quickly interjected that the only necessary measure of any business was in the financials. Marketing excellence, whatever that meant, was almost never a consideration.

And there it was. The private equity valuation blind spot seemingly shared by so many advisors whose profession is to evaluate the growth potential of a company: growth potential, as in the difference between internal value definition and external value recognition, the difference between a company that is aligned on mission, message and value delivery, versus an organization that is leaderless and going through the motions; i.e. valuations based on an understanding of the gaps that can exist between brand identity and brand image, management and leadership, momentum and entropy.

Valuation experts who insist on P&L-only measures to assess the investment worthiness of an enterprise keep missing the point. Success cannot be solely determined by customer concentrations and bookings.

And owners who think this way are also selling their companies short.

jb

www.centrifuge-now.com