In the latest Courtside Story, we examine a hypothetical scenario that reflects the challenges many business owners face and how G-Spire Group can assist in addressing them.
Scenario:
Consider a $20 million revenue business—like a manufacturing, distribution company, or contractor. Despite its success, the business faces typical obstacles that hinder further growth and strategic development. The typical obstacles commonly are due to the owner-operator not having the time and capacity to work on the types of things the business needs to grow to the next level.
The Business Context
In this scenario, the business generates $20 million in revenue and $1 million in EBITDA. The owner, often wearing multiple hats as CEO, CFO, and COO, is deeply involved in day-to-day operations, working long hours. This operational overload leaves little time for strategic planning or M&A activities, which are crucial for scaling the business.
Key Challenges
1. Wearing Multiple Hats:
Scenario: The owner is working as the CEO, CFO, and COO, working excessively long hours.
Impact: This not only affects the owner’s quality of life, long hours and stress as a common example, but this scenario also poses a significant risk to the business – key person risk. If something were to happen to the owner, the business could suffer due to the lack of a robust leadership team and any future buyer would likely discount the value due to what this scenario creates in terms of risk profile of the company.
2. Valuation and Growth:
Scenario: With a $1 million EBITDA, let’s say the business is valued at $6 million. After assuming 35% towards taxes, the owner is left with roughly $3.9 million in after-tax proceeds, an amount that is often not very appealing to the business owner who is generating $1 million in EBITDA.
Impact: The owner may feel stuck, as the current valuation does not justify selling the business. To achieve a desirable exit, the business needs to grow its EBITDA significantly, which can seem daunting given the owner’s current organizational structure and dynamics that creates strained operating capacity.
3. Strategic Project Management:
Scenario: Business owners often lack the time and resources for strategic growth projects. Many call this working ‘in’ the business versus ‘on’ the business. We take this concept a step further as it is practical that an owner-operator needs to do a bit of both. However, it is oftentimes the ‘on the business’ that gets deprioritized and never attended to.
Impact: Without focusing on the type of strategic projects necessary to take the business to the next level, the business owner remains stuck and unable to achieve the scale required to increase its valuation and attract potential buyers.
G-Spire Group’s Approach
1. Leadership Transition:
Solution: As G-Spire Group builds out a M&A program, we may weight certain targets higher if there are seasoned and quality management and leadership that would come along with an acquisition. This helps solve a couple of the pieces of the management puzzle to take some of the responsibilities off of the business owner’s plate as we work to transform the owner into a single, CEO role.
Benefit: By building out a seasoned management team (i.e.e COO, CFO, and CMO, etc) the business becomes more attractive to buyers by eliminating the key person risk and increases the value of the business.
2. Enhancing Business Value:
Solution: G-Spire Group uses strategic planning and M&A activities to grow EBITDA. In this scenario, the goal is to increase the business’s EBITDA from $1 million to $5 million, aiming for a higher valuation. We work on projects that include both organic and inorganic growth strategies. For the inorganic growth activity, we likely are looking at doing approximately 4 transactions with roughly $1 million in EBITDA over a 3-5 year time period.
Benefit: A higher EBITDA significantly increases the business’s market value, making it a more attractive acquisition target. Additionally, the organizational structure that is required to run a $5 million EBITDA company also drives the value of the company from a buyer’s perspective. Buyer’s care about both the size as well as the quality of the company’s EBITDA generation.
3. Strategic Planning and Execution:
Solution: G-Spire Group’s expertise in strategy formation and execution helps develop clear investment theses and targeted outreach, transforming small to mid-size businesses into attractive acquisition targets. These projects span from financial to operational to human resources and all add a considerable amount of value to enhancing the enterprise value of an organization.
Benefit: By providing a seasoned fractional executive who is solely focused on driving the execution of strategic projects, a business owner/CEO is able to continue to run the business knowing there are resources supporting the execution of the right projects required to to scale effectively. This improves the probability of meeting and/or exceeding the growth objectives required for a successful exit.
The G-Spire Group Advantage
- Seamless Integration: G-Spire Group’s process ensures smooth integration of new leadership, increasing operational efficiency and reducing dependency on the owner.
- Increased Business Value: By reducing key person risk and enhancing management structures, G-Spire Group makes businesses more attractive to buyers.
- Partnerships with Investment Banks: Investment banks often refer businesses to G-Spire Group for growth and enhancement. After G-Spire Group helps these businesses grow and increase their value, they are referred back to the investment banks for a successful exit, creating a robust referral network and turning smaller businesses into lucrative opportunities.
Conclusion
This hypothetical scenario illustrates how G-Spire Group helps business owners transition from operational overload to strategic leadership, significantly increasing their business’s value and attractiveness. By addressing common challenges and leveraging strategic acquisitions, G-Spire Group supports owners in achieving their growth objectives and realizing substantial enterprise value.