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Business Success in a Mature, Crowded Industry

Business Success in a Mature, Crowded Industry

Last year, approximately 675 million print books were sold in the United States. Over 25,000 of the book titles targeted an audience of children and young adults.  This is the textbook definition of a mature, competitive marketplace. In the technology forward world of 2019 is the marketplace diminishing?  No, according to the Association of American Publishers the marketplace for children’s and young adult book titles increased 8.9% to $1.28 billion through the first eight months of 2019 versus 2018. The generated revenues include new titles like, “Dragons Love Tacos” by Adam Rubin, which has been on the New York Times Top 10 Children’s Picture Books best seller list for almost 300 weeks, and classic titles like “The Very Hungry Caterpillar” by Eric Carle which was first published in 1969.  It was recently announced by the Wall Street Journal that Eric Carle will complete a sale of his company, including its approximately 70 titles and ancillary merchandising arm that includes toys and children’s apparel, at the beginning of 2020 to Penguin Random House (https://www.wsj.com/articles/very-hungry-caterpillar-author-eric-carle-sells-company-to-penguin-random-house-11572990026)  A successful exit story for a creative entrepreneur who competed for decades in a mature, crowded industry marketplace.

As twenty-five-year mergers & acquisitions intermediary who has successfully facilitated over 300 transactions, I have represented numerous business owners in the sale of their companies who experienced significant professional and financial success running companies in established, competitive industries.

These companies commonly had four attributes in common which contributed to achieving a premium sale price in the mergers & acquisitions marketplace.

  1. Product Quality – The foundation of long-term success for all businesses is consistent product quality. Quality = repeat customers. Quality = customer recommendations and referrals. Quality = increasing market demand and growth. If you are positioning your company for sale, you will be in a stronger position if your product or service has a reputation for quality.
  2. Customer Service – People prefer to do business with companies they “like & trust”. Superior customer service is a crowd pleaser and a foundation for business growth.  No one ever leaves an interaction with a business saying the customer service was too good, but typically those customers will be back and tell others about the business. Conversely according to a recent study by Dimensional Research, Respondents who suffered a bad interaction were 50% more likely to share it on social media than those who had good experiences (45% vs. 30%) and 52% more likely to share it on an online review site such as Yelp (35% vs. 23%).  Businesses cannot afford bad reviews online. They can turn away customers and from a business brokerage perspective cause buyer concern that has the potential to diminish intangible asset value in a transaction or lose a potential buyer. Businesses with superior reputations are trusted, liked by their customers, and sell at a premium in the business opportunity marketplace.
  3. Strong Financial Documentation – Mature businesses often have quality systems in place that have been developed over time. Accurate, transparent financial records enhance management ability, business longevity, and the market value of a privately held company. Financial information commonly needs to pass scrutiny by the buyer, their CPA or CFO, and a bank or investors during the business sale process to successfully reach the closing table.  If you want to achieve a premium sale price for a business, one of the easiest and best things to do is to have quality financial records documenting past business performance.
  4. Revenue Growth & Business Strategy – Innovation is a necessary component of long-term success in a mature, competitive marketplace. Fail to innovate and the potential exists to exit stage left like Blockbuster, who passed on the opportunity to buy Netflix (https://www.businessinsider.com/blockbuster-ceo-passed-up-chance-to-buy-netflix-for-50-million-2015-7).  Business buyers pay premium values for privately held companies that are showing revenue growth and that have a strategy for the future. No one knows future opportunity better than present executive management at a company.  Lack of a business plan for future growth conveys uncertainty about the company’s future, the last thing a seller wants to introduce in a M&A transaction negotiation.

Investment in “Blue Chip” stocks is seen as a stable, long-term wealth growth strategy with limited risk in a retirement portfolio.  Similarly, investment in mature, profitable privately held companies is seen as a prudent deployment of capital by private equity firms, investors, and entrepreneurs creating a robust marketplace for these companies.  IBA, the oldest business brokerage firm serving the Pacific Northwest mergers & acquisitions marketplace, is recognized nationally for being a market leader in the knowledge, experience, customer service, and professional skills provided its clients.   We have been successfully facilitating sales of businesses for 45 years in Washington, Oregon, & Alaska.  We currently have a deal in escrow pending sale involving a 50-year-old company in Pierce County.  The owners only interviewed one business brokerage firm when selecting representation.  If you are thinking about selling your business in 2020, we would welcome the opportunity to be part of the interview process and provide an overview of our time-tested client services.

IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, and real estate communities on subjects relevant to the purchase & sale of privately held companies and family owned businesses.  IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.

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