What Buyers Look For in a Business: The 5 C's That Set Your Price

Mark Sims (0:01)

I think cumulatively, things can. As I mentioned, on the capabilities front, what I've seen is, again, if I'm buying a project, if you've got a bunch of work that you're going to have to do to actually just get this business pointed in the right direction, that's absolutely going to impact that multiple that you're going to pay.

Jacob Oros (0:24)

Welcome to M&A Talk, the number one podcast on selling a business brought to you by Morgan & Westfield, a boutique M&A firm specializing in the sales small to mid-sized companies. I'm your host and president of Morgan & Westfield, Jacob Oros. If you're considering selling your business and you'd like to work with me throughout the process, you can schedule a free consultation at morganandwestfield.com. Or if you'd like my team and I to perform evaluation of your company for a one-time fee of $1,500, visit morganandwestfield.com or see the link in the show notes.

And today we're going to talk with Mark Sims. Mark has a very significant experience with a large multi-billion dollar strategic buyer, and amongst other experience and other sides of the table in the M&A world. And we're going to talk about the five C's of value creation with Mark. And Mark, welcome to the show.

Mark Sims (1:20)

Jacob, thanks so much for having me.

Jacob Oros (1:23)

So, we're going to talk about value creation. What do you mean by value creation?

Mark Sims (1:29)

Sure. When you think about it from both the buy side as well as the sell side, and maybe we'll start on the sell side, it's really about how do I maximize the value of the asset i.e. my business that I'm looking to sell.

On the buy side, it's really about understanding what assets, really well understanding what assets I'm about to purchase. Then, what am I going to do with these assets that the previous owner didn't, to create more value out of those same set of assets.

Jacob Oros (2:00)

Now, when you're trying to create value for a company on the sell side, do you have a particular type of buyer in mind? Or are you trying to de-risk and trying to make your company appeal to as many buyers as possible?

Mark Sims (2:13)

Yeah.

I think you want to be as appealing as possible. But one of the things that we see quite a bit, especially in the lower middle market, there's not a lot of strategic buyers that are necessarily going to come knocking. So a lot of times, even if it is a PE firm that maybe has a platform and they might be acquiring you as a roll-up or an add-on acquisition, I still think there's things that you want to do to make sure that you are as buttoned up as possible, if not only to make the assets more attractive, but maybe just make the deal go quicker.

Jacob Oros (2:46)

That's a very good point. What's your experience been? Give us a 30-second or so recap of your experience in the M&A world and where your perspective is coming from.

Mark Sims (2:55)

Yeah. I guess part of my M&A experience and my points of view, I spent the first half of my career in consulting, mainly doing large digital transformations for Fortune 500 companies, went to work for one of my clients, Scott's Miracle Grow, ran some transformations. I was a Chief Information Officer and then I ran a strategy and M&A group and so as a financial, sorry, as a strategic acquirer, we executed a number of deals, a lot of times very small deals to build out one of our business units, and then I pivoted to get back into consulting, and now I'm primarily working in the transaction advisory space for private equity on the buy side as well as the sell side.

Jacob Oros (3:41)

How big was that company when you were there?

Mark Sims (3:44)

$4 billion, publicly traded.

Jacob Oros (3:46)

Doing lots of deals, acquisitions?

Mark Sims (3:48)

So they, interestingly, they had a consumer side that most folks will probably be, if they own a home, are familiar with.

But then they also had a division, they've since sold it, that was focused on selling input supplies, similar types of things, fertilizer, dirt, et cetera, into the cannabis industry. And so, we looked to kind of round out the portfolio, not only of having kind of consumables, but we started buying companies that had durables, fans, filters, lights, as well as other kind of brands that had established themselves in the fertilizer space within that cannabis market.

Jacob Oros (4:24)

What other industries have you had experience in? Because I would assume your perspective's not just coming from this industry.