Who’s In Denial……re. Company Value…?

By Sid Chadwick

“You just don’t luck into things as much as you’d like to think you do. You build step- by-step, whether it’s friendships or opportunities.”………..Barbara Bush

Introduction:

Let’s see, Fuji just bought Xerox for ….almost $2 billion….less…  then the closing share price --- this week…!. Don’t you wonder what the buyer and seller(s) were saying…and thinking…along this negotiation process? (Don’t you think Fuji did its homework and KNOWS Xerox’s market reputation….. and immediate future prospects…!)

Was there a proven, successful strategy….for developing customers…and market value? (I don’t think so…...)

We observed a company owner we’ve known for over ten years “think” about selling his company --- two years ago, for “3X”. He hit an unexpected series of speed-bumps along the way, and in the process, considered selling his company --- last year – for about “2.5X”.   Since then, he’s hit a few more speed bumps, and can’t seem to find a buyer for his company --- at “2X”,… though just his equipment he believes is worth --- “2X”.

How much reinvestment have you made in your people….and your equipment --- over the last three years?

More than one organization….maybe the majority of companies in our great industry…..are operating “old, tired equipment”. Their only saving grace for the moment…?  Most of their competitors are ALSO operating “old, tired equipment.”

I assure you --- those market conditions are changing --- and with mill capacity closing down in several directions, and interest rates rising --- a “fall-out” of industry capacity --- is in motion…….Why…?

Because a few, forward-thinking organizations are using financial models (e.g.. our Press Justification Study Model --- Based on Positive Cash Flow) --- to move forward…. improve their profitability…..reduce their risk….and replace with the correct equipment.

Another organization, that’s well-run, somewhat profitable, with experienced next generation management in position --- has adopted a strategy to: (a) “stay in business”, (b) reinvest in equipment as cash flow allows, (c) keep customers who are not “price-buyers”….and…..(d)… like professional vultures --- wait for their competitors, one at a time, to close down…….That company has experienced just that --- over the last three years ---  and recently --- at this writing…. has well over “200 hours booked --- into their Pressroom” --- much from a competitor or two --- recently closing down. (It’s also apparent they have a vision of what they want their future to be….!)

What are some of the lessons here?.....May I ask a few questions…?

• What’s your track record --- to show a potential buyer --- for: (a) new account acquisition, (b) customer retention, (c) key employee retention, and (d) margin improvement? (In specific and broad terms, what’s your market differentiation…? Do you have a market differentiation…?)
• What growing segments of our great industry are you moving into…..or….are you stuck in a position that is not planning or willing to innovate….and change? Is there a “sense of urgency”…anywhere…. in your company…? Who are members of your organization’s “brain trust”….?
• What did your last Customer Survey say about additional business opportunities, why your customers buy from you….. and what they’d like you to improve…?
• What’s the condition of your equipment? Is a “Performance Improvement Plan” in place, that’s written, and designed to support not just incrementally improving lower costs, but also provide the cash flow for reinvestment in more profitable equipment?
• Are you making a profit, that’s identifiable--- and not just that you were “lucky last year”….?
• What’s the age, intellect, and ambition --- of your management team, and workforce? Are those conditions static, improving, or slowly…evaporating…?
• Did you conduct a Customer Survey of the customers --- of the company…. you last bought, or plan to buy…..and how many “OMG - Acquisition Mistakes” --- did you avoid?
• What sets your company apart from competition… that your customers love…? Is there a specific product mix… or customer profile….that you excel when supplying..? (What did your last Customer Survey --- tell you?)
• What’s does your written Plan say……going forward……who has a copy….who’s accountable for its follow-up and follow-through…?

Summary:

What is your company worth…?

It’s worth what someone is willing to pay you --- in cash…! (Not in notes, or IOU’s….!) As an observation, too much of what we believe to be true, or wish were true….isn’t….!

We know of one too many….previous company owners…. who at this very minute…..are trying to collect on unpaid late interest and principal charges….and not go back and take over the company --- they thought they had sold….!

The definition of a “Successful Company” --- in this great industry --- is changing…! If your customers… your employees….and your suppliers…….aren’t passionate about you,….. your days may be limited….!.

“It is necessary to learn from others mistakes…..You will not live long enough to make them all yourself.”………..Hyman George Rickover