If you have been listening to the show for a while now, you know we are constantly talking about how to view–and run–a business like a financial asset.
Bigger corporations typically have this mentality baked into their day-to-day lives and are laser focused on growing their share prices, and the executives’ goals are to drive that share price up. Sometimes the best way to drive up the long-term share price is to divest of a weak product line, floundering business unit, or underperforming location in order to make room for profitable long-term growth.
Today, I have John Waller from Prairie Capital Advisors on the show to share with us how the world of corporate divestitures works. John has been in the industry helping bigger companies sell off (divest) business units for decades.
John walks us through how bigger corporations view value, why they would want to sell a division/unit/product line, and how they view the valuation during the sale. John does a great job explaining what drives the sale (“the purpose of the deal” as you hear me say a lot) and how that impacts the price that is paid.
Understanding the M&A activity, especially within your industry, is a hugely important topic for a few reasons. First off, many of U.S. middle-market entrepreneurs work with bigger companies (suppliers, manufacturers, distributors, customers, vendors, etc.), and it is important to understand what is going on behind the scenes and how a corporate divestiture could impact your relationship and the business you do with that company.
Secondly, there could be an opportunity to capitalize on a corporate divestiture in your industry–or an adjacent one–that could take your company and valuation to a level that would not have been possible otherwise. And you never know…the seller just might not care about the price 😉 You will have to tune in to the episode to hear that part of the story!