The Exit Factor: Buyers will pay a premium for companies with a robust international expansion strategy

There are three things you need to consider when selling your business:

  • what your company is worth today;
  • what it might be worth in the future; and
  • the things that detract from either of these.

 

And there are hundreds of things that influence these measures, many of which I will talk about in this series of blogs (as featured in the Evening Standard). Let’s start with the strength or weakness of your international expansion plans.

 

Potential and plans

You can break this down further into two basic components - the international potential of your company and how credible your plans are for building an international presence. The difference between these points can be many multiples of EBITDA (earnings before interest, taxes, depreciation and amortisation – basically, a measure of cash flow commonly used to value companies).

 

How big is the market?

So how do you develop an international strategy?  First, you need to assess the size of the global market for your product or service. This is most commonly done by buying market data although it’s not unknown for some companies to do this themselves.

 

Take a sports nutrition business that owns technology or intellectual property to give customers the fastest six-pack globally: you need to look at new markets in terms of demographics, competitors, regulation and risk.  Having done this, you’ll be able to make the magic mission statement that will go something like this:

 

“Over the next five years we can create a £300m business by taking 6% market share in the following territories.”

 

Growth, scrutinised

If you can logically show how you’ve arrived at this conclusion, potential buyers will be spurred by this vision of growth. Be warned though, when moving towards an exit, your calculations will be put under the microscope. If they’re deemed amateurish or lacking in any way, this could easily scupper your chances.

 

Cultural nuances

Next, you need a credible strategy to access particular foreign markets. Never assume what has worked in one territory will work in another. There are countless examples of expanding businesses that have overlooked subtle cultural differences relating to how people shop, eat, relate to each other or spend leisure time. Mistakes can be made even by the biggest players.

 

Another classic dilemma is how to reach customers. Is the right channel for your product online, or local stores, wholesales, department stores? Remember too that, in different countries, your choice of channel will affect how your brand is perceived in different ways. And there are products that sell in Asia at half the price they do in the US. Any buyer will be looking for a credible pricing strategy to underpin your plans.

 

Single or multi-territory?

Do you need to execute all this to get a good price for your business? Well, not always, and certainly not all of it at once. A profitable business operating in multiple territories will command a higher exit price tag than a comparable business trading in a single market. Solid planning for international expansion though, will have a positive influence.

 

Product testing, foreign branding and distribution channel strategies have value. It’s like the difference between buying a house with a garden and a house with a field that has full planning permission for another ten houses. Call it “expansion readiness”.  Buyers will pay a premium for that.

 

How has your international expansion strategy helped you sell your business? What advice would you give to someone expanding internationally based on your experiences?

 

Share your thoughts below or schedule a meeting if you’d like to discuss your expansion strategy confidentially.

Neil Sutton | Chairman of Corporate Finance
Profile | Email |  +44 (0)20 7213 1075

 

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