Value Creation in Privately Held Companies

January 18, 2021

It’s important for a privately held company to create value, no matter whether the owner is looking to sell the business, wishes to continue the business, or has plans to keep the business running in the family.

One could argue that it is even more crucial for privately held companies to utilize sound and reasonable value creation principles and processes due to the lack of share-price feedback.

We’ve prepared this piece with everything involved in value creation in privately held companies.

Understanding the Components of Value Creation

Creating value in an organization should be based on the following components:

Industry
Management
Products or services
Customers
Competitors
Comparative benchmarks

Industry

It is certainly challenging, but not altogether impossible for a company to create value in a stagnating industry. One of the primary benefits of privately held companies is that they possess the ability to shift gears and take a different direction. For instance, privately held companies can easily switch their business model from high-volume, low-end products to low-volume, high-end products.

Management

Creating value also depends on creating management depth and a robust succession plan. Arrangements like employment contracts and non-compete agreements for key employees and buy-sell agreements where partners are involved, all contribute to value creation.

Products or Services

Single products or services don’t necessarily build value. Having companion or additional products or services, however, can create value, particularly if the price is non-competitive.

Customers

One of the primary factors to building lasting value is having a robust customer base—domestic or international. If your business is primarily focused on localized distribution that serves a select few customers, you will be hard-pressed to build lasting value in a privately held company.

Competitors

Handling competition deftly is the key to building lasting value in a privately held company. Consider how market leaders build value and how a lack of competition does as well.

Comparative Benchmarks

You should routinely utilize comparative benchmarks to measure your organization’s performance against your competitors’ performance. The better your results, the greater the value of the business.

We are an industry-leading M&A advisory firm and business brokers with a wealth of experience in the business of helping clients settle high-value mergers and acquisitions in New Jersey, South Carolina, Ohio, Massachusetts, Pennsylvania, Florida, Georgia, and elsewhere in the US. Whether you’re looking to sell your business or to buy a business for sale, we maximize deal value and create lasting and positive relationships.