• Mike Williams

How to build the strategic value of your business

Updated: May 23, 2019

The holy grail for most business owners is to be approached by a larger business with an unsolicited offer at a huge market premium. Sadly this is not the norm, and often the business will not sell at all. So how do you build the strategic value of your business and attract an unsolicited offer?


What is strategic value?

We have talked about the different types of value elsewhere, however the strategic value of a business is the value that one particular party will gain from the acquisition of your business. It is usually the market value (what will ANYONE pay) plus all the synergies and benefits that come from acquiring your business and wrapping it all up together. It applies to both mergers and straight acquisitions.

How big is the strategic value of a business?

It represents the market value plus a premium because the value of the two businesses together is more than the sum of the two individual businesses.


Examples of Strategic Transactions

In the SME world it probably feels like strategic transactions are like the proverbial rainbow coloured unicorn that spreads pixie dust across the land making everyone's wishes come true. Especially when in most cases businesses often simply shut down rather than sell, or they sell for not much more than tangible asset value.


However there are many examples of it happening, and not necessarily with the big end of town:

  • In 2018 the private dairy company St David Dairy was purchased at an 11.3x multiple ($15.25m transaction) of FY18 EBITDA. The buyer was prepared to recognise the growth opportunities that are likely to materialise because of the application of the business products and brand within a larger market size.

  • We have previously reported on the acquisition of MOJO  kombucha by Coca-Cola Amatil in 2018.

  • A 14 year-old digital marketing agency The Works was purchased by ASX Listed IT company RXP for $33m at an EBITDA multiple of 8.5x.

  • ASX listed Wisetech Global Ltd paid $20m upfront cash in 2018 to acquire SmartFreight in a strategic move aimed at securing the software capability at an FY18 EBITDA multiple of 22x.

What contributes to strategic value?

The valuation calculation for strategic value can be broken down into two areas:

  1. Increases in EBITDA that come directly from the acquisition or merger.

  2. Increased EBITDA multiple as a result of the transaction.

Increased EBITDA will arise from:

  • Cost savings from duplication of functions or resources

  • Cost savings from improved process efficiency from new technology or greater capacity

  • Additional revenue from cross-selling new products or services to new customers.

Increased EBITDA multiple will likely result from:

  • Increased market share

  • Increased size of the combined business (increased EBITDA often gives rise to higher multiples)

  • Increased competitive position

  • Reduced reliance on key persons

  • Often improved processes from better technology

  • Ownership of new or improved intellectual property.

It is important to realise that any white knight brandishing a bucket of money is not necessarily going to pay full price. After all the increased earnings is not just due to your business - they are part of the equation as well. It is important to see the final strategic value to be somewhere on a continuum between:

  • Market value of your business

  • Full strategic value of both businesses at maximum conditions

The degree to which you can influence the price higher will be governed by the risk the strategic buyer is taking on. The more you can make it obvious that increased earnings will happen (based on evidence and analysis), the more likely it is you will get more of that bucket of money.


A strategic buyer will stand to gain not only an increase in earnings but often it will also lead to a stronger business, with more growth opportunities. That is why they are prepared to pay a premium. Usually both parties will be prepared and understand their respective business valuations.

Almost by definition, a strategic value transaction will attract a price more than 2 - 3 times the value it would otherwise in a trade sale. They are likely to pay EBITDA multiples much greater than the typical market value.


Who is likely to pay a premium?

Typical strategic buyers will be larger (often much larger) than your business and want a quicker or easier way to expand or enter a new market, develop technology or processes or acquire new resources.


So there are some common traits that we have seen with strategic buyers:

  • Usually very proactive in terms of management of their business.

  • Willing to adopt new ideas and technology to get a better performance.

  • Already have strong governance processes in place.

The buyer willing to pay strategic value can also come from one or more groups:

  • Direct competitors that are usually larger than you (although not always).

  • A related industry to yours but not necessarily in direct competition (for example Acquisition of MOJO Kombucha by Coca Cola Amatil detailed above).

  • A business that lacks the technology or intellectual property you have developed or acquired.

  • A player in the same industry but in another region (such as the acquisition of Warrnambool Cheese and Butter Factory by Canadian dairy giant Saputo).

It is important to adopt a structured process to identify potential strategic buyers and attract unsolicited offers at a strategic value.


How do you attract a strategic buyer?

In one word - preparation.


You need to put in the time and effort to build something of value, and by definition of lower perceived risk, that someone else wants to acquire.


To attract a strategic buyer you need:

  • Attractive and profitable underlying business.

  • Well documented and leveraged competitive advantages.

  • Focus on a niche with a high level of differentiation.

  • Create size and scale (within your niche).

  • Use technology to leverage your opportunities.

  • Make the financials attractive and the synergies even more attractive.

  • Proactively promote to and seek out strategic buyers.

A strategic buyer will want to pay a market premium because they have much more to gain from the acquisition than what they are prepared to pay.

A strategic value building process is spread over a long term and can be broken into four key stages:

  • Strategic Value Assessment

  • Testing Strategic Value

  • Growing Strategic Value

  • Realising Strategic Value.

​The first two stages typically determine how likely it is a business can achieve a strategic value sale and what would be the likely size of the reward.

The latter two stages focus on increasing the value of the business and attracting a strategic value offer.


If you want to explore your options send us some questions and we would be happy to discuss your circumstances free of charge.

Mike Williams


CEO - Exit Value Advisers

Learn More About Our Business Valuations

© 2017 by Exit Value Advisers Pty Ltd. Proudly created with Wix.com

  • White LinkedIn Icon
  • Twitter
  • Exit Value Advisers
  • White YouTube Icon

Based in Melbourne (Victoria) we deliver business valuations all over Australia using expert business valuers and resources that allow us to work remotely.

We have completed:

Contact Us

L3/162 Collins St, Melbourne, 3000

0421 069 717

m.williams@exitvalue.com.au