2022 Second Quarter Valuations Update Private equity deal making has slowed from last year's peak due to the effects of interest rate increases, stock market declines, inflation, and the war in Ukraine. As a result, PE exits are on the decline, and while average companies are attracting lower valuations, leading companies are still achieving high exit multiples. In light of these market shifts, exits for some of your portfolio companies might be pushed back several years. Now is an ideal time to refocus your efforts on growing the top and bottom line and making moves to secure a higher multiple when the time comes. If you have any questions, please do not hesitate to contact us.  Cheers,
Mark Hess | | Growth Strategies In our last newsletter, we explored ways to assess the attractiveness of market opportunities. In this newsletter, our focus is on harnessing the full potential of the products and services you sell. 
When evaluating your portfolio of products and services, consider this high-level question, one that sits at the heart of what you do for your customers: What problem does my product or service solve?
Remember, customers pay businesses to get their problem solved, or more often, several problems solved. Let's use the example of something as simple as hiring someone to mow your lawn. What are the various issues this service solves?
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It keeps your yard looking neat and tidy, which can make your property the envy of the neighborhood or, conversely, help you avoid being the person other neighbors gossip about. In short, it enhances your personal brand. -
It gives you back your leisure time, so you can spend it with friends and family or on other activities that matter to you. -
It ensures your lawn stays healthy. This not only improves the appearance of your yard but also minimizes the risk of having to replace it, saving you time and money. -
It allows you to choose not to buy a lawnmower, which means avoiding the challenges and expenses of maintenance. -
It might keep you compliant with your Homeowners Association. The list goes on. When you frame your offering as a solution to one or more customer problems, you gain a clearer understanding of how you can improve your product or service to solve problems more efficiently. Better yet, you can uncover ways to solve even more problems. Let's go back to our lawn mowing example, this time from the perspective of the owner of the lawn mowing business: -
Can you enhance the appearance of your customers' yards even further with a fertilizer and landscaping service? -
Are the scheduling and payment processes as easy and hassle-free as possible, further increasing your customers' leisure time? -
Could you add an annual power washing service to improve properties' curb appeal even more? A few years ago, we worked with a client whose core business was selling printed alumni directories. They partnered with various schools and associations to keep their alumni lists up to date. The company viewed its core offering as collecting information and selling printed books containing that information. But, when we took a step back and reconsidered their service through a problem-solution lens, we found the real solution they provided was more meaningful. They helped schools and associations maintain engagement with their alumni, and by focusing on this, we opened the door to new growth opportunities. Our client delivered such exceptional service throughout the years that they were trusted to engage directly with alumni – no easy feat. This, paired with a new mindset, paved the way for additional products and services they could offer to strengthen and expand each client's engagement with its members, far beyond selling printed directories. | | Profit The idea that overhead costs are largely fixed and, therefore, as a business grows, the bottom line naturally improves is a bit of a myth. In reality, this doesn't happen without intentional management. Why? Because as a company grows, more resources are required to operate increasingly complex systems. And instead of redesigning said systems, businesses often throw more bodies at the problem. Overheads grow at the same rate or more than the company's top line, and the bottom line stays the same.
 Despite this, lifting the bottom-line margin is possible. Growth allows companies to boost efficiencies by implementing new processes and organizational structures.
The key is to plan and budget for scale.
For example, if you plan to double your business in the next five years, consider the following:
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What processes need to be redesigned? -
What new software would be required? -
How would your organizational structure look at double volume? A proactive approach gives your team the time and space needed to keep pace with growth, so when you reach your double volume goal, you are operating at less than double the current cost. Read more about Profit Improvement. | | | Valuation Lever
Customer concentration (as discussed in our last newsletter) can impact an exit multiple, and so, too, can a company's 'end market.'  Investors looking to purchase a business look at the attractiveness of the markets a potential acquisition currently serves. And just as a rising tide lifts all boats, a growing market lifts participating companies. The more your business benefits from a rising market, the higher your multiple will be compared to comparable companies in less attractive end markets.
With this information, leadership can make data-backed strategic choices about where to grow the business to lift the exit multiple. That's what a recent client of ours achieved. They provided a service that allowed them to participate in up to ten different end markets. They only participated in two, and rightly so. Effective strategy demands focus. Our assessment found that exit multiples varied significantly across the ten potential end markets. On the lower end, the exit multiple was ~4x. On the higher end, ~8x. The types of customers you work with have a meaningful impact on how your company is valued. As you pursue new markets, consider how that market might impact your exit valuation.
Read more about Valuation Levers. | | Case Study: Ronin Equity Partners
Ronin Equity Partners is a private equity firm headquartered in New York focused on Consumer, Industrial & Business Services and the Technology & Media sectors. After working with Maven on a previous transaction, they contacted us again to leverage our due diligence expertise on a new opportunity. In addition, a former Bain partner was working as an advisor for Ronin and understood Maven's comprehensive and value-add approach.
The project encompassed two targets in commercial refrigeration. Maven assessed market dynamics, customer profiles, the competitive landscape, and other industry-specific considerations – undertakings typical to most due diligence projects. What made this one unique was timing. Traditionally, due diligence is applied at the end of the deal cycle to ensure the investor doesn't miss any critical details. It pressure tests assumptions made throughout the negotiation. In contrast, Ronin engaged Maven early on, giving the deal team time to think more strategically about the opportunity. Read more about Ronin Equity Partners' due diligence project. | | | | Have Questions?
Maven Associates delivers top-tier consulting to the mid-market. We offer outside perspectives, vast industry connections, and deep expertise in growth strategy, profit improvement, due diligence, M&A support, and annual planning.
We question current approaches and leverage data to support or challenge a company's conventional wisdom. Critically, we think like owners and equip our clients with the tools and information they need to unlock and capitalize on opportunities.
If you'd like to chat, you can reply to this email.
Otherwise, I wish you a safe and profitable Summer. | | | | | | | |
