Seven Drivers of Valuation

A significant number of contractors will be going through an ownership transition during the next decade.

D. Brown Management Profile Picture
Share

These transitions impact many people, especially the owners and the management teams.  

Succession: Key Drivers of Valuation. Book: Mergers Acquisitions From A to Z by Andrew J. Sherman. 1. Strong revenue growth.  2. Significant Market Share or Niche Position  (Strategically Focused)  3. High Barriers to Entry by Competitors.  4. Strong Management Team (Post Succession).  5. Strong and stable cash flow. 6. No Significant Concentrations of Customers, Products/Services, Suppliers, or Geographic Markets (Strategically Diversified). 7. Low Risk of Technological Obsolescence or Substitution

Valuation is a very critical factor during these transitions because it has to be a number that fairly represents the value of the business for the outgoing owners while providing a solid return for the buyers.  

Andrew J. Sherman just published the Fourth Edition of Mergers & Acquisitions which should be read by anyone who is or could potentially be on either side of a transaction. He laid out 7 Valuation Drivers:

  1. Strong Revenue Growth 
  2. Significant Market Share or Niche Position
  3. Barriers to Entry by Competitors
  4. Strong Management Team
  5. Strong Stable Cash Flow
  6. No Significant Concentrations in Customers, Products, Suppliers or Geographic Markets
  7. Low Risk of Technological Obsolescence or Product Substitution

For a contractor, numbers 3 and 7 don’t typically apply. 

Number 4 - Building a strong management team is the leverage point that makes the other factors sustainable in the long-run and, therefore, truly valuable.  


Focus on building your most valuable asset; a strong management team. 




Building a Systems Development Team - Starting
Most Systems Development teams start with someone doing report writing or other forms of data extraction and integration, such as creating a dashboard or streamlining through imports.
Lean Principle - 5S Habits for Building a Productive Work Environment
5S is a foundational concept for creating a productive work environment and continuous improvement. The 5S process is to productivity what eating a healthy breakfast and exercising is to your health - daily consistency will change your life.
ABC Daily Planning
Effective planning processes are the foundation for great production. The planning process can be seen as a series of tighter and tighter concentric circles with the bullseye being the daily plan. Daily feedback improves performance and mitigates risk.