Sales forecasting tools allow to secure a company valorization during an M&A operation
The main objective elements linked to the historic financial performance of a company, the customer base or market shares are, when going through a corporate finance operation (partial or total sell-off, acquisition, financing), tangibles, measurables and factual.
While, the subjective elements, linked to talents, reputation, brand, and company culture are analyzed differently by the buyers according to their interest in the company. Future performances can as well be seen as aspirational.
In the case of a company sell-off or the introduction of a new financial investor, the core business of Equiteq, a company specialized in mergers & acquisition and strategic advisory, the buyer analyzes the past financial performance but buys the potential future growth of the company. It is thus paramount for company’s executives to be able to follow the monthly progress of the revenue, order book and opportunities pipeline.
For Alexandre Steiner, Managing Director at Equiteq France, and Nicolas Commare, CEO of Colibri, a sales forecasting tool allows in many cases to reassure the buyer about the good management of the company and secure the operation.
Between, the Business Plan and the analysis made by the buyer, how the use of a sales forecasting tool can ease an M&A operation?
Foresee the needs of a strategic or financial buyer
To foresee with accuracy the revenue in 6, 12, 18 or more months affect positively the company valorization. It is easier to sell the future of a company to a buyer if it is formalized and strictly followed!
So, when this exercise is maintained by an unreliable workflow or tool the doubt can take over.
According to Alexandre Steiner “we notice today that many SME are only using Excel and the “rough guess” technique to analyze their numbers and future sales.”
An observation shared by Nicolas Commare: “Excel is widely used among the companies we are talking to; however, its use involves many risks such as human error, numbers reliability, format inconsistency, unlisted or inaccessible archives”.
Yet, in a financial transaction it is essential to demonstrate some sales predictability and to compare the budget to the actual revenue and to follow its sales historic in order to demonstrate its reliability.
To be able to extract, for the 18 or 24 months prior the transaction, a monthly report of potential business leads, revenue per product and/or customer, is highly recommended by Alexandre Steiner before engaging advanced discussion with a financial or industrial investor.
To go further, we can imagine that if the forecasted revenue per product or customer is reliable at 80% over the last 2 years it will be the same for the future forecasts. Here you navigate with visibility and degree of accuracy instead of getting lost in an ocean of uncertainty.
The use in the long run of this kind of tool express, especially for a SME, the management capacity of improving the reporting processes in order to steer more efficiently the company with the goal of stepping back and implement a long-term strategy. A buyer, financial or industrial, will always value an executive that decided to implement early different reporting and managing tools.
An ongoing digital transformation digitale
In light of these observations, how can we explain the lack of investment in sales forecasting tools?
Alexandre Steiner explains that digital transformation in the broad sense, is always ongoing and many companies are only at the beginning.
He also observes that the need to implement new tools depends also on the company size. Once the 10 million euros in revenue cap is reached it is, in most cases, time to implement those solutions in order to maintain growth.
For Alexandre Steiner and Nicolas Commare to have a sales forecasting tool allows the reassure a potential investor, secure the valorization estimate and thus the operation itself. Whether it is for managing its day to day operations (lead generation, follow up of commercial proposal, follow up of KPIs such as stock levels or service rate), or for achieving a business plan, those solutions bring credibility to the valorization plan for the global financial valorization (activity stability, growth and sales trend, forecasts for the next 24 months…). They also testify the quality of the middle management teams.
Many tools such as Colibri allow, for a reasonable budget, to cross the threshold and get this first level of qualification, bringing real value to the company (SME and ETI).