Fondaris is of the view that, beyond a company's intrinsic valuation using traditional methods (EBITDA, DCF, etc.), close attention must also be paid to its future potential. This is all the more critical in light of new trends accelerated by the pandemic.
Naturally, it remains up to the transacting parties, whether as buyer or seller, to properly assess this potential.
Of course, "Cash is King" matters even more than before, and only financially sound companies will succeed—provided they hold a clear strategic vision backed by external funding that instills confidence.
Here are the key factors to consider during a valuation alongside financial KPIs:
-
Market knowledge: End-client and consumer demands are evolving, with end users raising various questions regarding the intrinsic utility, sustainability, and ethics of products. In the post-Corona era, it is therefore all the more critical to highlight the business model within the chosen market segment and to identify potential shifts in behavior.
-
Digitization: This is not merely a buzzword, but an increasingly harsh reality. The current climate has given e-commerce a major boost, significantly raising customer perception of its value. Consequently, a company that has failed to join or prepare for the digital transition loses value. E-commerce and its underlying processes require expertise, headcount, and capital investment.
-
Supply chain: While efficient processes continue to carry value, the need to build sustainable, short supply chains backed by clear alliances and partnerships has become increasingly critical. This approach drives long-term value creation.
-
Recycling: Wasting raw materials and finished goods is out of the question. What is newer, however, is the heightened expectation from end customers regarding the overall transparency of the recycling chain and how consumed products are reintroduced into circulation as valuable materials. Defining the principles of the "full product lifecycle" is becoming even more essential.
-
Innovation: Innovation has always been a central driver for businesses, but it is now paramount as end customers scrutinize actual value more than ever. Companies must continuously innovate, remaining proactive and aligned with market demand. This requires an adapted organizational structure: without innovation, business value declines.
-
Sustainability: End customers have become more aware of the vulnerabilities in our economic system and its impact on humanity. As a result, sustainability has gained urgency and is no longer just a theoretical concept. Companies lacking a clear sustainability vision in their market segment risk falling behind.
-
Employees: We intentionally avoid the term "human resources," as employees will likely seek greater recognition and workplace flexibility, asking to be treated as more than just a "resource." Remote work is only one aspect of this shift, reflecting a broader need for trust and respect. Meanwhile, remote work has proven viable on a much larger scale.
-
Communication: In the same vein, multi-directional communication has become even more critical. This requires a distinct style and approach adapted to a hybrid virtual and physical environment.
-
Business plan: What is newer in this approach is the need for well-thought-out scalability, along with the ability to adapt flexibly to shifts and opportunities.
-
Need for leadership: This concept should not be confused with a "sole leader." On the contrary, success requires sufficient decentralization and personal initiative to stay agile and ready to capture emerging opportunities. This goes hand in hand with a well-functioning board of directors that provides direction and constructive challenge without micromanaging. Boards are evolving beyond traditional risk management toward opportunity management. Ultimately, all of this aligns with an agile, action-oriented strategy driven by a clear purpose—in other words, "good governance" within a clear vision.
Ultimately, these topics speak to a company's resilience and long-term sustainability. But how can these qualities be mapped? What truly matters is future profitability and financial performance, which cannot be inferred solely from the current income statement.
At Fondaris, we systematically aim to gain a thorough understanding of these dynamics before moving forward with any disposal or acquisition. Moving away from a "one size fits all" approach, we examine each company's unique characteristics and how they may impact key figures going forward. Developing a well-grounded business plan based on thoroughly vetted assumptions serves as an essential tool to convince buyers of a company's quality.
