Wholesale company owners who plan to sell their enterprise to an outside, third-party must take a hybrid approach in their strategic exit plan. In combination with mapping the value of the entity, or benchmarking, an owner must ascertain other aspects of the business that differentiate it from the pool of existing participants.
Many entities within the wholesale industry are acquired to expand product diversity and regional market areas. Typically, closely-held wholesale entities have slim profit margins and therefore to attract outside buyers the intangible value must be enhanced and maintained. As with the other industries, the intangible value drivers for wholesalers are dependent on a basic set of factors.
- Clientele, repeat clientele and diversity: Who is it comprised of (government, commercial, residential) and is it transferable? Repeat clientele are essential value drivers and a high volume of referred clientele signals efficient operations management and a core position within the community and industry at large. A diverse base enhances intangible value.
- Competition: Are products priced competitively? How does the company offer competitive prices and still maintain high-quality, timely wholesale services?
- Contracts: Do they exist and are they transferable to an unrelated new owner?
- Diversity of products: A diverse product base alleviates dependence on a product, for example, with profits dependent on the health of the economy (regional or national) or industry trends and existing technology.
- EPA, EEOC and workers’ compensation claims: Has the company experienced any significant litigious claims/issues?
- Longevity in industry: How long has the company been in operation and is the name well- respected and recognized in the industry?
- Marketing and sales techniques: How are new contracts generated and how are existing contracts renewed?
- Method of delivery: How are products delivered, shipped and how effective is management at overseeing the efficiency and cost-effectiveness?
- Union affiliated: In some regions and industry sub-categories, union affiliation drives value down.
- Working capital: Does the company maintain a sufficient ratio of sales to working capital? Sufficient working capital implies effective operations management and an adequate turnover of receivables and inventory. Inventory must also be maintained at levels of profitability and consumer /seasonal demand.