Vol. 8, No. 2, February 2010

EXECUTING FOR VALUE IN A MIDDLE-MARKET FIRM: In the article below, George M. Norton III, a Senior Advisor at FOCUS, draws upon the content of his book, “Valuation: Maximizing Corporate Value,” to supply a brief, practical guide to applying an effective valuation methodology.

George Norton has decades of experience in all phases of business and has held senior positions at Booz & Company, Northwest Industries, Duff & Phelps and Ernst & Young. He began his career designing business analysis models for IBM and then earned an MBA in International Finance from The Wharton School.

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Active FOCUS Deals

Operating nationally and internationally, FOCUS currently is working with buy- and sell-side corporate clients, private equity groups, holding companies and late stage venture capital firms in the following areas:

Advertising & Marketing
Building Materials
Business Consulting Services
Business Process Outsourcing
Call Center Services
Distribution
Education and Human Capital
Electronics
Energy
Engineering
Financial Services
Government, Aerospace & Defense
Healthcare & Life Sciences
Information Technology
Manufacturing
Media
Parking Services
Retail Franchising
Semiconductor Equipment
Telemarketing
Warehouse Distribution

We have executed dozens of transactions in a range of market segments, but the same fundamentals apply across all of them. Our on-going transaction process provides us with up-to-the-minute market knowledge in these sectors that may be of corporate development interest to you.

Inquiries should be addressed via e-mail to info@focusbankers.com, by telephone to 202-470-1973 or by fax to 202-785-9413.

TestPlant, a London-Based Information Technology Firm, Increases Foothold in the US Government Market

FOCUS initiated this transaction, assisted in the negotiations, and acted as financial advisor to TestPlant, Inc., the manufacture of eggPlant, the only commercially available tool which can test the actual graphical user interface by “seeing” the PC or mobile device screen. TestPlant selected Spectrum Systems as the exclusive GSA authorized distributor of their unique technology.

Gerald Turner, FOCUS Managing Director, comments, “The appointment of Spectrum Systems followed an extensive review of government resellers. Spectrum was best positioned in experience and quality of service to partner with TestPlant and this new relationship provides all US federal, state, and local organizations with most favored pricing and terms, as well as complete access to pre and post sale support from TestPlant’s personnel in the US.” Read more...

How Middle-Market Companies Can Successfully Execute for Value

By George M. Norton III, Senior Advisor, FOCUS

By understanding and applying an effective valuation methodology, business owners, CEO’s, and other senior executives in middle-market firms can assess the value of their business, successfully predict its financial direction, and construct a strategic framework for controlling where the firm is heading.

Six specific steps are needed to reach the moment for action, each requiring a number of sub-steps as well as the application of a number of customized strategies and formulas:

STEP 1: Where has the company been? Strategic audits will highlight existing strengths, identify implicit strategies, plot growth performance, analyze profitability ratios, and determine relative value.

STEP 2: What is the company worth now? The team will discover the importance of value, master discounted cash flow, understand value drivers, determine the cost of capital, and calculate current organizational value.

STEP 3: Where does the company operate? This step is about planning and assessing a strategic landscape by reviewing planning fundamentals, identifying stakeholders, gathering additional information, defining success factors, and identifying barriers.

STEP 4: Define the company mission. In this step, the company will review the current framework; work through a six-level process for development; lay a solid foundation; identify niche positions and goals; and, ultimately, create the organization’s vision, purposes, values, and overall mission.

STEP 5: What do we want to accomplish? The executive team will explore strategic thinking, develop objectives and strategies, and select specific value-maximizing strategies.

STEP 6: Which strategies supply the highest value? Selected strategies will be reviewed, methodologies refined, chosen strategies quantified, the revised value of the organization calculated, and, ultimately, value enhancement will be measured.

At this point, a company is ready for action. It is time to get specific about how the firm will successfully execute the selected strategies, because even well-crafted, value-enhancing strategies have no worth of their own. Effective execution is critical.

Acting to Successfully Execute for Value

Executing for value is a straightforward process that involves creating and attaching action plans to each selected strategy. The idea is not simply to focus on generating cash flow, but rather to emphasize serving targeted customers in a superior manner that creates sustainable financial rewards.

Three issues are critically important now:

Creating action plans to attach to specific strategies;
Reviewing and refining guidelines for beginning and executing the action plans created; and,
Ensuring the strategic framework is a living document capable of maximizing value over time.

Creating Action Plans

First, responsibility for each objective and related strategy should be clearly designated. Once a strategic framework is complete down to the strategy level, it is time to convene an action planning workshop. At this point, it is critical to stress a critical, fundamental truth—the value of the organization is enhanced each time an investment is made that generates a higher return than the company’s weighted cost of capital.
With so many team members working to design action plans, the possibilities for an overall breakdown in communication multiply. By creating consistency in the way plans are evaluated, documented, communicated, and monitored, this risk is minimized. It also is wise to make a final prestart review of all plans.

Implementing the Plans

Prior to execution, the management team should create an atmosphere conductive to successful plan implementation, prioritize action plans in a manner consistent with strategic initiatives, and begin incorporating action plan objectives into daily business activity. Company leadership needs to preserve the parts of the old culture that still work while folding in the various elements required to achieve the new, desired state utilizing such tools as training, role modeling, and mentoring. It is time to prioritize and balance consideration, creating a contagious sense of urgency in achieving action plans.

Sound action plans are supported by well-documented, clear procedures, rules, regulations, and operating instructions that minimize mistakes during execution. Built-in financial monitoring capabilities also are a must in successful action plans.

Embracing Change and Executing the Framework

An organization’s response to change is the secret to successful strategy execution. It is vital to inculcate the values and new vision of the company to all employees in a consistent manner on a regular basis. At the same time, management should focus on communicating as effectively as possible, lead by example, and empower the entire workforce in a positive and motivating manner as the prelude to execution of the plan.

Executing for value is dynamic. Management must continue to be flexible and make modifications as needed over time to ensure that the potential increases in value are achieved. Successfully enhancing the value of an organization and that of its stakeholders requires a combination of top management muscle power and gentle finesse to achieve the desired bottom-line rewards.

George Norton can be reached at 404.826.4996 or via email at gmnorton@bellsouth.net. Copies of “Valuation: Maximizing Corporate Value” are available directly from the author or online at
http://www.wiley.com/WileyCDA/WileyTitle/productCd-0471386545.html.

FOCUS Managing Director Jeff Hooke Testifies Before Pennsylvania Legislature

Jeff Hooke, Managing Director of FOCUS’ Valuation Practice, testified before the Pennsylvania legislature on the value of table gaming rights for the state’s nine slots parlors, which are now generating revenue of $2.1 billion per year. Table games such as 21, craps, and roulette are highly complementary to a slots parlor and typically boost revenue by 25 percent or more. Mr Hooke estimated the economic value at $500 million, versus the recommended price of $200 million set by enabling legislation.”

For more information about FOCUS Corporate Valuation services, contact Jeff Hooke at 301.850.2532 or via email at Jeff.Hooke@focusbankers.com.

Donald Smith Joins FOCUS’ MidAtlantic Region as a Senior Advisor

Brings Experience in Economic Development

Donald F. Smith, Jr. Ph.D. has joined FOCUS as a Senior Advisor in its Washington, DC office. Mr. Smith is President of the Regional Industrial Development Corporation of Southwestern Pennsylvania (RIDC), the largest IDC in Pennsylvania with an annual budget of more than $40M.

According to Doug Rodgers, CEO and Managing Partner of FOCUS, “Don’s experience in economic development and his past work as President of The Pittsburgh Life Sciences Greenhouse, a startup company designed to stimulate a biomedical industry cluster in Southwestern Pennsylvania, make him uniquely qualified to help FOCUS serve its client base.”

About Donald Smith

Mr. Smith began his career in economic development with the Greater Scranton Chamber of Commerce and the Pennsylvania Department of Commerce where he was the lead analyst on the state’s economic development strategy: Investing in Pennsylvania’s Future.

In 1995, Mr. Smith joined Carnegie Mellon University to direct the Center for Economic Development, and teach. He later became the Vice President of Economic Development for MPC (Mellon Pitt Carnegie) Corporation. Mr. Smith earned his BA in economics at Harvard University and his Ph.D. from the H. John Heinz III School of Public Policy and Management. Read more...

FOCUS Industry Practice Groups

► Education & Human Capital -- www.focusbankers.com/education

► Energy -- www.focusbankers.com/energy

► General Middle Market Businesses

► Government, Aerospace & Defense - www.focusbankers.com/gad

► Healthcare & Life Sciences - www.focusbankers.com/health

► Information Technology -- www.focusbankers.com/technology

► Internet & Digital Information Group -- www.focusbankers.com/idi