My first business was called Muscle Music. It rented out PA systems to touring bands. My business partner and I were in our early 20s, both 5’6" tall (or is that short?) and the name reflected our rather immature sense of humour.
Artists we worked with included The Drifters, Ella Fitzgerald, Frank Sinatra, Iron Maiden and The Bay City Rollers.
Our biggest client was The Jam. As well as renting them our PA system, I became their live sound engineer for several years, travelling with them all over the world.
One day, the band’s manager, John Weller (Paul’s father), said to me: "Alan, Paul’s now got over £1m cash in the bank, and our accountant told us to invest the money to reduce taxes. We’ve been spending a f*****g fortune with you over the years, so I want to make you an offer. I’d like to buy Muscle Music lock, stock and barrel – and employ your staff."
I said: "Interesting. How much do you want to invest?"
He replied: "£40,000 and not a penny more."
"Forget it", I immediately responded. "We want £80,000 and not a penny less."
Now, this was over 40 years ago. £80,000 then would be around £400,000 in today’s money.
Over the next few months, on tour buses and aeroplanes, in hotels and gig venues, we argued over the price.
We were at an impasse. Simply too far apart.
A while later, we were at the end of a US tour when John told me: "We’ve just got to no.1 in the UK charts with ‘Going Underground’, and we have to get back to the UK by tomorrow to appear on Top of the Pops. The only way we can do it in time is if we fly back on Concorde. Would you like to join us? My treat. We can discuss the deal".
Not exactly a tough decision.
So, I accompanied John with the three band members, Paul, Bruce and Rick, and ‘Big Kenny’, The Jam’s Head of Security. Big Kenny needed two seats!
We took off from Washington; John and I were sitting side by side.
The views, the acceleration, the roar of the engines… it was an amazing experience as we climbed towards outer space. I could see the curvature of the earth; the sunrise on one side, the sunset on the other.
We made full use of the amazing service. There were trolleys heaving with lobster, caviar, steak, desserts, and unlimited alcohol.
John and I got steadily more inebriated - not recommended when talking business but it was a spontaneous moment in time.
We discussed the deal and found ourselves moving gradually closer.
At one point, John asked me, "How high are we now?"
At the front of the cabin was a readout showing how high and how fast we were flying.
I looked at the readout.
It said 60,000 feet.
I pointed to the readout and said: "Look!"
John looked.
We looked at each other and both said in unison: "60,000. That’s a good number."
We shook hands there and then.
It was my first company sale. I was 24 years old.
If you’re thinking about selling your business, or looking for an investor, sorry to say Concorde’s no longer available.
Nevertheless, there are things you can do that will help you achieve the best enterprise value for your business.
First, let’s look at the parts of a business that may reduce its value. The parts that need to be under control:
Costs and revenues: demonstrate that the P&L is well-managed. No evidence of costs being out of control or over-reliance on only a few clients/customers.
Assets and liabilities: mismanagement of liabilities, for example potential legal disputes, too much debt, stretching its balance sheet. How does its return on assets compare to other companies in the same sector?
Management team: what’s the capability of the management team to deliver the strategy? Is there a clear succession plan for key roles? How reliant is the business on the founder(s)?
External factors: these are events that a business can’t control. Paradigm shifts occurring, such as a global economic downturn, or societal changes. Has the business created a risk matrix with a plan in place for most, if not every, potential risk?
Second, let’s look at the parts of a business that can increase its value, by demonstrating the business’s capabilities in these areas:
Talent and culture: investors/buyers look for the business’s ability to attract appropriate talent, and that it has a culture to retain it. A business with these in place can out-perform its competitors.
Systems/product innovation: can the business demonstrate efficient working practices in terms of its systems and processes? Regarding product/service innovation, are there policies and procedures in place demonstrating investment in and implementation of new product development?
Product extensions: this relates to a business branching out from its current product/service lines into new (and sometimes unrelated) areas, for example McDonalds moving into franchising, Disney moving into cruise ships and theme parks, Virgin moving into an airline.
Channel extensions: can the business demonstrate its ability to establish new channels to market? For example adding retailers on to direct to consumers sales.
Brand Architecture & Positioning: this allows a business to be perceived differently from its competitors, and have a unique presence in the marketplace. If it can demonstrate that it’s brand-led, rather than product/services led, then the brand can be added to its intangible assets.
Scale: this is the biggest multiple factor increase by scaling the business through opening in other territories, either organically or through M&A/JV activity to expand revenue streams. That’s why SaaS (Software as a Service) businesses often have such high valuations.
Using this approach, I recently helped one of my clients go from a £6m valuation to a £10m sale in 2½ years.
Guaranteed?
Absolutely not.
I’m talking about putting yourself in the strongest possible position before going for inward investment or an outright sale.
If your interest is piqued and you would like to have a chat about your options, get in touch with me for a no-fee, no-obligation conversation.
Happy landings!
