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4 key considerations to increase the value of your GovCon company
Investors and acquirers are becoming increasingly more sophisticated, informed, and risk-averse when it comes to making acquisition decisions. Government contractors must be prepared for deeper and wider due diligence procedures because key decisions and “deeper dive” procedures are informing buyers to either invest and/or acquire your organization. Being prepared for how you can increase your company value should be top of mind as you embark on your M&A journey. To increase the overall value of your company, we offer four considerations for your organization.
Consideration #1: Management Review Controls (MRCs)
Investors and acquirers are looking for more than signatures or initials as evidence that management regularly reviews key company financial information. Investors and acquirers want to know what is involved in management’s review, what it entails, and what value the review provides. Does management review supporting documentation related to key reconciliations, look closely at variance analyses, review resolution efforts, perform a key calculation, and meet with various relevant process owners to gain an understanding of information being provided for review and approval?
Consideration #2: System Interfaces
Today’s organizations are driven by technology. It’s important to understand how data is flowing between systems in your organization and demonstrate that effective controls are in place to ensure accurate data is flowing between systems. As a result of attrition or change in personnel, organizations are struggling with the loss of corporate knowledge related to prior system implementations and interfaces; and the cost of a lack of institutional knowledge could be significant to an acquirer.
Consideration #3: Budgeting and Forecasting
Government contractors are under great financial pressure to make on-point forecasting and plan a cornerstone in their organization. It’s important that government contractors recognize the growing importance of longer-term forecasting and business planning that prioritizes resource efficiency. Furthermore, diversity of services/products and contract types are becoming increasingly important to plot a prosperous course for the organization and during acquisitions. Successfully managing forecasting can be a huge challenge; it requires people and technology across the organization to be in alignment. Organizational misalignment, or lack of appropriate budget and forecasting capabilities, can lead to a decrease in value of the organization for investors and/or acquirers.
Consideration #4: Third-Party Relationships
Investors and acquirers will want to know about key third-party relationships. A best practice is having a strong vendor management process that includes controls related to onboarding/offboarding and contract management. Additionally, a stable relationship with key third parties may be an important component to a due diligence process. Having right-to-audit clauses in key agreements and being able to demonstrate that your company executed these clauses without issue on a periodic basis is valuable. Your organization should be prepared to show that a backup exists for essential services with service providers.
Organizations should be ready to respond to investors' and acquirers' inquires and have supportable data to highlight why organizations are valuable to them. Having MRCs that can be relied upon and are meaningful will allow for an efficient and effective M&A process. Additionally, with an increased government interest in technology and data security requirement compliance, technology systems should be properly documented showing integrative processes and system control reliance points. This builds trust with the investors and acquirers that the data provided during the due diligence process can be relied upon and the systems/data can be viewed as a “source of truth.” Accurate forecasting and budgeting can lead to desired financial outcomes (i.e., acquisitions) and non-volatile cash flow can lead to higher company value, and decreased risk for investors and acquirers.
Finally, stability with third-party vendors, supported with proper management and oversight, highlights to investors and acquirers that they can reasonably rely upon vendor relationships being maintained post M&A activity and risks are mitigated when proper oversight has been maintained. All these opportunities should be considered, prior to the beginning of the M&A process as a chance to increase overall company value in the eyes of investors and acquirers.
Subject matter expertise
Manager, Government Contracting, Global Consulting Solutions
CPA, PMP, Partner
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