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M&A watch How to make your business By Leon Hughes S


mall companies seek investment for a number of reasons: either to fund growth, expand internationally or restructure investment—enabling them to


replace existing shareholders and/or realise some value for themselves. Once the decision has been made to take a business to the next level, it’s critical to sense check and ask the obvious question: will anyone invest?


If the company is ethical in


performance, demonstrates solid growth, has a compelling or differentiated offering and an effective management team with succession, then the simple answer is “Yes”.


Part of my role at Piper, the specialist investor in consumer brands, including Boden, Gray & Osbourn, Diet Chef and Celtic Sheepskin, is to look for and diligence prospective new investments— essentially to open the bonnet of businesses and check everything is working efficiently. So what is the best way to ensure your own company is firing on all cylinders should you be seeking support for your next stage of growth? Here are some useful pointers that I’ve learned along the way.


Understand


online activity Through detailed Key Performance Indicators (KPIs), your management team should demonstrate the areas of acquisition, growth and conversion online. Ideally KPIs should detail a three-year history and forecast of traffic origination, including paid and organic search and lead generation such as subscriptions, conversions and average order values. This will illustrate that marketing activities can be accurately measured, that there are clear transparent targets for internal/ external management and that any business plan can be supported.


Know your consumer Essential to identifying future growth


strategies and forecasting levels of acquisition and retention, your team should know who your typical consumers are, where they are being sourced and methods of targeting throughout their interaction with the brand. For instance, what automated email communications


are in place when someone requests a catalogue compared to someone who has placed his first order? A subtle difference perhaps but a crucial one, as it not only demonstrates knowledge of the consumer but also that you have the capabilities and technology in place to nurture your database and leverage every opportunity.


Nurture your database From an investor’s point of view, your database


can represent a great asset towards the value of your business. So it is important to prove that yours has a loyal customer base with high levels of repeat purchase that was built organically—as opposed to having been bought in—and is still active. How the database has grown, historic data- capture methods, unsubscribes and frequency of communications can all help form a picture of whether retention strategies can be supported.


Have a stable platform In many cases, the ecommerce platform is the


number-one business-critical software. Investors will be looking at granular level to ensure any future growth strategies can be supported by the technology. Can the website run independently of internal systems in the case of communication issues? Has there been any load testing on the servers or are there recorded high sales periods that can stand up to the traffic/transaction levels anticipated in three years’ time? And are the management or marketing departments being held back by the technology? All these kinds of issues will be investigated, so ensure you cover your bases.


Prepare a detailed strategy A detailed online marketing strategy should form


an essential role in any business plan. Historic KPIs are crucial to identify continued growth in activities such as email marketing and to pinpoint further areas of traffic sourcing such as affiliates. Each of the following needs its own focus: Paid and organic search should each contribute 25 to 35 percent of overall revenues. It is key that there is equilibrium so that there is no overreliance on paid acquisition. It is also important to demonstrate a clear search-engine optimisation strategy. Email marketing should contribute 10 to 20 percent. The strategy here should demonstrate subscription methods, communications calendar for enquirers, buyers (both active and lapsed), automation and 12 months seasonal/promotional calendar.


Direct Commerce | Catalogue e-business | www.catalog-biz.com


Affiliates, where applicable, can deliver 10 to 20 percent of turnover. Demonstrate a clear strategy of working with key affiliate partners rather than just cashback or voucher promotions. Affiliates can drive serious numbers of traffic but it needs to be ethical and not just perceived as a discounting channel. As a general rule, a 12-month strategy of communications and support to affiliates would be considered good practice. Direct and social can contribute 10 percent of revenues. Social media take-up, strategy, resourcing and safeguards will be a key focus for direct traffic. While social is still a difficult beast to attribute ROI, it can boost customer service levels, product endorsements and consumer connection with the brand. Aspects such as levels of administration, insights and consumer interaction can demonstrate a brand’s record of innovation, which often excites potential investors.


Seek outside support In-house development teams can provide greater


control, speed and flexibility but they do come with their own headaches. Man management, training, best practices and documentation have to be adopted to ensure that the overall business growth ambitions are aligned. External marketing agencies are sometimes seen as necessary evils but if managed correctly and adhere to the KPIs, they can be very cost-effective and help achieve the business opportunities and strategies. It is key to demonstrate a good relationship, that agencies are remunerated (but targeted) and annuals reviews/pitches are implemented. While these, of course, are just a handful of areas on which potential investors will focus during the due diligence process, it is key that the management team has an understanding of each. If there is no solution in place, identify it as a potential area on which to concentrate and present a plan of how to address it.


Then, when investors come calling or you go seeking them, you’ll help your business pass its “MOT” with flying colours.


Leon Hughes is an associate at Piper, which targets consumer businesses with a £5 million to £50 million turnover.


attractive to investors Preparing your business for due dilligence


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