Forbes Middle East
Forbes Middle East


How To Realize Untapped Shareholder Value

Tom Bullock
How To Realize Untapped Shareholder Value

hareholder value creation should be seen as a shared mind-set and a board-level agenda; a vision to be the highest performing business achievable, whilst also backed-up by insightful analysis and pragmatic action.

The last few years have been challenging for regional stock markets evidenced by a 20% decline across major regional indices. The reasons are many including, commodity market turmoil, falling consumer confidence and issues of governance and regional geo-politics. Furthermore, decreasing profit multiples (common valuation metrics when comparing businesses) also suggest a decreasing confidence in the sustainability of earnings.

Despite a challenging environment, recent oil price rises and yearly increases in M&A deal volumes give rise to optimism. These signs of recovery must sharpen boardroom resolve to respond to the current market challenges and create long-term value whether to emerge match-fit for a transaction or to steer the business back on course to capitalize on better times ahead.

Challenging existing norms is critical. In challenging times, owners and asset managers must continually identify improvement initiatives to squeeze out further business value. Whether through profit growth or improved cash management, even modest initiatives on a cumulative basis can create significant value.

Whether improving bottom-line margin through driving revenue growth or cost reductions, optimization is the objective. Systematic targeting of sales and executing those at the optimal volume and prices whilst at the same time, maximizing per unit productivity and supply chain costs is what management must strive for. However, in ever changing dynamic market places, businesses must be regularly evaluating if they currently are optimized. What was the right sales strategy or product mix previously may no longer be. Costs should always be commercial, lean and devoid of the unnecessary.

Whilst profit and loss performance is important, the mantra ‘cash is king’ always rings clear. A proactive approach to cash management can reap rewards independent of an operational performance improvement plan. Addressing customer payment delays or renegotiating supplier payment terms can drive business value and provide funding for new initiatives.

The ability to enhance value from improvements in margins or cash management will depend largely on the nature of the business, and the sector it operates in but the identifying principals remain the same – it’s all down in the data. Improvements most likely lie in business information that is not yet fully understood. Detailed analytics is the key to unlocking value through the identification of trends in the macro volumes of data that businesses now have at their fingertips. Today’s computer software tools allow us to realistically quantify the potential impact on current performance and business value and to sequence the timing of implementation for early, optimal benefit.

Similarly, improvement opportunities are often discussed but the solutions and financial benefits are often not proven or raised in the right forums leaving value on the table.

Achieving profit growth and cash is no simple task. Ideas that are not rationalized or properly implemented can even have a detrimental impact on business value. Failed or delayed value creation programs continue to cost shareholders for little or no benefit to bottom line. Some common enabling factors can ensure that the implementation of initiatives remains on track and the benefits are harvested.

The right leadership team and competencies are imperative and changes could be required. Management should also be rewarded for successful implementation on performance based remuneration structures. Furthermore they need the support of focused and diligent program managers, which can ensure initiatives are delivered on time and monitored. The internal business capability represents one stakeholder group amongst a range of diverse agendas, including those of shareholders, suppliers or customers. Similarly, equity or bank financiers must understand the long term benefits to support any investment and funding needs. All can provide undesired distractions and positions should be proactively identified and managed.

Embedding the change that comes with a value creation plan will not be without hurdles whether it be the availability of robust data, resistance from stakeholders or even internal organisational resistance to change. Whether to drive value ahead of a transaction or in a turnaround situation strong data analytics combined with a value creation plan can enhance business opportunities and shareholder returns.

Tom Bullock is the assistant director, financial advisory, Deloitte Middle East.

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