How Do You Boost Shareholder Value and Liquidity? Five Ideas

Situation:  A company wants to create a liquidity event every 3-5 years. The objective is to increase shareholder value and also create opportunity for employees. How do you boost shareholder value and liquidity?

Advice from the CEOs:

  • What are the important considerations in evaluating different options?
    • Seek partners or investors with whom you have synergy and who will improve business prospects. There must be more than just their ability to provide cash.
    • What is the role of key management and employees post deal? For how long?
    • Are there timing aspects that help to maximize your own valuation? For example, if your business is cyclical, is there a time of the year when the financial picture is optimal?
    • As you evaluate alternative deals, evaluate the M&A fees around each option. Could these funds be used differently with greater impact on liquidity?
  • Technology spinoffs can increase liquidity while keeping the core company whole. Jack Stack describes this process in The Great Game of Business. This is also simpler and cleaner than many collaboration options.
  • Considering collaborating with or purchasing a complimentary company with an office in a desirable geography.
    • If an opportunity appears synergistic, dig to find the depth and value of the synergies.
    • Consider timing options. Are there prerequisites which will increase probability of success?
  • Roll-ups are doable but risky. It is hard to find examples that work. Challenges often come from of cultural issues and lack of compatibility.
  • Look at the experience of similar companies as benchmarks for what you might anticipate from various options.

2 thoughts on “How Do You Boost Shareholder Value and Liquidity? Five Ideas

  1. Kevin R. Andersen, CPA, M.S.T. D.B.A. Doctoral Student

    Your comment regarding the creation of a liquidity event every 3-5 years is presented as a rule of thumb. What is the basis for 3-5 year cycle? Why not longer or shorter? Liquidity does not add to the Earnings Per Share calculation, so how will a liquidity event increase stock values?

    Are you hypothecating that stock values ought to be increased every 3-5 years and that a liquidity event aids in increasing stock values, or are you saying that if there is liquidity event every 3-5 years, stock values will tend to be stabilized over the long-term? Interested.

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  2. Sandy Post author

    Thanks for your comment, Kevin.
    The company in question is a closely held company. The desire for a liquidity event every 3-5 years is to financially benefit the owners, as well as to create opportunities for key employees. An example of this model is Springfield Remanufacturing Company which is described in great detail in The Great Game of Business by Jack Stack. Stack and his team, since performing a leveraged buyout of SRC in the early 90s have managed to spin off (while maintaining partial ownership) over 50 companies, all being managed by former employees of SRC. This has been great financially for Jack and the team that originally took the risk of the buyout, as well as for SRCs employees, many of whom are now managing or serving as key employees of their own companies (the spin-offs).
    Since your are a doctoral student and interested in this topic, I highly recommend Jack Stack’s book.

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