By David Calusdian, President
In the land of industrials, 1+1 should always equal 3.
A well-known portfolio manager once said to me that he loved diversified industrial companies “for their break-up value.” If you’re in the industrial space, this is the polar opposite of how you want investors to think about your company. As an industrial, earning the best valuation all comes down to ensuring that investors see your company as being more than a sum of its parts. Here are five tips to help investors believe in the true value of your business.
- Be Holistic. An industrial company’s collection of businesses often can be viewed as just that - a disparate group of autonomous operations individually contributing to the corporate P&L. Or they can be seen as interconnected, mutually supporting components of a strong profit-generating machine.
It is important to remember that the investment community will not see your company as a single profit-generating flywheel if you are constantly talking about its pieces versus your overall approach to driving its value as a whole. Move from discussing the quarterly ups and downs of each individual business to your higher-level strategies and actions to improve your company as a whole. Your focus will become your investors’ focus, and they will see your company as one cohesive unit.
- Give Your System Justice. It seems like every manufacturing company has its own proprietary “Business System,” uses Lean Manufacturing or Six Sigma processes and holds regular Kaizen sessions to improve operating efficiencies. They all brag about how their systems provide them with a competitive advantage. But to truly differentiate your business systems and processes in the minds of investors, you need to provide specifics, show results, and most importantly, demonstrate room for further improvement. Investors are skeptical of such jargon after having been burned by companies that could talk the “System” talk but could not prove it out with higher margins. Provide detailed case studies and data about how your processes are improving efficiencies and margins.
- Go Up the Value Stream. Is your company providing highly engineered solutions, but its valuation reflects that of a commodity business? Be sure to emphasize in your communications the enhanced value that you are offering customers. Use case studies and customer testimonials that showcase the benefits of your value-added technology or engineering expertise. And make sure the visuals on your website reflect that of a solutions or engineering company. In fact, consider using video on your website to make the technology or engineering behind your solutions come to life. As Marshall McLuhan said, “the medium is the message,” and using video instead of boring product photos will make your industrial company appear more “techy” (and higher margin) and less “stodgy.”
- Don’t Marginalize the Margins. For most industries, it’s not just about how fast the top line is growing, but also how much of that growth is coming through the bottom line. This is even more important for diversified industrial companies. Since revenue growth is typically less than stratospheric, investors look to management to expand margins and squeeze as much profitability as possible from every sales dollar. It’s crucial in your communications to explain how your company plans to grow margins. Are you moving up the value chain with your product portfolio? Are you reducing commodity costs? Consolidating manufacturing facilities? Accelerating your cash conversion cycle? Raising prices?
- Leadership by Example. Most companies brag about their “proven” or “experienced” leadership to investors so much that it has become downright useless as an investment highlight. But, done correctly, a diversified industrial company can demonstrate that their management team has the direct experience to execute on their strategies. For example, on the management team slide in your investor deck, call out the specific experiences of each team member – such as implementing successful Lean initiatives, integrating strategic acquisitions or effectively consolidating facilities – to show that your team has “been there, done that.” And be sure to further enhance your credibility by noting the pedigrees of management team members who’ve come from other companies with renowned manufacturing process expertise, like Toyota or Danaher.
For diversified industrial companies, communicating the basics just isn’t enough. Show investors that the formula you are using to build your company is greater than the sum of its parts! This means including a strategy that shows how you are moving your entire business forward holistically, a clear articulation of your sales and cost synergies, and a high-level overview of your management team’s proven ability to enhance operational efficiencies and drive margin improvement. Communicating in this way will help investors understand that, at your company, 1+1 does, in fact, equal 3.
Are you getting credit for the full value of your business? Do you feel that the investment community often struggles to understand your strategy and unique formula? With more than three decades of experience in strategic communications, Sharon Merrill can help you plan and deliver a best-in-class investor relations program. Click here for an overview of our investor relations service offerings or fill out the form below for a free consultation.