Exploring Capital Market Alternatives
The Strategic Alternatives Review provides a framework for business owners to explore their available capital market alternatives which will allow them to meet their goals and objectives. We view the business owner’s current inherent equity value as a portfolio asset that is invested or “rolled over” in the business. This equity, when viewed over a five-year period, has a return. This return is evaluated in context of risk (business and market), wealth creation, and other alternatives available that will meet stakeholder goals and objectives. The following is a list of the strategic alternatives:
- Status Quo – organic growth
- Recapitalization – obtain shareholder liquidity or lower cost of capital
- Growth Capital – product line or plant expansion, new product rollout
- Acquisition(s) – add-on, fold in, diversification, vertical integration
- Divestiture – sale to financial or strategic buyer or to management
Our approach is to understand the goals and objectives of the stakeholders by establishing a baseline five-year projection through analyzing key metrics, customers, and end markets. We then determine value (discounted cash flow, market comps, and leverage test) so that our client understands the investment being made annually. At this point, we provide our client with alternatives that meet shareholder objectives, summarize these alternatives, and review the financial and business impact of implementing each one. Collectively we assess each alternative on the basis of wealth creation, risk, and meeting owners’ objectives, which leads to the optimal solution.