One such bespoke firm is Novitas, which has brought together two of the finest entrepreneurial minds to form a formidable team that has saved companies’ shareholders countless millions at the point of sale by tailoring deals that fit both the seller and buyer, thus creating fertile grounds for both parties to be happy at the end of the deal.
In an innovative approach to negotiations, they do not rely on old-school methods of hammering the opposition up or down but rather, they identify and highlight the most valuable parts of a business, and then seek out the right sort buyers from across the globe who are willing to pay the right price for the business.
Before taking a business to market, Novitas spends time to find out what makes it unique, special and different. Based on this, they work out what types of buyers/investors would be likely to value it the most and what criteria they would use to value the business.
The founders, Canadian-born Brad Conarroe and Cape Town’s finest, Dana Gordon-Davis have a storied history successfully launching a number of start-ups and have an exceptional grasp of high finance and commerce from their time working both locally and overseas.
Over the past 23 years, Conarroe has held senior positions in Corporate Finance, ICT and International Business Development in South Africa, the Netherlands and Canada. In addition, he has been directly involved in the start-up of two companies—XOIP BV, a unified messaging company providing technology to ISPs, Telcos and Media companies; and Aequitas BV, an international corporate finance house.
Meanwhile, the well-spoken Gordon-Davis is an experienced Corporate Financier with 16 years’ experience spanning a wide range of capital raising and mergers and acquisitions (M&A) transactions in the financial services, technology, media, mining and resources, and retail sectors. He has personally led and completed over 40 sale mandates and 15 capital raises since 2001, developing an innovative approach to transaction negotiation and structuring based on principles of “value sharing” to achieve successful outcomes.
Conarroe and Gordon-Davis joined forces in 2012 to form Novitas Capital Advisors and have successfully executed 30 transactions together.
Getting the most out
Gordon-Davis outlines his innovative approach to achieving the best possible outcomes for Novitas clients, often more than double the owner’s original estimate. “Our secret is to immerse ourselves in the company, to really understand what makes the company unique in order to work out its value drivers.
Essentially, what it is that would make it attractive to potential buyers. We create a thesis that says, ‘Well if you’re a buyer, this is what you can do with this business and how much value it would create for your shareholders.’ We spend time needed to unpack the value of the company and then position it optimally for multiple types of buyers in order to obtain the best result for our client. That’s probably how we best distinguish ourselves.”
He continues, “We’re not business brokers at all, we’re really more like management consultants or strategic consultants. What we do is we prepare a very detailed information memorandum that provides a strong acquisition rationale for potential buyers. Then we produce a valuation model that can both quantify the company’s stand alone value as well as the value it would add for a potential buyer.. Added to that is a competitive process, which creates the right level of tension in the transaction to ensure we get a number of concurrent interested bidders to ensure the best outcome for our client.”
Testing the waters
Time is money and the earlier you can prepare your business for the day you sell, the more chance you have of achieving better-than expected results. Some clients come to Novitas two years before the actual sale is done, giving
them plenty of time to work on key areas that will improve their selling price.
Conarroe says, “What often happens is that we’ll go through the first stage of our process with the client and they’ll take the lessons from that and say, ‘That was really insightful, but based on what you’ve told me, if I spend the next six to nine months working on these value drivers then I can make my business a lot more valuable’. They will take the insights that we give ahead of going to the market and say, ‘Press pause on what you are doing’, and they’ll come back to us half a year or a year later and say, ‘Now I’m ready to go to market, because I’ve now boosted those areas that the buyer groups will value and the business is now positioned to extract the best possible purchase price.’”
Gordon-Davis goes on to outline the key areas, which typically need improving in companies, often finding similar problems across different sectors. “It’s amazing how similar companies are. There are only a discreet number of business models really, and what you do is, when you get exposed to many businesses, you actually see the common threads and the common approaches.
“Good businesses have a lot in common, so you see time and time again, well-run businesses have good governance, have good leadership, they know what they measure and they measure the right things. Having a great service, having inspired leadership, having passionate team members, those are all hallmarks of good companies. We seek out good companies and like to work with great businesses to achieve really
strong outcomes,” he says.
Conarroe adds, “A common issue across businesses is that a lot of entrepreneurs or privately-held companies will focus very much on optimising their businesses from a tax perspective and that sometimes puts a damper on the actual profitability or the growth of the business. “One of the areas we encourage clients to do well in advance of a transaction is, don’t try to depress the bottom line to save yourselves some taxes. Actually show off what a great business it is and be happy to pay your full taxes because you will get this money back multiple times over from a buyer when it does come time to sell it.”
Why chose Novitas?
With numbers like that, CEOs would be fools not to get the help of top-class corporate finance advisors. So why should you choose Novitas over the competition? Conarroe confidently says, “Choose Novitas because we will do the work to understand what’s special about your business, articulate that to buyers so that they appreciate it, and then do the hard yards to evidence it to get the deal across the line.”
Gordon-Davis continues, “We shine a light on other people’s businesses to understand the key value drivers and understand what you need in those businesses. It’s very much our approach to deal-making, we invest very heavily in our clients, we take the time to really understand what makes them different, what makes them unique and then to position them to be attractive to multiple bidders. We don’t just talk to three or four or five relationships that we have, we really take the time to understand who can benefit the most from owning this company and then we do everything it takes to make sure that they are at the table, that they understand why this is a really great deal for them and we drive it across the line.”
The result is a custom-made, bespoke offering for companies. As a boutique, you receive individual attention from the Novitas principals all the way through the process, and you are not handed off to more junior staff.
Gordon-Davis adds, “It’s completely bespoke and we’re passionate about it, we really are passionate about companies, we’re passionate about value and seeing the right deal for our clients. The right deal means it’s got to work for the other side as well. It’s not just about price, it’s about a great fit, it’s about true alignment and a very good outcome, a lasting outcome.”
Both of the Novitas founders are serial entrepreneurs and this helps them when advising other companies on reaching their full potential. Conarroe continues, “You appreciate and you understand the challenges that entrepreneurs go through, that businesses experience throughout their life cycles. You understand and see what’s really different… what’s really special about a business if you’ve been on the other side yourself. I do think it’s important.
“People can get into a bit of a rut, doing the same thing and t making a very good profit. If they’re doing well then often they don’t have to actually push themselves to the limit. When we start to explain how buyers really value growth and profitability, oftentimes, we get a comment, ‘If I pushed a little bit harder, I could add another 10%-15% growth on this’. We encourage the companies to do that. We look at the business from the point of view of the buyer who values growth, who values profitability, who values potential and then position the business in a way that enables it to put its best foot forward in those areas.”