“Inside Conversations” and Equity Value

If you’re reading this blog it is likely that you own your own business. If you’re like me there was a period of time in your career in which you were employee. It took you a while as an employee to figure out what an “inside conversation” is, but once you figured it out, you realized that the owners of the companies you worked for were having them and you were not. This is part of the reason you started your own business.

First let’s define an “Inside Conversation”:

  • the conversation business owners have with each other about building equity value;
  • discussions in which owners get clear with each other about how to incentivize their employees to do what needs to get done to generate current cash flow, and to create long-term equity value; and
  • strategic discussions meant to maintain the owner’s focus on the reaping the rewards for the risks they have taken in launching and thoughtfully operating their company.

When you were an employee you may have been generally aware of the existence of such conversations as you went about your day-to-day business, and you were certainly aware of the “inside conversation” when you were in a discussion with your boss about your compensation, incentive packages, salary and bonuses. If you were especially astute you got really specific about exactly how you created value for the company, and how you would be compensated for creating that value. As you got smarter about the ways that you specifically created value for the company, you were likely motivated to start your own company to capture more of that value for yourself.

So, now you’re about to sell your company. There are two forms of inside conversations happening. The ones you are having with your investors/partners and the ones the buyer is having with his investors/partners.

Our objective in advising companies is to make sure our customers have clarity with respect to their own inside conversations, and that they have as much clarity as possible regarding the inside conversations being had by the buyer. This is where deals get done. Where there is a balancing of risk, reward and alignment amongst buyer and seller.

At VCA we structure transactions such that allow our customers to have real clarity about how much they are being paid at close for their current equity value, and how they will generate and be compensated for future equity value they create for the buyer. In essence, keeping our customer in a powerful “inside conservation” with the acquirer where the terms and conditions of transaction drive our customer’s ability capture the value their company has created, and to aggressively create and capture future value for their company within the acquiring company.