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Our experience with assisting owners who head Import and Distribution organizations have helped us to identify 5 characteristics that typically signal much higher company valuations.

 
1.) Long Term Product Differentiation:
One of the most important considerations when valuing a company is its ability to distinguish itself from its competitors. If barriers to entry are relatively low in the sector, it becomes especially important for brands to establish a meaningful point of differentiation from their competitors are better able to achieve premium pricing for their brands, while also reduce vulnerability from me-too competitive entries. However, a sustainable competitive advantage is one that is reinforced with either patent/trademark protection or has become recognized as a leader of a product category. Temporary competitive advantage comes with no guarantees and other characteristics below must also be considered.

2.) Forecasted Purchasing Capabilities:
Another characteristic is a company’s ability to appropriately forecast and purchase its goods in bulk. Importers and distributors who are able to source advantageously and/or establish appropriate hedging programs should be able to obtain higher gross margins and be less susceptible to commodity squeezes.

Centralized purchasing can also help reduce packaging and freight costs. By providing suppliers with proper forecasted information, the supplier can be more efficient and can pass savings onto the firm.

3.) Cost Reduction Know-How:
In addition to managing costs through forecasting and hedging, a company’s ability to identify techniques that can help mitigate costs will make it inherently more valuable. Having the capability to continue grow earnings even when sales volumes have plateaued are brought about with good internal process engineering and with strong cost accounting. You will then have all the elements needed to maintain a first-rate cost reduction program. Sometimes, a cost reduction strategy is simply being able to identify certain products that should be removed from the portfolio entirely - certain products that can be weeded out that pull the financials down.

4.) Distribution Channel Management:
The 4th characteristic that should be considered when valuing a company is the state of its distribution channels - identifying the appropriate channel is vital to the success of a business. Distribution channels for products have proliferated tremendously in the last 20 years. Each channel requires a unique distributor. For example, a regional sub-distributor who gets you into a grocery chain is not the same one who is going to get you into a pharmacy chain.

Since channels have become so distinct, that the ability to sell down a variety of different channels becomes extremely important and valuable. An Import distributor with the experience of profitably selling down a variety of channels should have more diversity in revenue options and expansion options, making them capable to more quickly and profitability grow their early stage brands. However, not all channels are good for all products. Companies should figure out which of their products can go down which of the channels.

5.) International Presence:
The final factor to consider is a company’s international presence. A clear advantage in enabling rapid development is the capability to take basic brands and product concepts from your established market and to introduce them in different geographic market. This will also allow you to possibly source other exciting new products from different countries and introducing them to your established market. Many import distributors are exclusively based in Quebec or Canada. If your mid-sized company has an international presence beyond those borders, it will be valued at a higher multiple. However, another benefit to international presence is the ability to create distribution partnerships which can be a valuable source of additional revenue. Approaching smaller companies in a different market and allowing them to consider piggybacking on your distribution channels, and vice versa could prove to be a very valuable model.

Regardless of the specific products, an Import distributor that is able to address these 5 strategic areas will be in a strong position to grow and develop, and become more valuable.

For more information contact:
Stephen Reisler, CM&AA
Consultant

Tel: 514-842-3911 ext 228

Email: