Increasing Enterprise Value by Mitigating Multiple Risk

Increasing Enterprise Value by Mitigating Multiple Risk

By: Jim Gitney   |     June 6, 2018

I was recently asked by an executive about how he should manage the division he just took over as its president. I told him to “Manage it like you are going to sell it – Optimize enterprise value and mitigate multiple risk”.  The executive gave a strange look and asked why that mattered.

Many leaders think that their only measure of success is the P&L–the amount of operating profit the company generated. Those who believe that are missing a significant part of the picture. While operating profit is an important part of value creation, it is a result of doing many other things that impact value and reduce risk to the owners. The owners of a business (public corporation, PE group, privately held, non-profit, etc.) want to realize maximum value for the asset they own. Therefore, the measure of success for every leader should be value creation.

Maximizing enterprise value is about two primary objectives:

  1. Maximizing earnings before interest, taxes, depreciation and amortization (EBITDA)
  2. Mitigating multiple risk

Most of us know what maximizing EBITDA is about and can come up with ways to significantly improve it through cost takeout strategies, process redesign through Value Stream Mapping or continuous improvement activities such as Lean Business/Manufacturing programs. But, what is this mitigating multiple risk thing? Isn’t that only for private equity firms?

Businesses are typically valued as a multiple of EBITDA. For every perceived risk a potential buyer or owner identifies, the multiple is reduced and so is the company’s enterprise value. Mitigating multiple risk is all about managing the key factors that impact the sustainability of strong business performance and increasing a company’s value. Some of those key factors include but aren’t limited to:

  1. Strategy
  3. Quality of earnings
  4. Growth
  5. Customer concentration
  6. Market share and market potential
  7. Competitive threats and barriers to entry
  8. Intellectual property
  9. Product pipeline and innovation
  10. Profitability by product line
  11. Customer profitability
  12. Management team quality and Succession planning
  13. Robust business systems and financial management

There are many more variables than these that affect the enterprise value of a business, but I think you get the picture. All leaders should approach their business as if they were the owners and focus on enterprise value creation as a primary objective. Put another way, a company that increases EBITDA from $1M – $2M with a multiple of 3 yields an enterprise value to $6M, an improvement of $3M.  If the same company were to realize the same improvement in EBITDA while also reducing risk achieving a multiple of 5, the enterprise value would be $10M or 66% higher: a very big jump.  With that vision, the other things will fall in place. Without that vision, the business’s enterprise value will be sub-optimized.

At Group50, we understand mitigating multiple risk and increasing enterprise value by driving profitability, executing to strategy, and managing through major change efforts.  We have helped companies maximize their enterprise value as executives, project managers, interim leaders and advisers. If you want to jump start the process to maximizing value and mitigating multiple risk, check out our Business Assessment, and our programs for Continuous Improvement, Market Effectiveness and Strategic Execution.

To talk to a Group50 expert on optimizing enterprise value and mitigating multiple risk, call us at (909) 949-9083, drop us a line at, or request more information here.


About the Author:  Jim Gitney is the CEO and Founder of Group50® Consulting, founded in 2004, a consulting firm focused on working with middle market companies to significantly improve their productivity by leveraging peopleprocess and technology as part of a company’s strategic plan.  Restructuring and Cost Takeout in manufacturing are Group50 specialties.  Group50 consists of consultants who have spent their careers in corporate America learning how to optimize businesses.  We specialize in working with senior leaders to develop and implement programs that leverage people, process and technology to optimize business performance.

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This entry was posted in Business Transformation, Strategy 5.0, Value stream mapping, on June 6, 2018

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