Can an outdated perception of a company affect its value?

A company can change fundamentally within just a few years. Its revenue mix, customers, services, areas of expertise, and even its entire business model may be completely different. However, the market’s perception of the company may not change at the same pace.

For a company pursuing growth, this is not simply a communications issue. Outdated perceptions can affect which tenders the company is invited to participate in, the talent it attracts, the partnerships it is offered, and ultimately whether it is recognised as an attractive acquisition target.

Companies change faster than their reputations

Imagine a software company that is still primarily known as a provider of a specific system. Over the years, however, its business has expanded into data, AI solutions, managed services, and the development of business-critical systems for its customers. An increasing share of its revenue now comes from long-term customer relationships, and the company’s transformation from a product provider into a strategic technology partner is clear to all within the organisation. Yet the market continues to place the company in its old category.

The consequences can be significant. For example, a potential customer may not know to request a proposal for a service they do not know exists. A specialist may not recognise the company as an attractive employer. A potential buyer may not think to take an interest in the company.

The latter can be costly. The company may be left out of relevant discussions simply because people are unaware of its true potential and the opportunities available.

The purpose of a growth story is not to make a company seem more interesting than it is. Rather, it highlights what has already happened within the business and where the company is heading.

A strong growth story helps external audiences understand what has changed within the company, why it matters to customers and what opportunities the change creates. If a company has expanded through acquisitions, simply listing the acquired businesses alone does not explain the type of business that has been created. Similarly, if a new service area already accounts for a significant share of the business, this should be visible somewhere beyond the reporting tables.

A strong growth story also prompts questions that people within the company may not be accustomed to asking. If the answers are difficult to find, a brochure will not solve the problem.

Preparing for an M&A should begin well before the process itself

As a natural part of doing business, a company should systematically make its position, expertise and direction of growth visible. Customer projects demonstrate expertise. Management perspectives shed light on changes in the market. Recruitment communicates the kind of future the company is building. New services, partnerships and investments provide external audiences with concrete reasons to update their perception of the company.

From an M&A perspective, preparation should ideally begin years rather than months in advance. A company’s strategic position, reputation and credibility cannot be built on the same timeline as its sales materials.

A buyer’s first impression is formed long before negotiations begin

In an M&A process, a buyer will naturally have access to far more information than someone visiting the company’s website. Financial figures, contracts and the details of the business will all be examined. But the first impression is formed much earlier.

Let’s imagine two companies of a similar size with broadly comparable financials. With one, it is easy to understand why customers choose it, how its business has evolved and where its next growth opportunities lie. Of the other, people mainly know its traditional line of business, the name of its founder and a handful of unrelated news stories.

The latter may have just as much potential as a growth company. Understanding its value, however, requires more work, more explanation and greater trust in information and insights that an external audience has not previously had.

A company’s value in an acquisition is not determined by its level of recognition. It is the business itself that matters. However, if a potential buyer only becomes aware of a company’s true strengths, competitive position and growth opportunities during the process, this understanding comes too late.

Management should ask itself well in advance: if a potential customer, employee, investor or buyer were to look at our company today, would they understand the current value of our business and our plans for the future?

If the answer is unclear, this does not necessarily mean that the company needs to do more. It may simply need to make its current activities more visible.

IR Partners helps companies build their reputation and company awareness, sharpen their growth story and make the strengths of their business clear and understandable to all key stakeholders. In M&A and other corporate transactions, we support management from preparation and announcement through to post-deal communications.

Get in touch to discuss how we could support your company in developing its messaging, corporate story and awareness.