How can an Equity Story increase your valuation?

An equity story is the financial narrative that shapes how investors value a business. As markets shift and higher-valued sectors emerge, it must be repositioned to keep a company in the right sector with a credible growth story. It is critical whenever capital is being raised or value is realised.

• 1How can I increase my company’s valuation?
• 2When should I reposition my equity story?
• 3Why is my company undervalued?
• 4How does an equity story work?
• 5How do I build an equity story?

Key Takeaways

• An equity story determines how investors value a business by framing its sector, comparables and growth trajectory. A weak or dated equity story leaves a company in a lower-valued bucket than it deserves.

• An equity story turns business strategy into a financial narrative built on frameworks designed to trigger investment decisions.

• A valuation multiple is the product of a sector multiple and a growth multiple, and a strong equity story lifts both. Accellency’s 8-step approach has unlocked higher valuations for executive management, investor relations and private equity firms.

“An equity story turns business strategy into a financial narrative built on frameworks designed to trigger investment decisions.” Romain Richemont, Managing Partner, Accellency

1How can I increase my company’s valuation?

The most direct way to raise a valuation is to reposition the equity story. Valuation does not simply follow performance: two companies with near-identical numbers can be valued very differently, because investors price what they understand a business to be, its sector, comparables and growth direction. Placing the company in the right sector, with a credible growth path, lifts the valuation its fundamentals already support. This matters most when a company’s value is about to be tested by investors when: preparing an IPO, trading on listed markets or exiting a private equity portfolio company.

2When should I reposition my equity story?

Reposition well before valuation is tested: investors do not re-rate overnight, and a new story must be defined, tested with the market and communicated before it shows in the valuation. Leaving it until a transaction is imminent means the work cannot land in time to move the price. The right lead time depends on the situation.

Private Equity Exit

• Strategic positioning: 12 to 18 months before exit.
• Delivery and execution of the equity story: 2 months before the sales process.

IPO

• Strategic positioning: 12 to 24 months before IPO.
• Live investor relations advisory: 3 to 6 months before IPO.

Listed Companies

• IR advisory to consolidate the IPO equity story: first year of listing.
• Event-driven new equity story: for a strategic shift, new management or a large acquisition.

3Why is my company undervalued?

A company is often undervalued because it can grow well and hold solid margins yet still trade at a lower multiple than its results deserve. When the equity story is dated, unclear or tied to the wrong sector, the company stays in a lower-valued bucket than it deserves. There are five common signs that a business is leaving value on the table:

• You believe your technology drives your growth. In technology businesses especially, the belief that a product is so strong it “sells itself” usually means the equity story is underbuilt, with client benefits and market tailwinds left unspoken.
• You are outperforming your core markets. A cue to move up into a higher-growth universe and reset your comparables, lifting the multiple rather than staying anchored to a historic peer set.
• Your sector is undergoing structural change. A new story must leverage today’s disruptive forces to position the company among those driving the change, not those left behind.
• You have not challenged your equity story in two years. Valuation is driven by the future, not the track record, so reset the equity story every two years, whether you missed, met or exceeded your goals.
• You are accelerating your digital transformation. Companies deep in transformation describe the journey when they should describe the destination.

Any one is reason to revisit the story; several together strongly suggest the company is undervalued.

4How does an equity story work?

An equity story sets the framework investors use to value a business. It is the cornerstone of valuation, shaping how investors assess both a company’s sector positioning (the sector multiple) and its growth forecasts (the growth multiple):

Valuation multiple  =  sector multiple  ×  growth multiple

A strong equity story lifts the sector multiple by repositioning the business among higher-rated comparables, rather than accepting its historic bucket as fixed, with no change to the underlying operations.

The market has rewarded this repeatedly:

• Snowflake reached a record valuation in September 2020 upon IPO on the NYSE at c. 25x Sales Multiple, by presenting itself as cloud data storage rather than “datacentres as infrastructure”, riding the cloud momentum fuelled by GAFAM.
• Royal Philips spun off its lighting business and repositioned as a healthtech leader in 2016 and was reclassified from industrials to healthcare within the STOXX Europe 600 index and FTSE Group’s ICB.

5How do I build an equity story?

Accellency’s 8-step approach, refined over two decades in investor relations and capital markets, identifies the triggers that move an investment decision:

1. Analogy. Choose your comparables.
2. Differentiation. Define what sets the business apart from your comparables.
3. Market Dynamics. Identify tailwinds and trends.
4. Client Benefits. Focus on why clients buy, as opposed to how solutions are built.
5. Growth Catalysts. Identify what will drive your growth from year 5 to year 10.
6. Business Units. Structure your organisation to reflect strategy, not legacy.
7. Business Narrative. Set out an aspirational description of your business.
8. Investment Highlights. Outline the top reasons to invest in your business.

Where to start depends on your role:

Private equity firms: identify transactions 18 months ahead, hire experts to audit the story as management sees it, and roll out the redesigned narrative.

Executive management: run a workshop to define strategy, hire experts to translate it into a financial narrative, and roll out the new story inside and out.

Investor relations: survey investors on current perception, run a workshop with management to redesign the story, and hold a Capital Markets Day.