What Actually Moves Your Company’s Valuation

Every leadership team wants a higher valuation. Fewer are clear on what actually drives one.

In boardrooms and executive offsites, conversations often drift toward tools, platforms, and “modernization.” New CRMs. New ERPs. New data stacks. New org charts. These investments feel tangible. They signal progress. They are easy to point to.

But valuation does not reward effort. It rewards outcomes.

This article separates signal from noise. It looks at what the data actually says about value creation, what changes reliably show up in higher multiples, and where companies routinely overspend with little return. The goal is not to argue against investment. It is to help leaders invest where it actually matters.

TL;DR

Valuation is driven by predictable factors: durable growth, margin quality, cash flow reliability, customer retention, and execution credibility. Research shows that tooling and large technology programs only increase valuation when they materially improve these fundamentals. Many high-cost initiatives do not. In some cases, bringing in outside expertise before a sale or acquisition can meaningfully increase value. In others, it is wasted spend. The difference is whether the change moves the metrics buyers actually price.

How Buyers Actually Value Companies

Despite different deal contexts, buyers tend to anchor on the same core drivers.

Growth rate and durabilityMargin level and margin trajectoryCash flow predictabilityCustomer concentration and retentionExecution risk

• McKinsey finds that companies with strong, consistent revenue growth and expanding margins command materially higher valuation multiples across industries (Source: McKinsey, Valuation and Value Creation, 2020).

• Bain similarly notes that predictable growth and margin quality explain the majority of multiple dispersion in private equity transactions (Source: Bain, Elements of Value Creation in PE, 2019).

Technology, process, and organizational changes only matter to the extent that they improve these fundamentals.

The Common Myth: More Tools Equal More Value

One of the most persistent myths is that modern tooling automatically increases valuation.

A new CRM. A new ERP. A sophisticated analytics stack.

These investments can support value creation. On their own, they do not create it.

• PwC reports that more than half of large technology transformations fail to deliver their expected business value (Source: PwC, Global Digital IQ Survey, 2021).

• BCG estimates that only about 30 percent of digital transformations deliver sustained performance improvement (Source: BCG, Flipping the Odds of Digital Transformation Success, 2020).

Buyers are not impressed by software licenses. They are impressed by results.

What Changes Actually Show Up in Valuation

The data is remarkably consistent about what works.

Revenue that is repeatable and defensible

Recurring revenue, high retention, and clear pricing discipline consistently command premium multiples.

• SaaS companies with net revenue retention above 120 percent trade at materially higher multiples than peers, even when growth rates are similar (Source: KeyBanc Capital Markets, SaaS Survey, 2022).

• In non-SaaS businesses, Bain finds that pricing discipline and mix management can drive EBITDA improvement more reliably than cost cutting (Source: Bain, Pricing as a Growth Lever, 2018).

A CRM only matters if it improves conversion, retention, or pricing realization. If it does not, buyers will discount it as noise.

Margin quality, not just margin level

Buyers care about how margins are generated.

McKinsey notes that companies with margins driven by structural advantages, pricing power, or operating discipline receive higher multiples than companies whose margins depend on one-time cuts or underinvestment (Source: McKinsey, Margin Expansion Playbook, 2019).

This is where operating models, performance management, and decision discipline matter more than tools.

Cash flow predictability

Valuation rewards confidence.

According to KPMG, businesses with predictable cash flow profiles and clear working capital management consistently outperform peers on valuation multiples (Source: KPMG, Value Creation and Cash Flow Discipline, 2020).

Sophisticated financial systems help only if they reduce volatility and improve forecasting accuracy. Otherwise, buyers will normalize the numbers and move on.

Execution credibility

This is the quiet driver most teams underestimate.

Buyers ask simple questions. Does management do what it says it will do. Are targets hit. Are explanations clear when they are not.

Bain research shows that companies with strong management credibility and consistent performance narratives close deals faster and at higher multiples (Source: Bain, The Management Factor in Valuation, 2017).

This is not about charisma. It is about discipline, metrics, and follow-through.

Real Examples of Value Creation That Buyers Reward

Pricing and mix discipline in industrials

McKinsey documents multiple industrial companies that increased EBITDA by 200 to 400 basis points through pricing discipline and product mix optimization without major capital investment (Source: McKinsey, Industrial Pricing Excellence, 2018).

The valuation impact came from margin quality and repeatability, not from new systems.

Operational focus in logistics and services

BCG highlights logistics and services firms that improved valuation by simplifying portfolios, reducing service complexity, and improving delivery reliability rather than expanding footprint or tooling (Source: BCG, Value Creation in Asset-Light Businesses, 2019).

Execution consistency mattered more than expansion.

Product and platform clarity in technology

In technology companies, Bain finds that clarity about product ownership and roadmap matters more to buyers than architectural elegance (Source: Bain, Due Diligence in Technology M&A, 2021).

Buyers want to know who owns outcomes, how fast teams can ship, and whether roadmap commitments are realistic.

When Big Investments Make Sense

There are cases where significant investment is justified.

When systems are actively blocking growth.When compliance or risk issues threaten deal viability.When fragmentation materially slows execution or inflates cost.

In these cases, targeted investment can reduce perceived risk and increase buyer confidence.

McKinsey notes that risk reduction initiatives that materially lower volatility or regulatory exposure can have outsized valuation impact relative to their cost (Source: McKinsey, Managing Risk for Value Creation, 2020).

The key is focus. Broad modernization rarely pays off before a sale. Targeted fixes sometimes do.

When They Do Not

Large, unfocused programs launched close to a sale often hurt valuation.

Buyers discount unfinished transformations. They normalize promised benefits. They worry about disruption risk.

According to EY, buyers routinely haircut forecasted synergies and transformation benefits unless results are already visible in the numbers (Source: EY, How Buyers Assess Transformation Claims, 2019).

In these cases, the spend reduces cash without increasing confidence.

Where Consulting Can Help, and Where It Cannot

Consulting creates value when it accelerates clarity, focus, and execution.

It helps when:

• Priorities are unclear

• Metrics do not reflect reality

• Execution is fragmented

• Leadership needs a credible performance narrative

It does not help when:

• The problem is simply lack of effort

• Leadership is unwilling to make tradeoffs

• There is no time for results to show up in metrics

Bain notes that advisory work tied directly to measurable operational improvements delivers significantly higher ROI than broad strategy work untethered from execution (Source: Bain, Measuring the ROI of Consulting, 2018).

Sometimes the right answer is to invest. Sometimes it is to stop.

A Simple Test for Any Proposed Investment

Before spending meaningfully, ask three questions.

• Will this change improve revenue durability, margin quality, or cash flow predictability within the deal horizon?

• Will the improvement be visible in the metrics buyers care about?

• Will we have proof, not plans, before diligence begins?

If the answer is no, the investment may still be worthwhile. It is unlikely to increase valuation.

Key Takeaways

Valuation rewards outcomes, not activity. Tools only matter if they change the numbers buyers price. Targeted improvements beat broad transformations close to a sale. Consulting helps when it accelerates measurable results, not when it adds theater.

The goal is not to look sophisticated. The goal is to be valuable.

How Can RLK Help?

RLK Consulting helps leadership teams identify which changes will actually show up in valuation, focus effort where it matters, and avoid spending that will not pay back in a transaction.

Sometimes the right move is to invest. Sometimes the right move is to stop. Knowing the difference is where value is created.

Sources

• McKinsey & Company, Valuation and Value Creation (2020)

• McKinsey & Company, Margin Expansion Playbook (2019)

• McKinsey & Company, Industrial Pricing Excellence (2018)

• McKinsey & Company, Managing Risk for Value Creation (2020)

• Bain & Company, Elements of Value Creation in Private Equity (2019)

• Bain & Company, Pricing as a Growth Lever (2018)

• Bain & Company, The Management Factor in Valuation (2017)

• Bain & Company, Due Diligence in Technology M&A (2021)

• Bain & Company, Measuring the ROI of Consulting (2018)

• Boston Consulting Group, Flipping the Odds of Digital Transformation Success (2020)

• Boston Consulting Group, Value Creation in Asset-Light Businesses (2019)

• PwC, Global Digital IQ Survey (2021)

• EY, How Buyers Assess Transformation Claims (2019)

• KPMG, Value Creation and Cash Flow Discipline (2020)

• KeyBanc Capital Markets, SaaS Survey (2022)