by John Howe
Businesses we sell typically go to market without a preset asking price.
Why? Value is really in the eye of the buyer. And that can vary widely, depending on who they are and what they have in mind.
Lets explore this.
During our process, we will set an internal benchmark price with the owner, but we won't publish or discuss your value expectations with potential buyers. What we will do is provide a detailed packet of information so they can evaluate the opportunity effectively.
Why? Different buyers see different value. We recently discussed a case with a fellow founding member of Cornerstone International M&A Alliance that illustrates the point effectively.
The business received four indications of interest (IOIs). An IOI is the earliest stage of the acquisition process in which would-be buyers submit their target acquisition price and general conditions for completing a deal. At this point, buyers have read a thorough prospectus on your company, but they haven't visited your business site or done any significant due diligence.
After our colleague vetted the original round of IOIs, he set up conference calls with the owner and potential buyers. At that stage, one of the buyers dropped out. While the acquisition made sense synergistically, it looked like culture issues could be an obstacle.
The other three buyers moved on and submitted letters of intent (LOIs). An LOI is a more formal offer, including a firm acquisition price and deal structure. Two of these offers came in near the $10 million mark while the third came in closer to $20 million!
Three different buyers saw the exact same information, so why did one offer come in so much higher? In most cases, it comes down to motivation, synergies, and the buyer's growth strategy.
Sometimes, a buyer sees significant cost savings by rolling your business into theirs. If they can add your revenue without adding all your costs, your business will be worth more to them than a buyer without those same advantages.
Other times, buyers are motivated to grow. They may have excess capital sitting on the balance sheet and buying a business will provide better returns. Or they may be a mid-size player in a consolidating market who knows they either need to eat or be eaten.
Maybe you have solid market share in the buyer's next growth target, you have a lock on a coveted blue-chip customer, the buyer can better increase sales or reduce your cost of doing business, etc., etc.
At the end of the day, value is relative. When selling, you want buyers to determine how much value your business has to them. The buyer who will pay the most is the one who can leverage your business to the greatest advantage.
To get the best price, you need a structured sale process that brings all logical, qualified buyers to the table at the same time. That's how you get the market to truly set your value.
"The entire process went smoothly and professionally. The BTS team kept me fully informed at every step. They worked hard and were effective in bringing the deal home."
"Skip and I continue to be grateful for all you have done to make the sale of Pure Flow come to fruition."
"BTS’s level of expertise in the process and close attention to detail enabled us to successfully navigate the deal."
"These types of transactions are often long and complicated and I doubt it could have been successfully completed without your close ongoing involvement."
"The outside objective point of view that you have brought us has been invaluable as we prepare for the rapid growth."
"John then found the right buyer and coordinated a seamless transition—he doesn’t miss a single detail."
"John immediately identified our strengths and experiences and discussed a business that ultimately was more in line with our goals."
"The BTS team came in, evaluated everything in a professional and thankfully non-threatening manner."
Key Insights from Sale of Globe Manufacturing
Excellent program Tuesday broke down details about the sale of Globe Manufacturing, a 4th generation family owned business based in New Hampshire.
A Better Option to the Unsolicited Offer
The call came out of the blue. It was a group interested in buying the business. They needed information. Your company was a perfect fit. Just send us some details and we will be in touch.
M&A Advisor Tip - How to Answer Questions
As you start the sale process, you may be holding offsite meetings and fielding confidential phone calls. Even a subtle shift in activity can cause savvy employees to wonder, ‘What's up?’.
What’s the Best Option for my Business?
Business owners have a wide variety of options open to them. A group of business owners joined us at our fall master class that focused on transition options and the experience.
M&A Advisor Tip - When You Can't Fix Customer Concentration Issues
As a general rule, no one customer should account for more than 20-25% of your company revenue.
Transition to Freedom explores business transition experiences
Hats off to MJ Schoer for sharing his fascinating multi-level business transition story to a well attended meeting jointly presented by Business Transition Strategies and mPower Advisors.
Four buyers, three values, one winner
Businesses we sell typically go to market without a preset asking price. Why? Value is really in the eye of the buyer. And that can vary widely, depending on who they are and what they have in mind.
Strategies for growth or time to sell?
Has your business gotten to the point where it could grow but you’re not certain about taking the risk?
Timing is Everything-Capitalize on Opportunies
Timing and value are both important An old proverb comes to mind this time of year. “Make hay while the sun shines.” Take advantage of clear weather. Capitalize on opportunities. Avoid the rain.
M&A Trend Impacts Smaller Companies Too
Lower mid-market company sales are often influenced by larger M&A deal flow. A recent article on the Forbes website illustrates this point. Here’s why.
Precision Machining Company
Initially, liquidation was a serious consideration. It would offer a quick exit but would hurt loyal employees and disrupt the customers who had come to rely on its quality production.
Green Product Company
Our client owners could dig in for the long haul…However, this would take five years or more. Owners simply lacked the horsepower to do it.
Water Purification Company and Young Buyers
Owners decided they wanted to retire. They also wanted to be fair to the staff who had been loyal to them. Could the company be sold, the staff retained and the facility remain in use?
Magnetics Company with High Profile Customers
(T)he manufacturer would need to focus on growing EBITDA to capture interest from major strategic buyers and achieve a higher multiple of earnings.