Owners or shareholders of closely held businesses often ask the professionals at Beacon this question.
As we evaluate a situation, we often ask many other questions ourselves, starting with “To whom?” -as each buyer comes with PROS and CONS:
- A large corporation with significant resources to pay, but also the resources to recreate a similar operation on its own without having to pay a premium for an existing business? Intellectual property such as patents, often play a key role in these transactions.
- A Private Equity buyer with a strong balance sheet looking for an investment opportunity? Private equity buyers tend to be looking for a perfect fit. When they find it, they are willing to snap it up, however without the right fit they tend to move on quickly. There are over 5000 PE firms looking for a business which meets their investment objectives for platform and add-on acquisitions. The business with a demonstrable ability to grow quickly tends to attract many Private Equity buyers. (If your business + their money = high growth, then private equity is likely to be interested).
- A competitor? They should be a good fit and highly profitable post merger, but the competitor also knows the all the challenges in the industry and does not need or may not want much of your equipment and staff. The key is to find not just any competitor, but the right competitor who has a grander vision and for whom you fill a need in their larger plan.
- What about an entrepreneur, a buyer who will likely keep your culture and your staff, is willing to pay you a great deal of cash at closing, maybe even the most cash at closing, but may need more support from you post closing?
All these situations need to be considered, and then we attempt to answer your question straightforward and honestly based on three decades of experience.
“What would an unrelated, third party buyer be willing to pay for this business?”
The answers to all of these questions helps a shareholder understand where their business fits in the marketplace and how a buyer would perceive their business compared to others.
After spending time with the owner to gain an understanding of the business and its market as well as gathering financial information, the professionals at Beacon utilize an array of resources and relationships to determine the market value of the company.
Market value is more than the multiple of earnings. Well done analysis also includes analyzing similar deals to determine the structure of the deal, including how much cash was paid at closing, whether the seller assumed debt, retained stock or participated in an earn out. The analysis provides an understanding of the difference between the purchase of a company that has significant assets such as equipment and one where the largest asset is goodwill.
Beacon offers the following services to help business owners understand their company’s market value:
The Beacon Pothole Analysis™ reviews 36 different aspects of a business to determine which areas can be improved by management prior to the sale to reduce perceived risk in order to maximize the market value of the company. Click here for more information on Potholes and to see the 36 areas reviewed.
Beacon provides an array of services to help owners obtain a better understanding of the value of their company.
Core Value Score
A diagnostic tool which allows the client and advisor to work through questions covering multiple aspects of the company’s performance and management. The resulting score, provides the starting point for a conversation about how “sellable” the company is in the open market.
An in depth review of company financials, management, markets and operations to provide a range of value and potential deal structures for the business owners and shareholders. The conclusions are delivered in a letter format and are typically used by owners not in need of a formal appraisal but looking to understand the market value of their business.
Certified Business Appraisal
A Certified Business Appraisal includes research and analysis similar to the Market Analysis, but inclusive of all of the reporting requirements of a NACVA appraisal. These formal reports are used for estate planning, divorce, buy sell agreements and shareholder disagreements.
The highest value comes from buyers who best understand the business being sold. Being able to clearly explain to a buyer what you do, how you do it and who you do it for can significantly improve the quality of buyers you meet and reduce the number of buyers who are a poor fit for your business. A well written story about your business will make buyers and their advisors more comfortable with their interest in your business, see the opportunity to grow the business and to be successful. These are the keys to receiving quality offers. Beacon uses its experience in drafting an offering memorandum about your business to enhance and clairify your story using key terms, phrases and details we know will help make buyer confortable.
To better understand the market value of your business and which buyer group would be most attracted to your business contact Beacon today.
Recently Published,The Art of Business Value Enhancement by David Humphrey is a guide for Business Owners to Polish, Protect & Profit from the value in their business. To request your complimentary copy, click here.