How to Ensure a Realistic Valuation for Your Business
If you have ever sold a home, you might be inclined to believe that selling a company is a similar process. Nothing could be further from the truth. An estate agent will set your selling price by reviewing comparable properties sold in your area when handling your 4-bedroom in suburbia. The same agent will then proceed to convince you to settle for less to secure a quick sale. However, there are no statistics to call upon when performing a business valuation, as no two businesses are remotely the same. Furthermore, declaring your asking price for all to see has always been a sure way to guarantee that you will never achieve it.
Allocating the sales function to a business broker may seem a better option. However, like estate agents, brokers often tend to be driven more by the prospect of some quick commission than a determination to procure the best deal for their clients. Also, they invariably lack the marketing and negotiating skills required to guarantee a sale based on a realistic yet achievable business valuation.
In practice, selling a company is a job for a specialist, a consultant who will have only the seller’s best interests at heart. The task requires extensive marketing and negotiating abilities uncalled for by estate agents and business brokers. More importantly, knowledge of market trends at home and abroad and contact with those companies in these markets who are seriously considering an acquisition or merger. In short, only a dedicated sell-side Merger and Acquisitions company can confidently promise to find a client willing to pay a price that accurately reflects your business valuation.
So, how does one assess the value of a company? A broker will operate by taking your price-to-earnings ratio and multiplying it by your post-tax profits to arrive at a nominal sum. While that number may be informative, the only true value of your company is what the right acquirer is willing to pay for it. In practice, acquiring or merging with a company could be the long-awaited strategy for the right purchaser to access new markets, and new customers or diversify its risk by acquiring your business. This could have a significant impact on your business value to them, which can often be very different from the theoretical ‘desktop’ valuation most brokers and consultants perform.
While appointing a sell-side M&A specialist is a sensible option, business owners should not expect a quick result. In practice, the decision to sell should come well in advance of the hoped-for exit date. Selling your home may take no more than three to six months. But, when selling a company, it will be more realistic to plan on twelve to 24 months. After an initial discussion to determine your goals and desired exit strategy, your consultant will identify and contact qualified and motivated buyers.
The process will only be nearing completion after lengthy negotiations with each to agree on an optimal business valuation, cultural fit and business synergy.
As is true of most occupations, not all M&A specialists are equal. Deal Leaders International (DLI) is a sell-side service provider with a unique and proven effective approach that has concluded deals close to R1 billion for its clients during the last six months alone. Your future, your exit strategy and your true business valuation are DLI’s raison d’etre.