One thing I do consistently for my clients is put myself in their buyer’s shoes. If I say, “This doesn’t stack up” or “I can’t see a business case coming together for this purchase,” then it may not make any sense to move forward with the deal.
There are two numbers that will always be important when it comes to getting the most money for your business — the first one is the minimum number the vendor will accept for their business, and the second one is the value that the buyer will be able to extract from buying the business.
The idea that I share with my clients is a very simple one — you’re looking for one plus one equals three or more! You put the two businesses together, and then you’ve got to get more than just the sum of them. This is deal synergy.
You don’t have a sale if the value to the buyer is lower than the vendor will accept as a minimum. If there’s a gap between the buyer’s value and the minimum price the vendor will accept, we can arrange a sale. This gap can vary between different purchasers as they have different opportunities to exploit the vendor’s capability.
So, how much of the gap is the vendor going to capture and how much will the buyer get to keep? Buyers will always want to pay the minimum amount that the vendor will accept, and the vendor would love to benefit from all the added value that the buyer will generate.
More times than not, the buyer pays the minimum for the vendor. The times that the vendor gets everything on the upside is very rare. It does sometimes happen with some high-tech companies — you can occasionally get an astronomical sum of money for that — but by and large it doesn’t happen.
So, you really want to identify the business leverage — or strategic value — that your business has for specific buyers. This means looking at your underlying assets and/or capabilities that a larger corporation can leverage through their extended size and reach so they can create step changes in revenues and profits.
Often, these are businesses based on patents, brands, copyright, trademarks and deep expertise. It would be nice if you could just forecast what the buyer can do with your business and price it at that!
To gain the know-how for a strategic sale, you need to understand how buyers see value in the business they are buying. Most business owners know very little about how to view their business from a strategic buyer’s perspective. The valuations they have contended with in running a business tend to be a continuing, going-concern valuation — such as sourcing finances from external investors or banks or determining how the business is tracking.
Each of these valuations is quite different from the question, “How much will a buyer pay to acquire my business?”
Identifying the right buyers, those who can leverage the business, is critical when it
comes to selling. The best buyers are the ones that have the experience, willingness, capacity and capability to exploit the potential in your business.
When you look at selling your business from the buyer’s perspective and do your best to understand what they might get out of the deal that makes it worthwhile, you’ll maximise the sales price.