To sell a business for its maximum value create as many viable options as possible. The core of this perspective is that a successful sale for maximum value is to establish the apparent and hidden value today, as well as the future value of business. Business value is not determined by the balance sheet alone; rather choices which give business sellers and acquirers a chance to see the true value in a business.
Usually, businesses are sold on a one-to-one basis. Once a non binding term sheet has been signed companies are bound by an exclusivity period when the business owner starts negotiations, meaning that the owner is prevented from approaching other buyers.
An alternative process is to to value the business is based on the notion of creating choice, and finding a number of different buyers for the the business. Based on the principle that every potential buyer would want to do different things with the newly acquired business, as each sees a different type and magnitude of value in the acquisition. One acquirer may see many strategic synergies in terms of cross-selling into different customers’ databases. Another acquirer may just want to take over the business as is, and intend to run it with minimal future growth. An international acquirer might be seeking a ready-made distribution network.
There is no one value for a business; it really depends on the objectives of the buyer. The key is to discover those goals through negotiation and discussion, and to crystallize what those objectives mean to the potential buyers in terms of the actual value delivered post acquisition, in real financial terms. In other words, value needs to be based on what that business is going to look like in the future under the new ownership. And only through competition do you get people to actually pay what that true value would be for them.
The process should ideally begin with a research program to identify as many potential local and international acquirers as possible. Through a range of research and analysis procedures, this list can be whittled down to a final list, ideally, of four to six serious potential buyers. Your advisers should be talking to potential buyers for a number of months, and should be able to effectively allow them to realize that they have to pay true value for buying the business, as opposed to getting away with the cheapest possible price, independent of what that business is really worth to them.
One San Diego boutique, Cabrillo Advisors, serves as an excellent example of the above principles to make sure the best price, terms and conditions to maximize value:
- Identify and attract a more and diverse buyer universe leading to more competition and a full price.
- Research and preparation to find and resolve potential issues.
- Negotiate more creatively/aggressively through an intermediary, so as not to damage relationship with acquirer (with whom management might work post-sale).
- Leverage experienced professionals dedicated to the M&A process full-time, with significant track records of getting deals done.
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