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When dealing with only one buyer, he is right. When there are multiple suitors, competitive market forces are allowed to function properly and true business value is established. I am often asked by a business owner what he should do when he is approached by an unsolicited offer. As a general rule, these buyers are only interested if they can get a bargain and limit the process to themselves as the only buyer.
First question I would ask the potential seller is, do you know the value of your business? If he says yes, my next question would be, how do you know? Have you had a recent valuation? Are you familiar with other comparable transactions? Are there rule of thumb valuation multiples for your business? Are you aware of any strategic value components your company may possess? Are you familiar with a discounted cash flow and terminal value approach to valuation?
If he feels comfortable with the value of his business, would this value be adequate for his financial future? What if a buyer was willing to meet his value criteria, but the seller were asked to take some as an earn out or some as a seller note? What offer would induce this owner to change his exit plans, assuming he was not already for sale?
In most cases, the buyer is very aware of the market and the owner is not nearly as well informed.
Dave Kauppi is a Merger and Acquisition Advisor with MidMarket Capital Advisors, LLC. MMCA is a private investment banking and business broker firm specializing in providing corporate finance and business intermediary services to entrepreneurs and middle market corporate clients in a variety of industries. The firm counsels clients in the areas of M&A and divestiture, family business succession planning, valuations, minority interest shareholder sales, business sales and business acquisition. Dave is a Certified Business Intermediary (CBI), a licensed business broker, and a member of IBBA (International Business Brokers Association) and the MBBI ( Midwest Business Brokers and Intermediaries). Contact Dave Kauppi at (630) 325-0123, email davekauppi@midmarkcap.com or visit our Web page www.midmarkcap.com.
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