How To Position Your Company To Sell For An Above-Market Price
Despite ready access to information on how much companies should sell for and how much they do sell for on average, why is it that some companies sell for above — sometimes even far above — commonly accepted ballparks or market price? Why do some companies command a higher multiple compared to others?
How much should a business sell for?
Whenever a business owner is at the point where they’re considering the sale of their business, they’re going to do some homework. They will research the marketplace, talk to advisors, and interview investment bankers to get some sense of what the market is like for their type of business.
They’ll soon learn that there is a range that is typically based on a multiple of EBITDA (earnings before interest, taxes, depreciation, and amortization) to provide a ballpark of how much their business might sell for. That range varies depending on the industry and type of business.
But those are averages, and nobody wants to be average.
Nail the basics.
Moving beyond average first requires nailing the basics. The fundamental building blocks of your business must be strong before you take it to market. Here are some of the essential key questions that need good answers.
Beyond these questions, what can you do to command an optimum price when it’s time to sell your company?
Position your company for an above-average price.
There are several ways to position a business to sell for an above-market price. A few of those include:
Identify buyers who can leverage your assets and personnel. Look for companies that provide cross-selling opportunities or that fill a strategic void. Remember that selling a business isn't only about the financial aspects; it's also about the people. Make an effort to start building relationships with these potential strategic buyers now, even if you are years away from your planned exit.
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Most sophisticated strategic and financial buyers seek opportunities where they can realize returns between 20% and 40% on their capital. A buyer may be willing to pay you an above-market price and still realize their desired rate of return if they believe their investment and resources will propel growth.
Develop growth plans for your company. You may explore ways to grow within your niches and with your client/customer base, as well as horizontal growth across new markets. Consider assessing if a “buy and build strategy” with strategic acquisitions will contribute to building enterprise value. If you are successful with an acquisition, you may be able to convince a buyer that additional acquisitions with their money will be lucrative.
If your company has achieved a certain size and you have a vision for growth, you may be positioned to attract interest from financial sponsors (private equity groups or family offices) that provide the opportunity for two liquidity events. The financial sponsor may buy your company for cash and rollover equity in the platform formed by your company. The first liquidity event happens at the time of sale when you get cash for a percentage of your equity. The second happens when the platform is sold in the future and your rollover equity converts to cash. If you go this route, it’s important to look for the right financial sponsor partner that has the experience, resources, and shared vision to create enhanced enterprise value.
Tell your story.
Whether you’re selling to a strategic or financial buyer, it’s crucial to have a vision — a story to tell. And that story needs to resonate with the potential buyer so that they can see an obvious pathway to success and the value your business holds for them. Create and convey a vision that clearly demonstrates that you have a unique value proposition that cannot easily be replicated by others.
Finding the right partner to help you along the journey is also critically important. Work with an advisory team that can help you crystallize and present your value proposition, identify strategic buyers that are poised to make an above-market offer, create a competitive playing field, and compellingly tell your story throughout the M&A process.
Try to find an M&A advisory firm that has experience in your industry with companies your size. Spend time with potential firms (if possible, in-person) before you select the group who will represent you. Be sure your business practices and values align with theirs. Once you engage a group, schedule weekly video meetings for status updates.
Vision, a unique selling proposition, transferability, growth opportunities, and the right strategy can help you move the needle beyond the average ranges that define every other business that appears (on the surface) to be like yours to an above-market position that reflects what you can uniquely bring to the bargaining table.
About TobinLeff
TobinLeff is a leading M&A advisory and exit planning consulting firm, helping owners sell to strategic buyers and private equity groups. With 15 years of service, TobinLeff’s team of senior advisors brings a wealth of Mergers & Acquisitions experience as former business owners, accountants, attorneys, and bankers dedicated to the mission of helping their clients maximize and monetize their life’s work. TobinLeff is the go-to resource for business owners looking for true partners in their exit planning journey.