Internet M&A: Why do you think your company is worth that valuation?

I hate that question during conference calls. Why? … because conference calls should be focused on the educational process ... and valuation debates tend to derail this process.

When a business buyer is looking at a target company, one of their first questions is “What is your asking price?”. Of course, this is a fair and logical question. However, when some buyers hear the answer, they will go right back to the seller and ask them “Why do you think your company is worth that valuation?”.

Stop and think …

Is any business buyer actually looking for valuation advice from the business seller? Absolutely not … rather they are looking to get the seller on the defensive to then beat them up on their valuation logic. 

·     What ends up happening is, the seller becomes defensive then irritated. 

·     What never happens is, the seller agrees with the buyer during the valuation debate then lowers their asking price.

Business buyers should debate the company valution with the seller's M&A consultant or broker outside of conference calls.

Many buyers have not learned that other than a business owner’s family, their business is the most important thing in their life … and it’s very personal to them. Business buyers should realize this and discuss even the weaknesses of the seller’s company with respect and understanding.

Back to the common question … “Why do you think your business is worth that valuation?”

One diplomatic and accurate answer for the hard core business buyer could be: (of course saying this with a big smile and a happy voice)

“My business is a work of art. It’s worth what I think it’s worth. If this amount is too far from your valuation, I understand. If there is another aspect of the company you need further clarity on let me know.”

The goal of any answer is to keep the situation happy and turn the buyer’s focus back towards education, due diligence and preparing their actual offer in writing … and away from trying to prove who is the superior “on the spot” company valuation debater. 

In closing, most of the time the seller is NOT applying for a post-closing job with the buyer, rather they are just selling their company and the divestiture process is about professional documentation and education … not about being a clever fast talker.

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FYI, I send out a “Weekly Internet M&A Deal List”. This list contains between 30-40 deals. Each week it is sent out to 1,000s of Internet executives and financial buyers around the world. If you would like to see the latest copy, message me. If you would like to be added to the auto weekly version, you can either sign up on my web site or message me and I will add you.

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