70% of the value of a company lies in finding the suitable buyer
Many business owners will sell to the first buyer without taking into account other potential buyers. When selling your business it is important to ask questions specific questions. Is this the best buyer? Is he the one that can pay the most for the business?
Business owners often rely on a lawyer or an auditor to look for potential buyers and investors without considering 70% of the deal value lies in finding the suitable buyer. Hence, it is essential to find a buyer which is the best strategic fit and will pay the most.
To maximize the value of your company, you or the advisors must engage in a rigorous search process to find buyers or investors who can deliver the highest synergies for your business and those with the strongest financial profile.
The best buyer is not always the most obvious buyer or the closest one. The best counterparty for your company could be for example from a different sector located on the other side of the world.
Once, in ONEtoONE Corporate Finance we advised during the sale of a company that generated ten million euros each year, the company had two million euros in operating income (EBITDA) and six million in financial debt. We found a buyer in the same country (Spain) who´s company earned double of what this other company earned, but had accumulated a lot of debt. He was interested in buying the company, offering to buy it for six times the operative income, which meant that discounting the company´s debt; the potential buyer was willing to pay six million euros for the selling company. As the potential buyer did not have enough capital up front to pay for the company, he offered to pay two million at the time of the sale and the rest of the four million over the upcoming years.
We found a German buyer with a turnover of double the selling´s company, but contrary to the Spanish buyer, he did have financial capability. Given that it was an international operation and the German company did not have a presence in Spain, he offered to pay a higher price for the company. He offered to pay seven times the operating income, (that after subtracting debt, it valued the company at eight million euros) and also planned to pay for the company in deferred payments, paying six million at the start and the rest of the two million one each year.
We attracted a third buyer, a Canadian company with a turnover of more than a billion euros, from which he earned a total of hundred million and with no debt. He saw many synergies with our client and he did not have any presence in Europe. He had a lot of interest in the company and offered to pay ten times the operating income of the company that after subtracting the debt, it left the buying price set at fourteen million.
If we were to have sold it to the Spanish firm, the firm could have come up with excuses not to repay the remaining four million euros and could have paid for the company two million. The Canadian company paid seven times more.
For your company, you should look for a buyer that gives you synergies and has a lot of cash at hand, without minding so much about its location. If the buyer can perceive the true added value for the company, they will be willing to pay more for your business.
Written by Enrique Quemada, president of ONEtoONE Corporate Finance.