Many business executives wait for a buyer to show up someday, never stopping to think about the flawed logic of accepting an offer and selling the company to whoever gets there first. Is this the best buyer? Is this the one who can pay the most? It will be a remarkable coincidence if it is. It is much more likely that it is not. Also, since they are the only buyers, their bargaining power is far superior to yours.
The importance of research
If you want to maximize sale value, you, or the advisors you hire, must go through a rigorous process of finding the best buyers or investors. Buyers will be those who have the best synergies with your company, who are the strongest financially and who recognize the strategy—the value of your company (wherever they are). Then, you will have to make them compete to increase the price.
Price is an essential aspect of any negotiation, but the likelihood of closing the deal also lies in who we give exclusivity to for due diligence. We may receive an excellent offer from someone who has little hope of obtaining financing or who is known to negotiate hard at the final stage after due diligence.
Therefore, before accepting an offer, it is good to study the buyer’s actual financial capacity and acquisition history. By studying how he has performed in previous acquisitions, you will learn a lot about his behaviour. Once you grant exclusivity to a buyer and tell other potential buyers that you have accepted another offer, it will be more challenging to go back to them and get them interested again.
Enrique Quemada, president of ONEtoONE Corporate Finance, has written this article.
When selling a company, business owners try to value different elements of their businesses in order to determine an appropriate sale price, including their assets, their cash flows and even their business relationships. In reviewing elements of their businesses that have value, one question that business owners often ask is, “What is my company’s brand worth?”
While the frequent references in business analyses to a company’s brand value may make it seem as through brand value is relatively straightforward to calculate, in fact determining the value of a brand can be very challenging due to two key reasons. The first is the difficulty of defining exactly what a company’s brand is and the second is the difficulty of quantifying brand value, particularly in a way that buyers will accept.
Despite these difficulties, brands are without question a very important part of a company’s overall value and understanding what brands are and how they can be valued can greatly broaden and strengthen the perspective and position of a seller of a company in the company sale negotiating process.
Understanding what a company brand is and how it is valued can greatly strengthen the perspective and position of a company seller in the company sale process.
What is a Company’s Brand?
A company’s brand, in the very simplest terms, is what makes the company unique and sets it apart from competitors. A company’s corporate individuality often is related to four types of associations in the minds of consumers or the market.
A company’s brand is what makes a company unique and sets it apart from competitors.
The first element of a company’s brand is its association in the mind of consumers or the market with certain visual attributes. This is often largely comprised of a company’s trademark or logo, but a company’s visual corporate identity can also be defined by products, containers or wrapping that may be visually unique. The “golden arches” of McDonald’s, for example, is a highly distinctive and recognizable feature of many McDonald’s restaurants.
The second element of a company’s brand is its association in the mind of consumers or the market with certain products or services. The stronger a brand is, the more a consumer will think of a company’s products or services when he or she hears or sees a reference to a brand. For example, when people hear the brand “Apple” they often automatically think of the iPhone.
The third element of a company’s brand is its association in the mind of consumers or the market with certain attributes of a product or service. For example, for a company in the luxury hotel segment, a strong brand has the ability to convey a greater sense of luxury than competing brands; for a company that is competing in a discount product segment, a strong brand has the ability to convey a better value for price than its competitors.
The fourth element of a company’s brand is its association in the mind of consumers or the market with how the company operates or carries out its business, ranging from how it treats employees, to its work in the community to its values. A brand that strongly projects these values can have a major impact on consumer purchasing decisions if consumers share those values.
Company Brand Valuation Approaches
Given how important a brand is to a company, the practical question is, how can it be valued? While there can be many variations on brand valuation techniques, brand valuation approaches are often divided into three categories.
Three common ways to value brands are the cost approach, the market approach and the income approach.
Cost Approach. The cost approach values a brand based on the amounts that were expended to create the brand. This can include amounts that were expended on brand advisors, trademark and logo designs, websites, social media outreach programs, advertising and community activities.
While costs spent on developing a brand are generally relatively straightforward to quantify, two companies that spend the same amount on building a brand can have very different sales, levels of financial performance and market positions. For this reason, cost approaches to brand valuation often should be viewed as providing a very limited picture of a company’s brand value.
Market Approach. The second approach is the market approach, which derives the value of a brand through a reference to other companies in the market. One way to do this would be try to derive the value of a brand by considering the value of a similar brand, but this in practice can be difficult to do because every company brand is by definition unique.
A variant of this approach is to consider performance and financial differences between companies in the market and analyze the extent to which these differences are attributable to brand value. For example, if one company sells coffee for $3.00 a cup and another company sells coffee for $5.00 a cup, if all other things are equal it could be argued that the difference in the price of coffee is attributable to the strength of the latter company’s brand.
Of course the relationship between certain financial drivers, such as product price, and brand value have to be considered very carefully because a company may hold price down for certain periods of time to try to gain additional market share.
Income Approach. The third approach is the income approach, which derives the value of a brand based on the value of the income or cash flows of a company that are attributable to its brand. If its costs two companies the same amount to produce a cup of coffee, and one company has free cash flows that are 10% higher than the other company, it could be argued that the present value of the difference between the two sets of cash flows represents the value of the company’s brand.
Conclusion
Brand valuation is perhaps more of an art that a science, and without a doubt it can be very difficult to value a brand precisely because of its intangible and unique nature. Further, converting the intangible elements of a brand into tangible financial components of a business’ value in sale negotiations is challenging because of the many factors that can contribute to differences in company performance other than its brand.
Despite the challenges involved in brand valuation, brands are an important part of a company’s value and trying to analyze a brand’s value is an important part of the analysis of the overall value of a business.
The M&A wave is rampant. Never have prices been as high as today. Never has there been so much liquidity in the system. Never have interest rates been so low, so never has it been this easy to borrow money. Hence, we could say everybody is taking the chance of selling their business.
The M&A wave of today
At the same time, the fate of individual companies has never been more uncertain, and the window of opportunity is closing for many companies unprepared or unable to adapt to the new market realities.
The current technological revolution is defining the fate of many companies: Unmet customer expectations are resulting in churn; the lack of digital transformation gains is translating into loss of market share; industry lines that protected some are crumbling; the longstanding, durable business models are failing.
In life, change is unavoidable, but in business it is vital. When the speed of change outside your company is greater than the speed of change within it, the end is just a question of time. Today, new business models are emerging, which are allowing the revolution of sectors.
When to sell your business
It is very common that business executives do not want to sell their company when it is making the most profit and will when it is going through a crisis. This is a clear mistake. For those who have taken the risk of entering the entrepreneurial world, selecting the right moment to exit is one of the most important and delicate moments in the life of a company and, hence, where there is the greatest need to act the most professionally.
Today, money is abundant. The value of companies in the stock market have never been higher, interest rates worldwide are at the lowest levels ever seen, and there is a huge M&A wave. Ride the wave before it goes and you regret it.
Power is very relative. When selling a business, during a negotiation this power will depend on your alternatives and the alternatives of the other party. Don’t forget that emotions are more than 50% of a negotiation.
Verify the power of the other party, it is normally overestimated
In a negotiation, perceptions are crucial. It’s fundamental that you understand the other party’s perceptions and that you keep them in mind. Once you know your interests and your limits do the same with the other party. A negotiation is a game of information and information gives you power. Try to understand your needs instead of your wishes.
There are many ways to discover the other party’s interests. Sometimes, it surprises me to see how little homework business owners do in such an important situation. If the buyer has acquired other companies, you should analyze how those deals were, in what conditions he bought, the multiples he paid and why he was interested in the company. All this information is worth a lot, so if you don’t have time to find it all out you should subcontract someone.
ONEtoONE negotiation experience when selling a business
Some years ago, we had a sale mandate for a French company. They had an offer from a big private equity firm that was doing a buildup (concentrating a sector via acquisitions) of its sector. Our client had already verbally negotiated with them for a price of 20 million Dollars, but they didn’t know how to continue with the process, so they asked for our help. We asked him for permission to reopen negotiations and he agreed. The first thing we did was to study all the deals the buyer had done in other countries and the multiples he had paid. We also studied how much money the private equity firm had for the consolidation project, they had spoken about it to the press. When we began negotiations, we already knew how much they would be willing to pay and what role our client’s company played in the consolidation process. We even thought we knew how the announcement of the transaction would affect its price in the Stock Market. All of this let us increase the asking price to 42 million Dollars. As we were flying back, the buyer rang our client and told him we had been very hard in the negotiation and asked him to agree the price of 40 million Dollars. Our client accepted the offer and we didn’t have the strength to go back for the 42 million!
This experience taught us that business owners have to be very careful with any concessions they give. If you have professional advisors working on the negotiation for you then don’t make any “spontaneous” interventions unless agreed upon and prepared in advance. Naturally, you have more power when you have alternative options, so before giving exclusivity you should clarify all the important aspects of the agreement. Once you give exclusivity and start negotiating with one sole buyer, you will have less negotiating power and the ‘power’ will be on the other side.
The person who is most comfortable with the current situation has the most situational power; the person who needs more change will have less power. The key to understanding who has the most power or leverage in every moment is to analyze which party has the most to lose in this moment if there is no agreement. The person who has the most to lose has less situational power. Your mission is to manage the situation so that your counterparty has more to lose than you.
The situational power
There’s a point in which you have more situational power: it’s when the other party makes an offer and you don’t accept, it’s the moment in which you have the strength to improve the negotiation, you have the most leverage.
I recommend that every time you receive an offer you act alarmed, as if it seems low to you. This will mean that the other party will give in a bit if he can or he remains satisfied with what he’s got if he can’t give in.
Always remember that situational power is based on perceptions, not on facts. You have leverage if the other party thinks you do, if he thinks you have a strong position then you have it. Therefore, be careful with what signals you give off.
If you want to learn more about it, feel free to listen to our new podcast:
This article was written by Enrique Quemada – ONEtoONE President
In this article, written by Jeroen Maudens (ONEtoONE Partner in Belgium), we will discover that selling your company has something in common with skydiving. As in skydiving, to sell your company you need someone to team up with, a guide, a professional, an advisor. The jump is yours. The decision is yours. The company is yours. The guidance is not.
Selling your company and the skydiving metaphor
Skydiving is crazy stuff, we all agree on that one, don’t we? It is not natural to us. Most people think about it for months or years before they actually take action and book D-Day in their calendars. Before committing we make sure to get the right place to jump (I had mine in SPA, Belgium) with the best instructors and, preferably, a record of low to zero accidents! Bizarre, skydiving is not rocket science. You just go to the airport, check the parachute, do the safety drill, read the instructions, suit up, board a plane and jump out. Voila, done, piece of cake!
Yet nobody does this on their first attempt, we all go tandem. We all wish to be in the safe hands of a professional instructor. Someone that has done it many times before and still goes home every evening in full health. Why? Because you would risk not pulling the string up there? No. You would end up in a rollercoaster of emotions and pull the string too soon… or too late? Due to the sensation you might forget how to carefully navigate towards the dedicated landing spot or use the wrong technique in landing, since it is your first time and risk breaking a leg doing so. In the worst-case scenario, you end up paralysed or even death.
The most probable scenario though, is that you will not jump at all. You will back out at the exact moment when the door opens, and you see 4,000 meters of air and clouds between yourself and planet earth. On the moment of truth, you will step back, tell yourself it is not worth risking your life and keep on wondering your whole life how it would have been to have jumped, to have done it. You will hear about the amazing sensation of freedom, and you will never have experienced it yourself.
How does skydiving relate to selling your company?
Selling your company is a once in a lifetime operation for most people. Yet many try to do it all by themselves. It is the financial operation of a lifetime, the fruit of years of hard labour and sometimes financial struggle, hard decisions and risky investments.
Just because you know your company best, you might think that the best salesman for your company is… you. Wrong! You might learn how to prepare, valuate and market a company. Many books describe what a structured auction should look like and you can find templates for NDA’s, non-binding offers, binding offers, LOI’s and SPA’s all over the internet.
The lowest price is not always the best deal.
One thing though you do not have: The experience of the right mix in timing, nuances, finesse, experience and contacts to create the upside you deserve in your once in a lifetime operation. You need someone alongside you that manages the process and guides you through negotiations when emotion takes control of you. You need somebody to give you that push when you feel like backing out last minute because of fear of the unknown. You need an expert in selling companies, not a manual on how to sell your company. You need someone to team up with, a coach, a guide, a professional, an advisor, a friend. The jump is yours. The decision is yours. The company is yours. The guidance is not. Do not jump alone, get help.
An old rule of thumb is that if you want to succeed in business, you should make yourself irreplaceable. Whatever the merits and demerits of this strategy might be in some work environments, if your objective is to sell your company, irreplaceability is often a major drawback that can scare investors away from otherwise great companies and prevent deals from going through.
Regardless of its merits in some work environments, irreplaceability is often a major barrier to selling a company.
The Concept of Irreplaceability
One strategy that some people adopt at work to strengthen their position at a company or with a client is to make themselves irreplaceable, a situation where it is very difficult or impossible to find a person who can do a job in the same way that they can.
Irreplaceability refers to a situation when it is very difficult or impossible to find a person who can do a job as well as another person can.
There are two sides to irreplaceability, positive and negative. On the positive side, irreplaceability may be the consequence of unique talents that a worker has or special relationships that have been built up over many years due to excellent work or other strong personal or professional bonds.
On the negative side, irreplaceability can be achieved not because of a specific skill but rather due to a person working in such a way that it is hard for other people to replicate that person’s work. This difficulty in replicating another person’s work might arise due to the facts that:
-information that is vital to how a firm functions may be “in a person’s head” rather than set forth in a place that other people can easily access
-a client relationship may be developed in a way that a client is really the client of a person rather than a client of a firm
-the status of firm or work matters may not be reported so that other people can quickly react to business opportunities and risks.
The Irreplaceability Paradox
Regardless of how useful irreplaceability may be for securing and maintaining a position in the workplace, if you are interested in selling your company it is a major drawback. Many investors will not invest in companies with strong irreplaceability components and if they do, they will generally discount the purchase price significantly because of them.
There are three key reasons for this:
–Company Value Risk. The first reason, not surprisingly, is that if you are the only one who can do certain work or maintain relationships with clients or third parties that are vital for a business, once you are gone investors will not be able to effectively run the firm, firm value will be lost and investors will lose money.
–Scalability Limitations. The second reason is that investment returns often heavily depend in private investment transactions on a company’s growth. Companies whose key value drivers are organized into invisible and irreplaceable silos are often extremely difficult if not impossible to scale.
Companies whose key value drivers are organized into invisible and irreplaceable silos are often extremely difficult if not impossible to scale.
Investment Exit Limitations. The third reason is that most financial investors in a company do not make an investment with the objective of holding an investment indefinitely. They often invest with the goal of retaining the investment for a fixed period of time, such as five or seven years, overseeing a company’s growth, and then selling it. Companies with high irreplaceability components are extremely difficult to resell farther down the road.
Overcoming the Irreplaceability Paradox
Keeping in mind these issues, persons who are interested in selling their companies should strive to put in place work methods to avoid high degrees of irreplaceability or the perception of irreplaceability. This involves several practical steps.
Information Access. The first step that a business can take to avoid irreplaceability is that all key firm information should be stored in a place that is secure and easy to access. Ideally, vital information should be stored in more than one place or have appropriate back up so that technological breakdowns or human error will not cause this information to be lost and firm business operations to be affected.
Work Method Standardization. The second step that business owners can take is to ensure that work methods are, to the extent possible, standardized and publicized within a firm. Work approaches should be reduced to written form that people new to the firm can, with appropriate training and experience, review, understand and replicate.
Client and Third Party Relationships. The third step that business owners can take is to structure client and key firm third-party relationships so that they are with a firm rather than a person. This involves:
-Making sure that client and third-party relationships are set up through intake procedures that are defined by the firm and involve the participation of more than one person
-Structuring client and third-party relationships so that other firm members are brought in to the client relationship at appropriate times so the client understands that client work product is the effort of more than one person
-Creating a culture of firm and client integration so that over time client relationships become deeper across the firm.
Conclusion
Irreplaceability can significantly reduce the chance of selling your company or reduce the purchase price that buyers are willing to pay for it. To avoid these sale limitations, long before selling a company business owners with company sale strategies should put in place policies and procedures that ensure that a company ownership transition will not result in operational or financial lapses or losses that will make a company less attractive to potential buyers.
When you receive offers for the sale of your company, you will also receive suggestions about different payment methods. The method you choose will have a huge impact on the final price of your business.
A buyer might propose to pay all or part of the price in his company’s shares; another might want to pay one part upon closing the deal and the other part over the following years according to the company’s results. Some buyers might even suggest paying in installments not based on results.
Vendor finance
Sometimes the buyer is not able to get financing or does not have enough liquidity and he asks you to finance the transaction(vendor finance). This way, he can pay you in installments.
It is obvious that the money comes from the results of the actual company, but this should not matter to you. However, it is important to understand that there is the risk that he will not be able to pay. It is important to note that, it is crucial to establish clauses that will give the company back to you if this is ever the case.
Paying in installments
Paying in installments is very common in service companies. Buyers are usually worried that the company’s client portfolio will go along with the business owner. By paying in installments, the buyer can guarantee a transition that will allow him to get to grips with the portfolio and build trust with clients while the previous owners are still linked to the company.
Exchanging shares
In others cases, the buyer might suggest a merger via exchanging shares.
If the buyer’s company is public, it will be more profitable for him to pay with the company’s own stocks. In these cases, they will offer to pay you more than if they were paying with money, and you should evaluate the quality of the buyer’s stocks. Are they overvalued? What chance is there that they will lose value? Only accept this offer if you have faith in the future of the company that is buying yours.
If the stocks are a bit illiquid, you can agree on a repurchasing of part or all of the stocks used in the deal within a specified period.
Combination of payment methods
Other times, the buyer’s company is not capable of getting more debt and so he pays for everything with a proposition of a combination of stocks and money. This is also possible.
Sale of company vs assets and liabilities
You should also define if the transaction is the sale of your company or the sale of assets and liabilities.
A sale of assets and liabilities is a cleaner transaction that usually interests the buyer because he does not have to take on the company’s past responsibilities, but it could affect you negatively; for example, tax is higher, so it is a good idea to be aware of its impact on the final price.
Negotiation
During the discussion, many topics are brought up. Even price has many faces, and you should understand the implications of the different methods of payment.
Mergers and Acquisitions advisors are specialists in negotiation. During the negotiating stage, a lot of the value that you will reap from your business is created or destroyed. Our clients often hire us just for this negotiating period, when they have received an offer to buy their company.
For many business owners, one of the most important decisions that they will make is the decision to sell their company. A business is often the fruit of many years of hard work, establishing relationships and facing numerous challenges and leaving something behind that has been a significant part of a person’s or a family’s life for many years or even generations can be extremely difficult.
However, selling a business does not necessarily mean that the seller will need to completely leave his or her business behind. Depending on how the terms of a sale are negotiated, a business owner may continue to play an important role in a company even after it is sold, something that may be positive for business buyers as well as sellers.
Selling a business does not necessarily mean that a seller will need to completely leave his or her business behind.
Why Selling a Business Can Be Hard
There are often four reasons why selling a business can be difficult for business owners.
Concern for Firm Employees. Businesses are important sources of material wellbeing for firm employees and business owners are often concerned that, if the business is sold, these employees will lose their jobs and be left in difficult economic positions.
Concern for Clients. Many business owners have close commercial and personal relationships with clients and these clients depend on a business’ products and services. Business owners are often concerned that, if the business is sold, the quality of products and services that are sold to clients will decline, which will negatively affect clients who may have a relationship with a business for many years.
Concern about Economic Alternatives. Businesses represent a financial return for business owners based on their investment in the company. Particularly for successful businesses that provide excellent returns, business owners are often concerned that they will not be able to invest the proceeds from the sale of a company in a new business activity that will provide the same level of financial returns.
Concern About Life After the Firm. More than simply a job or source of income, for many business owners a business represents an activity that occupies the vast majority of their time. This activity often involves many professional and personal relationships with co-workers, clients and service providers and it can be very difficult to accept that from one day to the next, a life that was filled with meaningful commercial relationships, obligations and timetables will be replaced with a large professional vacuum.
Company Sale and Value Loss
Apart from concerns a business owner may have about selling a business, it is often the case that the clean break of an owner from a business will not be in the best interests of the business or the buyer.
There are two key reasons for this. The first reason is that the incoming buyer may not be as familiar with the business or local market as the seller and thus a simple handoff of the business to the incoming party may result in a significant drop in business efficiency, revenue generating power and risk management capability.
Second, an abrupt sale may cause the defection of valuable employees or clients, which can lead to great losses of business value.
Creative Win-Win Company Sale Options
Given the concerns many business owners have about selling their businesses and business problems that can result from abrupt business sales, one option to consider is a business model sale which allows the owner to remain significantly involved in a business after it is sold.
Three ways in which a business owner can remain involved in a business after it is sold is through a share sell down, a directorship role and as an outside advisor to the business.
The Share Sell Down. One approach for business owners to remain involved in a business after they sell is, instead of selling the whole company at once, to provide a structured sale of shares over an agreed period of time, such as a year, three years or five years. This approach can allow the business owner to remain significantly involved in the business and also allow the new buyer the time to acquire necessary business know-how and step into the business operating relationship in a way that does not cause operating disruptions or business value to be lost. In some share sell down structures, the owner may retain a minority interest in the business so that he or she continues to have an economic interest in the business indefinitely into the future.
Directorship. Even if a business owner sells its entire stake in a business, the business owner may participate as a non-voting director in the company to continue to remain actively involved in company affairs. This role could be combined with working on a firm project where the business owner has particular expertise, something that could create economic benefits that could be shared by the parties.
Outside Advisor. A third approach for a business owner to remain involved in a firm after it is sold is as an outside advisor where the business owner advises the firm on different matters relevant to the business depending on the nature of the business and the business owner’s strengths and interests.
Conclusion
Selling a company is a major professional as well as personal decision for many company owners. In addition to challenges for owners, the complete sale of a company can also create significant issues for incoming buyers. These issues may lead to buyers offering lower purchase prices for a company due to concerns that business value may drop after a business owner leaves or that business forecasts made based on the strengths of the outgoing owner that served as the basis for a company valuation will not be able to be met.
One solution to this is to use a company sale structure that allow owners to remain involved in a business after it closes. While the feasibility of this approach depends on what the company purchase and sale motivations are, it can often smooth the sale process position for both parties.
This article was written by Darin Bifani. If you would like to know more about how to sell your company, take a look at VALUE, WORTH, AND COMPANY SALE STRATEGY.
The photo for this article was taken by Ahmed Saffu on Unsplash.
Are you thinking about buying that company that you love?
You have already decided and you have succeeded in advancing a few steps in the buying/selling process with the owner of the company. However, you are confronted with one of the most complicated problems of the operation: the seller’s understanding of the inequality that exists between the value of the shares and the debt accumulated.
The most efficient method, as a buyer, to cross this obstacle and achieve your objective is to present the business to the buyer, rather than the company. This represents for you the most advantageous alternative, because with an acquisition you avoid the debt that the company has with the banks and the responsibilities from past events. These would remain with the company and in the hands of the seller while you, as the buyer, avoid the risks.
You may arrive faced with a company with a lot of debt, but if you put a price only on the business, the seller will understand better that you are implying that his shares are not worth anything. Since you are buying the business free of debt, you, as a buyer, also have the option of requesting a bank loan to complete the purchase and pay the seller. The reasoning of the banker will be due to the fact that the business has no debt, you will be able to repay the financing with the funds generated by the same business.
As you can see, it is more convenient to buy the business rather than the company because you avoid many risks that could harm you later down the line. The question now is: will it also be the most convenient option for the seller? In reality, the seller is left with the debt and will have to pay more taxes. However, it is an option to be evaluated and one which ought to be explored at the time of purchase.
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 millionat 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.
