I have nothing against the game of golf, your friends, or your social life. But, the stories of M&A bravado exchanged at your country club are keeping you from selling your business.
Every investment banker has dealt with unrealistic expectations from business owners, most of which were developed from golfing buddies or country club pals. Think about it. What makes one more popular at the club than sharing the story of selling their business? They’re the envy of almost everyone. To other business owners they’re a prophet. To professionals, they’re a source of market intelligence.
I’ve never met anyone at a country club that hasn’t inflated their selling price or earnings multiple. I’ve never heard anyone talk about how the structure of the transaction effected value. I’ve never heard about the assurances that were provided to the buyer. I’ve never heard about the buyer retrenching on price due to customer concentration issues. Nobody talks about the devil, the details. Instead, it’s mostly a story about how the seller was approached, the victories achieved during negotiations, and a fair amount of ego.
Don’t get me wrong, I like a good story as much as the next guy. But, consider the tremendous disservice being done in this situation. Accountants, attorneys, consultants, and other professionals go back to work and share their findings with clients exponentially increasing the reach of the tale. The story gets retold at trade shows and the fish gets even bigger. It’s a domino effect. The result is a whole lot of people with unrealistic expectations about what companies actually sell for, how transactions are structured, and how risk is shared.
Deal multiples are very specific. They’re dependent on a company’s historical track record, future growth prospects, defensible market position, competitive framework, strength of management, infrastructure, type of acquirer, synergistic value, and many other factors. If you’ve realized a profitable exit from your company, please be a good friend to your golfing buddies. Don’t set their price expectations. Your words may keep them from selling their company. If you’re a current business owner, quit your country club if you want to sell your business. Or, contact a knowledgeable and reputable M&A professional, someone that truly understands the market, the process, shared risk, and how to achieve maximum value.
For more information contact, Scott D. Mashuda, Managing Director at River’s Edge Alliance Group, LLC. (440) 915-3082 or by e-mail at smashuda@RiversEdgeAlliance.com.
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