M&A: Understand what value encompasses

Q. When selling my business, how can I know I'm getting the best value?

A. To have confidence you're receiving the best value, consider the following:

What constitutes value

First, I want to emphasize that the best value may not necessarily be the best price. Value encompasses the entirety of the offer, including timing, price and form of consideration (ie. cash, stock, seller notes, earnout), as well as what happens to your brand, your team, your location, and how tied you are to the business going forward.

Know the market

Understanding values of recent M&A transactions for businesses of similar size and specialty will give perspective on where your offer stands in a range of market multiples. Multiples are typically considered as enterprise value to adjusted EBITDA, on a cash free debt free basis. Private transaction details are rarely disclosed, even in public company SEC filings, so getting an accurate picture can take some digging. An industry specific M&A adviser with proprietary information should be able to provide valuable insight, while maintaining required confidentiality.

Know your best buyer(s)

Where there's one buyer, there's often more than one. What is it about your business that creates heightened interest with a select buyer pool? Do you have a high value product line, attractive contracts, better customer retention, fill a geographic gap, or something else? Your value-add might be different for different buyers. Make sure to incorporate “addbacks” and potential “synergies,” which directly (and often dramatically) impact price.

Manage a process

Like real estate, the best price and terms are usually reached with multiple offers, in full detail, received within hours of each other, so they can be assessed and negotiated simultaneously. Having backup buyers in the wings keeps your chosen buyer on notice to complete diligence and closing on the agreed timing and terms.

Samantha Lincoln is a managing director at Paragon Ventures. Reach her at 415-786-8153 or slincoln@paragonventures.com.