Business Valuations

Our friend Roger Neu published the attached article on valuing your company which you might find of interest.   Roger has years of experience in the field and we frequently share his blog posts so you to might understand what is happening in realizing value from your business. 

 

 

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THE M&A LAW FIRM
ROGER L. NEU, JD, CPA, PRINCIPAL

BUSINESS VALUATIONS THAT DEFY GRAVITY
[and why I did not win the lottery]

As a regular part of my M&A practice, I facilitate and participate in investment banker (“IB”) interviews to help select the best IB for my clients who are selling their businesses.  One of the key pieces of information we solicit from the IBs is their opinion of value.  Except in rare circumstances, I see the IBs setting very realistic value expectations for clients.

Based on past statistics, average business valuations are noted below based on size of company:

CO. VALUE $000,000	EBITDA MULTIPLE
10-25	5.5
25-50	6.2
50-100	6.7
100-200	7.3

Smaller companies may, however, want to impute the higher multiples of larger companies to their smaller company.  In addition, sellers hear friends and well meaning advisors tell them about deals that got done at a 10 or 12 multiple and believe their company is in the same category.  Each seller is unique so the key is to provide the IB with complete and accurate information to assess value and, unless there are exceptional circumstances, to understand historical values to provide a guide for expected values.

Owners are at times told that they are worth 50% to 100% more than historical norms would dictate.  They are led to believe that they can, in essence, “defy gravity” and should expect to get an exceptionally high price.  Sometimes there may be valid reasons for setting this expectation, but, more often than not, the seller is brought back to earth (in some cases very forcefully) when seasoned buyers present the true market value of the seller.  We can drive values up, however, by running the right sale process.  The right process drives the best results.

Now, about the lottery.  I lost simply because I never bought a ticket.  Or, maybe I did win because I saved the cost of a ticket.

If you know a business seller that wants to truly maximize value and have the assurance of a successful closing, please call me to discuss how to select the right investment banker to achieve those objectives.  You can contact me at (949) 863-1700 or at Roger@Rneulaw.com.

Regards,
Roger

 

The M&A Law Firm
2040 Main Street, Suite 710
Irvine, CA 92614
(P) 949-863-1700
(E) Roger@RNeuLaw.com
http://mandalawyer.com/