
How to value your company for sale (Part 1) - joshuacc
http://blog.asmartbear.com/how-value-company-1.html
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F_J_H
tldr: Different buyers will value your company differently for different
reasons, and understanding what specifically a buyer values will help you
negotiate better.

I suspect the members of the HN community who are at the point of selling
their businesses understand this fairly well.

At then end of the day, before someone within a buyer organization (which are
typically larger, fairly structured companies) will have to put together a
business case, and as with any business case, it will need to include
financials, multiples, valuations, etc. - the CFO will have to be convinced it
is a good deal. (Unless you are Facebook, Groupon, airbnb, etc. of course, but
note that the majority of exits are not of this size and so valuations will
not be as "frothy" (see slide #4 of Mark Suster’s recent presentation
[http://www.theequitykicker.com/2011/06/17/mark-suster-
gettin...](http://www.theequitykicker.com/2011/06/17/mark-suster-getting-
funded-in-a-frothy-
market/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheEquityKicker+%28The+Equity+Kicker%29)
) Most businesses sold in the US are not anywhere near as sexy as the latest
"Tech Crunch reviewed" or YCombinator startup and the reasons for acquisitions
tend to be less driven by speculation and therefore financials, multiples etc.
will be more examined more carefully. So, understanding the multiples that
exist in your industry is very important.

If you are looking to sell your company, one of the best ways to ensure you
are getting the best price is by going through a competitive auction process,
which are typically led by an M & A firm or Investment Bank. (Boutique firms
exist for smaller companies that have not yet achieved the oft desired "2 and
10"). Yes, they will take their cut, but typically you will get a higher price
than if you shop it yourself to a few buyers who you think will be interested.
Following the "market it yourself" approach may cause you to overlook a buyer
who is not obvious to you, but who would be very interested in your business
for reasons you never thought of and therefore would be willing to pay what it
takes to acquire it. (I have experienced this first hand.)

When all is said and done, your business is worth what someone is willing to
pay for it. Going through a competitive auction, especially if marketed
properly to large buyer audience, will ensure you get the highest price,
regardless of the buyer’s motive for the acquisition, (which you could only
speculate on anyway.)

~~~
emc2
>competitive auction process

Do you have an example here for the rest of us? I. e. companies not on the
scale of Heroku and Dropbox?

>Boutique firms

Any examples? And how would they know the market better than the company
founder?

------
retube
Ha. I'm currently doing a (hypothetical) study on required revenues and profit
margins required for a valuation of £xxx. Using a rev multiple of 4 and p/e of
17.5. Got to start somewhere...

