A realistic valuation is important

This week I have been doing valuations and talking to buyers about the asking price of some my client’s companies. I even dreamt about doing valuations, no doubt you will say that I need to get a life, but there are some triggers many of which I am familiar with.

There are buyers out there who are really keen on acquiring companies and I had 2 very long zoom calls yesterday examining the cost base of my clients and the valuation we have applied. I always tell my clients that it is essential that they continue to profitably grow their company if they want to achieve a good price, they also need to ensure that there is a strong transferable management structure in place, strong recurring revenue, shareholder agreement on the sale, an understanding of debt and how it will be treated, at the lower end many buyers prefer the target to debt and cash free.

The first caller was concerned that the profitability of the company he is looking to acquire is falling while revenue is increasing, this means the value of the company is falling, but the seller won’t accept that. Ultimately the buyer is likely to walk away, unless there is some form of price adjustment; he is willing to offer a deferred payment if things improve, but that comes with obvious risks for the seller.

The second caller was trying to get an understanding the revenue and cost implications of replace the owners of his target. The owners are a couple, they do have a team in place, but one of them is operational and works on one key sector generating a specific revenue stream, his partner runs the administration team. The buyer is astute and is working out the implications for him if he takes the business over. He is planning to make an offer but it will take into account the cost of replacing the owners.

Buyers are out there and are keen. They have added pressure that the providers of acquisition finance are still very vigilant, one buyer I am talking to spent 8 months putting together a finance package to make an acquisition, he was a week away from concluding the deal when our former prime minister and her chancellor decided to launch a budget that spooked the global market. The resultant market conditions mean buyers have to jump more and more difficult hurdles to secure acquisition finance

If you want to sell your company I am always happy to talk it through if you want to give me a call on 07826 050690