Insight

Sell-Side M&A Advice: The Market Sets Value

Standing At Window

Selling a business is purely Economics 101…the interplay of supply and demand.  The more in demand your business is, the higher the valuation and the price you’ll receive.  The lower in demand your business is, the lower the valuation and the price you’ll receive.

In 30 years of activity in the M&A markets, we have seen many brokers and investment bankers proclaim a valuation to their client, or prospective client, prior to taking the business to market.  It is often an optimistic valuation, given the broker or banker wants to be selected to represent the client in the sale and no client wants a pessimistic intermediary representing them.

But the problem with this dynamic is that the client remembers the optimistic valuation and then is disappointed when the offers, and ultimately the selling price, come in lower than that optimistic valuation.  The whole thing leaves a bad taste in the client’s mouth, with them feeling like they were the subject of a bait-and-switch.

What a high integrity broker or banker should provide you – and what Newport LLC provides – is an analysis of all the possible valuation methods that might be used by Buyers and the wide ranges of valuation that each of those methods suggest.  And then they should run a process that optimizes the price and all other terms.

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David Traversi, Partner, Newport (david.traversi@newportllc.com)