In a previous post, we highlighted the attributes of a formal business valuation and spoke to the extreme usefulness of such. But we also proposed the idea that arriving at an appropriate M&A transaction price target is “as much art as science.” Below, we focus a bit more on the art rather than the science of setting a proper price target for an M&A Transaction.
Once the financial analysis is complete, the value of the assets and relevant market comparable deals and multiples are evaluated. Additionally, in consideration of the value of a company, the industry analysis and economic outlook data is applied. Afterward, we must turn our attention to maximizing the transaction price of a company through less scientific means—this involves the consideration of the seller’s business from two primary, but different, perspectives. These two perspective include the intangible aspects of the business that drive value and the acquirer profile that will most likely yield the best possible outcome for the seller.
The intangible aspects of a business that can drive additional value include:
- Name recognition and strength of the company’s position in its market space
- Strength of the management team that will remain with the company following the transaction
- Clear growth channels or untapped growth opportunities upon which a new owner may be able to capitalize
- High-value customer relationships or market entry points
- Differentiators that give the company a unique competitive advantage
From the acquirer-profile side of the equation, it is critical to identify and engage prospective acquirers that have a clear reason to acquire the seller’s company. This reason is often the difference between an offer that conforms to market norms and an offer that reflects the maximum value of the company.
Acquirer attributes that lead to enhanced transaction prices may include (to name only a few):
- Existing holdings in the seller’s market space that present unique opportunities for the acquirer to accelerate the growth of the company
- Unique and in-depth operational experience in the seller’s industry that creates a more favorable risk profile for the acquirer, as opposed to a general financial investor that may not as readily understand the nuance of the industry
- Overlapping or complementary product lines, customers, and distribution channels
- Cost synergies that can be achieved by combining the seller’s company with existing holdings or at least operate cooperatively with the acquirer’s existing holdings
While no advisor can guarantee that he or she will deliver the “maximum value” for a seller’s company, it’s important to build a relationship with an advisor that can go beyond the mathematics of valuation by defining and highlighting the value-rich intangible attributes of a seller’s company and by matching the seller with an acquirer that has compelling reasons to acquire and own the seller’s company. If you’re interested in learning more about the business valuation process, be sure to reach out to a professional at CRI Capital Advisors for a wealth of advice and information.