After the wave of purchases in recent times, many business owners are wondering if they could sell their company, to whom and especially for how much. In this article we are going to make a first approach to this complex topic but of growing interest.
Lately, in many meetings I have been asked the following questions:
- Can my company be interesting to someone? How much could you sell it for? May it be of interest to venture capital? If I sell it, will they destroy everything I've built for years? What will the day after the sale be like? Etc.
Let's start with the first question: can anyone be interested? There are currently two very different profiles of potential buyers:
- "Industrial" buyers, that is, companies in the same sector that are not financial and that could be competitors, suppliers or even customers "Financial" buyers among which the most representative would be private equity companies or family offices.
Basically, the sale to the industrialists depends a lot on the size, the atomization of the sector, the profile of the players and the liquidity they may have… You have to see it case by case since there are industrialists who are very open to doing operations and others they do not raise it in their strategy. Multinational companies are usually more active than family ones.
However, in venture capital the parameters are very different. The first thing to know is that there are very different venture capital firms basically based on three parameters:
- Operation size: In this sense, there are basically three fund profiles: oriented to small, medium and large operations. Sector: although most funds are multi-sector, more and more funds are focused on a certain sector. Situation: although Most of the funds are focused on companies in a stable situation, there are also funds focused on “special situations” / refloats or recently created companies.
Regarding the price, perhaps this is the most complicated question and surely one of the most important for the seller.
The first notable concept is that an unlisted company does not have a clear price as other assets do, but the price always depends on the market due to lack of liquidity. That is why companies usually commission judicious valuation studies that are not very useful because, depending on few parameters, valuation changes enormously and in the end the only important thing is what someone in the market is willing to really pay for the company.
Regarding price, the problem is that this question is not so easy to answer, among other things, because the value of a company is difficult to define and has a certain part of subjectivity based on the hypotheses defined, which requires an analysis in depth in each case. In this sense, it is best to be advised as in many cases the owner has a "psychological price" that does not always coincide with the market price for good and bad.
In any case, a fairly simple first approach that can serve to have an order of magnitude is to use a valuation by multiples. Basically, the valuation by multiples (usually sales or EBITDA - profits before amortizations, depreciations, interests and taxes) is based on the fact that a company has a value similar to that of similar transactions.
Before explaining the example of valuation by multiples, I would like to say that technically it is a method that lacks scientific rigor but is quite widespread in the world of mergers and acquisitions, so its knowledge is useful.
For example, imagine that in sector x, there is a company that invoices 50 million euros and 40 million euros have been paid for it. Doing a simple calculation, it is obtained that the company is worth 0.8 times the sales taking that transaction. Well, if we have a company that invoices 20 million euros, following the same rule, our company would be worth 16 million euros. It's that simple. Although usually a multitude of comparable operations are taken to see the homogeneity and coherence of the multiples. In any case, these multiples usually calculate what is called the Enterprise Value and to calculate the price of the shares, the net debt must be discounted.
After having explained a first approximation of the valuation by multiples and reiterating that it is not technically a basic method, I would like to say that the technically valid method is the valuation by discounting cash flows. This method is based on the fact that the company is worth the sum of the cash flows that it will generate in the discounted future at a discount rate that discounts the risk that these flows will actually occur. The problem with this valuation method is that much more information and assumptions are required for its calculation but technically it is much more defensible than multiple valuation.
Another of the questions that the owner usually asks is about the continuity of key business aspects such as the management model, the brand, the team, etc. This is an important question in many cases for the seller since the company ends up being his "son" (in the case that he is the founder this feeling is stronger and clearly tends to be different for second and third generations). The level of changes that the buyer introduces will depend a lot on whether he is an industrial or financial buyer since in the second case they tend to be more continuous and yet, in case of purchase by an industrialist, they usually want to impose their style and integrate the acquired company into its management model.
In addition to these questions there are dozens of them more and especially in cases in which the sale is partial.. shareholders agreements, deferred payments, net debt, ratchets, tax issues, etc. but I think that is beyond the scope of this article which is just an introduction to the subject.
Anyway, as I said before, it is a very interesting topic since it is one of the most important decisions in the life of a company and I consider that with this article we can give some first notions for anyone who is thinking of a sales process but in this case more than in others, it is best to put yourself in the hands of professionals who advise you and help you obtain the highest profitability and security of the sale. In a future article I will talk about how to maximize the price in the sale of the company.
