If you’re thinking about selling your company soon or, perhaps, within a few years from now or even farther out in the future, who your target audience is can make a big difference on your valuation.

Consider the many possible acquirers of your company:

1. The next generation. You could transfer the company down to your children who are working in the company.

2. Employees. You could setup a sale of the company to the employees through an ESOP – Employee Stock Ownership Plan.

3. Management. You could sell the company to some of the top inside management within your company.

4. Outside management. There could be outside management interested in your industry and your company, when you don’t have some internal options in management to sell to.

5. Financial buyers. There could be an outside financial buyer that might have interest in your firm, such as a private equity group, hedge fund, buyout fund, or other financial buyers.

6. Strategic buyer. A strategic buyer differs from a financial buyer because they have strategic interest in acquiring your company that allows them to get additional value beyond what a financial buyer could generate. They might have operational efficiencies that they can add to your company, they might be able to expand your customer base or they could have some financial synergy that lowers the cost of operating your business.

7. Co-owners. You might be involved in a 50/50 co-ownership or partnership. It could be your partner that would be the best one to buy you out.

8. General public. You could sell a piece of the firm by going public, whether by doing an initial public offering (IPO) or doing a reverse merger into a public shell.

As you can see, there are some very different potential acquirers of your company. You could also do a partial sale rather than a total sale of the company.

Each of these potential buyers can have very different acquisition values. At the low end, the value might be just your net book value. At the high end, it could be a nice multiple of your earnings, usually expressed as a multiple of ebitdah.

So, if you’re thinking about selling your company, whether soon or off in the distant future, think about who the potential acquirers for your company would be. Understand the range of different values that each of those could generate for your company. If you want to make the move to a higher valuation, make the move now rather than just before the sale when it will be usually too late to make a dramatic change in the level of your business. This is one area where it really pays off to look at this many years ahead. The return on this investment in time can be very worthwhile.

Jon Paul, MBA, CPA, CMC, CM&AA

President, Value Added Finance Resources
Bringing new insights on results and maximizing company value