Having the right blend is key to a future euphoric exit event
As company owners and CEO’s we certainly have great passion for our business, which of course is important for leading our team and building long term company worth. When the day comes to sell our company, we have to know that the acquirer will come in initially with a dispassionate view of our business and it’s our job as the seller to move them to becoming passionate.
Initially however, when the acquirer first arrives on your doorstep to evaluate whether they’d be interested in buying your company, their view of your business will be very different than yours. Their view will very often be one of a dispassionate, show me why your company could be of value to them, type attitude. This very often leads to you as a seller having the belief that your business is worth much more than the acquirer believes. It’s key therefore as we run our business, years ahead of an exit, that we leverage our passion but also ensure we build a business looking through the lens of a future acquirer. Here are some key, dispassionate questions an acquirer will have one day for you:
- What is the financial performance of your business recently and the past 3 years and is it consistently positive year over year or is the performance inconsistent?
- How strong are the prospects for future growth/profitability if under their ownership? Are you proving to them that you have solid line of sight to continued growth?
- What types of risks will there be for the acquirer if they own your business? Are you presenting a business to them with multiple areas of risk to them or have you prepared a business that they will see possesses low risk to them? High risk in the eyes of an acquirer often translates to lower valuation.
- How predictable are the revenues and profits of your business? Transaction based businesses often times garner lower valuations than those with highly predictable ones.
- How easy or complex will it be for the acquirer to assimilate your business? If they want to keep your company as a standalone business, is your team strong enough to stand on its own and continue growth? Or if the acquirer wants to blend your company in to theirs, will they see a clear and low risk pathway to doing so?
Don’t let your personal passion blind your view of your business. As you run and build your company, do so regularly looking at it through the lens of yourself and a future acquirer. Doing so could help you build great worth in your company and enable you being euphoric one day in attracting a third party to acquire it with a great valuation.
