When selling your business, it’s most often the jockey that drives company valuation
In the M&A world, professional acquirers think in terms of each business having 3 critical components. They evaluate your business for each of these and study after study shows, of the 3 it’s the jockey that most often is the critical underpinning to the dollar and deal structure they offer.
Jockey – an acquirer wants to know who is/are the brains, the talent and the experience behind the success of your business. And they will look to the history on this and apply it to what talent and experience they will be acquiring. If any or all of this talent and experience that underpins the success of your company will be leaving or has a risk of leaving upon the acquisition occurring, then the dollars and deal structure they are willing to offer you will be less attractive. If the jockey (a person or team) is remaining, the value they assign along with the deal structure they offer maybe much more attractive.
Horse – an acquirer wants to know what your special sauce is related to your products or services. How unique is your offering in the market, what value do you deliver to customers that is better than alternatives they can purchase, these are key questions an acquirer will have. The greater your uniqueness in the market, the greater the offer will be from the acquirer. We say to our clients, to command the highest valuation one day from a third party, let’s not just have a unique offering, let’s find ways to have the only offering.
Race – an acquirer wants to know what markets you serve and what position you have in these markets. They will look to see what the market dynamics are projected to be going forward in terms of growth trends for the markets you and/or they could serve. It’s one thing for your successful business to have operated within your market historically but they will determine what the market dynamics will be going forward for them in owning your business. Selling your business at a time when these market dynamics are showing continued tail winds for an acquirer to enjoy, the offer they make you will be stronger.
So, of these 3, studies show the majority of times it’s the jockey that the acquirer is basing their offer on and is the difference between a poor to great offer. The horse and race are certainly important and to some acquirers maybe more important in setting their valuation, but the jockey is most often the lead driver. If an acquirer simply wants your company for its products/services and doesn’t see need in you as the seller or your team, then to them the jockey is less important. But this occurs in a minority of the transactions.
Ask yourself, in selling my company one day, which of these 3 will be a key driver to the offer I receive? If for my company it is the jockey that they will see as key, how will my company present in this regard to give the acquirer the confidence that our talent and experience will remain post acquisition? To achieve your future euphoric exit event, think about your business and how future acquirer’s will view your company jockey, horse and race.
