Having the right answer can be important on your path to a euphoric exit
Sellers will many times be in a discussion with a potential acquirer regarding a sale of the business and the question will arise from the acquirer – “so we don’t waste your time, how much are you looking to get for your company?”
On the surface, this seems like a fair question and certainly phrased in a way that shows respect for you. It is however, a loaded question and one most times you do not want to directly answer.
In reality, your business is worth whatever the acquirer believes it’s worth to them. Yes, you might have your idea of what it’s worth but unless the acquirer agrees, there won’t be a deal getting done. So, the first offer should come from them, not you.
The acquirer could in fact be asking simply because they need to understand the general scope of what your valuation thinking is to see if you’re anywhere close to their thinking. However, in many cases they ask this question in the hopes that your answer might undervalue your company. How do you know they don’t see unique value in your business and may in fact be willing to pay you more than you expected but you hurt yourself by throwing out a number.
When dealing with an acquirer, if they ask you what valuation you have in mind, the answer should be “when the time arrives that I sell my business, I’ll let the market determine what the value is. What I believe is moot, it’s what the acquirer’s in the market believe it’s worth.” This is a professional way of saying I’m not going to set the valuation bar for my business, you’ll need to.
The other reason you don’t want to throw a number out first is you’d be doing so most likely without ever sharing the bigger narrative about what your business is, why it’s unique and its future ongoing potential (see our blog post of May 18, 2024 on this topic). Absent conveying this narrative, any valuation discussion is baseless and therefore more likely to hurt you then help you.
Bottom line – if asked this question, be prepared with your professional reply that doesn’t create the opportunity for an acquirer to undervalue what you’ve built. Achieving a euphoric exit one day requires many effective steps to be taken and managing this question is certainly one of them.
