Acquisition? What's Your Company's Valuation?

small company acquisition
For any acquisition it's important for both buyers and sellers to have a dialogue about company value.

 

Buyers and sellers of companies of course have different agendas. But by looking at the cold, hard facts, they can often come to mutually beneficial deals. The devil, though, is in the details, so make sure valuations are conducted properly.

In a merger and/or acquisition situation, small companies often find it difficult to determine the appropriate value at which they should sell their business. Of course, standard methodologies for determining company values do exist and are widely used. However, small companies often have little calculable intrinsic value as a stand-alone entity at the time they’re selling, but they certainly do represent a valuable asset to the potential buyer.

From a Buyers Perspective

From a buyer’s perspective, valuation is a balance between what they can afford to pay given strategic and economic value that the acquisition will bring and what they believe is “fair market value” for the asset, based on standard approaches and methodologies. The more acquisitive a company is, the more important a consideration of “fair market value” becomes, as it needs to be seen as a disciplined buyer in order to be effective.

For Sellers

It’s then critically important for sellers to prepare a point of view to help potential buyers understand and see the value of an acquired business. While buyers are reluctant to pay for all the value that an acquired asset will bring to them, given the execution risks involved post-acquisition, engaging them in the discussion and making them aware of the possibilities form the seller’s perspective helps justify the a request for a higher price.

 

 

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About the author

Elias Mendoza

Elias Mendoza, Managing Director of Investment Development and Strategy
Mr. Mendoza joined Siris Capital in 2013. Mr. Mendoza's responsibilities at Siris include identifying and evaluating trends within existing and potential industry verticals for investment opportunities, and assisting our Executive Partners in evaluating underlying business strategies of targeted companies and existing portfolio companies. Prior to joining Siris, Mr. Mendoza was a Partner at Union Square Advisors, where he served as its Chief Operating Officer and a senior banker across the firm's verticals. Through July 2011, Mr. Mendoza held various senior positions at IBM, including Vice President and Global Head of Corporate Development. In such capacity, he was responsible for identifying , executing and integrating all acquisitions, investments and divestitures for the company on a worldwide basis. Mr. Mendoza's previous experience includes over twelve years spent at Morgan Stanley & Co., most recently as an Executive Director in the Investment Banking Division. Mr. Mendoza received a Landegger Program Certificate in International Business Diplomacy and an MBA from Georgetown University. He received his AB from Princeton University.