Acquisition? What’s Your Company’s Valuation?

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.