Buyers and sellers try to determine the right valuation of the company based on revenue, free cash flow and profits. Most of these transactions are supported by Excel calculations.
However, from time to time there are deals that stand out. Companies where it seems that their market has no significant barriers to entry and who only have a few team members get very high valuations.
According to Corum’s president, Net Burgess, the reasons for such high valuations are typically:
- A robust IP portfolio protecting critical ground in an emerging market
- High-value software that gives the buyer a time-to-market advantage in a high-value market
- A rock star team
If you are already in the selling process and do not have (1) or (3), you should think about what you can you do to establish a situation where two or more buyers are so interested in your time-to-market advantage that they make increasingly higher offers above what they would normally be willing to pay:
- Try to engage competitors to bid for your company.
- Try to generate a climate that gives each potential buyer the feeling that they are not alone and that there are other buyers that could hurt them if they buy your company. (Note: Be careful about what you say as typically you will have to sign NDAs.)
- Try to generate a sense of urgency, even if not all buyers are that active.
- Seek support from a M&A advisor with a good reputation. This gives buyers the impression that there are most likely other potential buyers on the table as well.