One of the most important concepts for business owners to internalize is the difference between the business enterprise value (BEV) determined by your M&A advisory firm and what the ultimate selling price for your business may be.
The BEV is purely a financial estimate based on recast historic financials that are projected forward for five years. Typically these future earnings are discounted back at a discount rate based on the perceived risk associated with the company and its strengths and weaknesses. As the company grows (or shrinks) and as the economy and risk associated with the business change, so too does the BEV.
The ultimate selling price is determined by what a willing and informed buyer will pay for the opportunity to obtain the future earnings of the business, plus other factors driven by the “intangible assets” of the individual company. The value of these intangible assets will vary from buyer to buyer to buyer.
Some buyers will be more interested in your blue chip customer base. Others might find your prime location of greater value. Maybe it will be your internal processes and systems that set you apart. Some may find your long-term contracts with key suppliers at great rates the most important feature.
Each of these certainly is part of the reason you are succeeding and generating profits. However, in many cases when combined with the buyer’s strengths, the equation often equals the old synergy equation of 2 + 2 = 6.
For example, let’s say you have a great product you produce, but your sales and marketing is weak due to a number of factors. You have attracted a buyer who has a tremendous sales team that can now be combined with your remarkable products to create a win-win scenario.
Another example could be that you have created internal operating systems that allow you to have a pre-tax profit margin of 15% when the industry average is 10%. Buyers who are at (or below) the average will be interested in obtaining your business and replicating your efficiencies in their business model to improve their bottom line as well.
As you can see these synergies are unique from buyer to buyer. And ultimately are samples of why your BEV can be far different from the ultimate selling price of your company.
The real key to achieving an optimal deal is having a deal team working for you that is in constant communication and doing endless research on who is acquiring in your industry and more importantly WHY they are acquiring. One of the reasons Generational Equity has closed more transactions than any other firm in the lower middle-market is largely due to the quality of dealmakers on our team. Collectively they have hundreds of years of experience in closing optimal deals for companies across North America.
On top of this, they have access to unrivaled research sources including an internal database of over 30,000 registered buyers who have told us specifically the types of companies they are looking for and update these interests with us several times a year. It is these tools that very few M&A firms have access to.
Having skilled people and incomparable tools at our disposal allow us to look for buyers that see synergies that add value to the BEV of every client.
To learn more about BEV vs. selling price, you should set aside some time to attend one of our complimentary exit planning conferences. Whether or not you are thinking about selling your business just yet, I think you will find the information extremely beneficial as you consider your exit planning and timing. To learn more call us at 972-232-1121 or reach out to us on our website with any specific questions you may have.
And remember your BEV may not be what your ultimate selling price may be.
By Carl Doerksen, Director of Corporate Development at Generational Equity.
© 2017 Generational Equity, LLC. All Rights Reserved.
The information we learn from customers helps us personalize and continually improve your experience at gencm.com. Here are the types of information we gather.
Information You Give Us: We receive and store any information you enter on our Web site or give us in any other way. We do not sell or rent your personal information to others without your consent. We use the information we collect only for the purposes sending promotional information, enhancing the operation of our site, serving advertisements, for statistical purposes and to administer our systems. We DO NOT use third parties to provide customer service, to serve site content, to serve the advertisements you see on our site, to conduct surveys, to help administer promotional emails, or to administer drawings or contests, but reserve the right to do so in the future without advance notice. Our computer system protects personal information using advanced firewall technology.
Information from Other Sources: For reasons such as improving personalization of our service, we might receive information about you from other sources and add it to our account information.
Generational Capital Markets LLC may license the use of its intellectual property including but not limited to its name, likeness, and logo for the use of affiliated offices. Such affiliated offices may not be owned, controlled, managed, supervised or staffed by employees, officers, or agents of Generational Capital Markets, L.L.C. Affiliated offices may be independently owned and operated. For more information about a particular office, please contact Generational Capital Markets LLC at is office in Dallas, Texas.
This page may contain other proprietary notices and copyright information, the terms of which must be observed and followed.
INFORMATION ON THIS WEB SITE IS PROVIDED "AS IS" WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT. SOME JURISDICTIONS DO NOT ALLOW THE EXCLUSION OF IMPLIED WARRANTIES, SO THE ABOVE EXCLUSION MAY NOT APPLY TO YOU.
Information on this web site may contain technical inaccuracies or typographical errors. Information may be changed or updated without notice. Generational Capital Markets may also make improvements and/or changes in the products and/or the programs described in this information at any time without notice.
Generational Capital Markets does not want to receive confidential or proprietary information from you through our web site. Please note that any information or material sent to Generational Capital Markets will be deemed NOT to be confidential. By sending Generational Capital Markets any information or material, you grant Generational Capital Markets an unrestricted, irrevocable license to use, reproduce, display, perform, modify, transmit and distribute those materials or information, and you also agree that Generational Capital Markets is free to use any ideas, concepts, know-how or techniques that you send us for any purpose.
Information Generational Capital Markets publishes on the World Wide Web may contain references or cross references to other products, programs and services that are not announced or available in your country. Such references do not imply that Generational Capital Markets intends to announce such products, programs or services in your country. Consult a Generational Capital Markets representative for information regarding the products, programs and services which may be available to you.
Generational Capital Markets makes no representations whatsoever about any other web site which you may access through this one. When you access a non-Generational Capital Markets web site, please understand that it is independent from Generational Capital Markets, and that Generational Capital Markets has no control over the content on that web site. In addition, a link to a non-Generational Capital Markets web site does not mean that Generational Capital Markets endorses or accepts any responsibility for the content, or the use, of such web site. It is up to you to take precautions to ensure that whatever you select for your use is free of such items as viruses, worms, trojan horses and other items of a destructive nature.
IN NO EVENT WILL Generational Capital Markets BE LIABLE TO ANY PARTY OR ANY DIRECT, INDIRECT, SPECIAL OR OTHER CONSEQUENTIAL DAMAGES FOR ANY USE OF THIS WEBSITE, OR ON ANY OTHER HYPERLINKED WEBSITE, INCLUDING, WITHOUT LIMITATION, ANY LOST PROFITS, BUSINESS INTERRUPTION, LOSS OF PROGRAMS OR OTHER DATA ON YOUR INFORMATION HANDLING SYSTEM OR OTHERWISE, EVEN IF WE ARE EXPRESSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Furthermore, all information contained within this website is the property of Generational Capital Markets.
Honored to win Investment Banking Firm of the Year 3 years running.
Over 50 awards and counting.
Sign up to receive regular email updates, industry-leading insights and details on complimentary M&A executive conferences in your area from our award-winning team
Success, you have been added to our list.