Today’s guest blogger, Kevin Short, is the author of Sell Your Business For An Outrageous Price (AMACOM Books, 2014), and the Managing Partner and CEO of Clayton Capital Partners, a St. Louis-based investment banking firm specializing in the sale and purchase of mid-size companies.
Have you ever wondered why similar, mid-market companies sell at wildly divergent prices? I noticed the discrepancy between ordinary and outrageous prices years ago and decided to find the answer.
First, I defined “outrageous price” as one that is at least two times the EBITDA multiple of an average company in its industry. Second, I looked at leverage; the leverage that drives prices up when sellers have it and holds prices in check when buyers have it. Finally, I looked at the transaction process: could we use it to produce an outrageous price?
I started with a four-step Proactive Sale Strategy™ to transform good prices into great ones and to maximize a seller’s probability of closing.
Step One assesses readiness of the company and its owner for sale and addresses any areas that are not sale-ready.
During Step Two we dissect all of the information that we collect in preparation for a buyer’s due diligence to save time later and reduce the risk of a failure to close.
In Step Three we identify a company’s competitive advantage and search for an existing or potential fit between the seller’s competitive advantage and a buyer’s need. We then determine how a seller’s company: (1) can (or could, if given time and preparation) meet a buyer’s immediate need, or (2) could pose an imminent threat to a buyer.
Step Four focuses on potential buyers: which ones can use their significantly greater resources (such as access to capital or more efficient processes) to make more money from a company than can its current owner?
At the end of this process, owners decide if they want to go for an outrageous price. If so, we look for the following four items that I learned (after analyzing numerous outrageous price sales) must be present:
 $10M – $250M of value
- A competitive advantage that can be leveraged to cause a buyer pain or create gain.
- An “outrageous buyer” active in the marketplace who has deep pockets, is motivated to eliminate pain or create gain and has an internal champion pushing to make the deal.
III. A seller who can trust their advisor enough to follow his or her lead, is self-disciplined enough to resist the temptation to talk to buyers or jump ship when the seas get rough, and has an ability to act.
- A transaction advisor who knows how to orchestrate the Outrageous Price Process™. That advisor must understand why a company is successful and be able to communicate to buyers how the acquisition will bring it gain or relieve pain.
The success of this process is dependent on the presence of each of these elements but not necessarily on a strong M&A market. I’ve used it under varying marketing conditions and in all types of industries. Check out my book to learn whether your company could sell for an outrageous price.
To learn more about selling a business, join Kevin Short at our Soundview Live webinar on September 3rd: An Insider’s Guide to Getting More for Your Business.