GW Equity

Be Sure You Sell for What It’s Worth

Mary discovered that an Internet search engine provided everything she needed to sell her mail order craft business.
She built this company starting when she was a single mom who desperately needed an income based on a business at home, where three young children needed her care.
Now, with three children grown and with grandchildren scattered in distant cities, Mary was ready to go on to other things. Her business had outgrown her home and then two successively larger locations. Mary sensed that liquidating her equity in the business would provide a comfortable investment income and free her for quality time with the family.
She found a handy business valuation calculator on a Web site with a cute name. She was surprised to find that the calculator provided a net present value of her company and offered some additional insight about the way she could manage her inventory and receivables more efficiently.
A great deal more information was available on the Web, and Mary bought a book from one of the sites. The book convinced her that she was ready to take her company to auction.

Needing some specific information, Mary took her plan to Shelly, her outside tax accountant. Shelly has great respect for Mary’s ability to operate and grow her successful business. But she was astounded that Mary planned to manage the sale of her own company.
The accountant told her she had good reason to believe the time was right to sell. She agreed with Mary’s overall plan and complimented her on the methods she had used to find a valuation for the company.
“The plan you put together is a great start,” Shelly explained. “But your next step is to find a merger and acquisition advisor who specializes in finding buyers and negotiating deals. The first thing they will do is help you identify and adjust all the procedures that make your company successful.”

Bob Berry of GW Equity, one of the nation’s leading M&A companies, agreed with Shelly’s assessment.
“Mary has a $7 million company and a three-dimensional market for her equity,” said Berry, who is Managing Director for Corporate Valuations. “She should not be embarrassed that her own valuation effort underrated the company’s value by at least 40%. Simple valuation formulas are conservative because they can’t identify, or take into account, premium buyers.
“When we say Mary has a three-dimensional market, we mean that there are prospective buyers in both multiple vertical dimensions and multiple horizontal dimensions,” Berry said.
“Vertically, there are her suppliers and their competitors; horizontally, there are her own competitors as well as other mail-order operations looking to diversify or strengthen their position into the craft marketplace. That’s a quick sketch. Prospective buyers are numerous and it takes professional expertise to identify and solicit them.
“In this situation, bidding could be intense. The M&A firm will help Mary sort out the bidders and negotiate a deal that suits her situation. What she will spend to use the expertise of the M&A firm will be a tiny fraction of the money she would leave on the table if she were to sell her business on her own.”

Berry pointed out that the typical business owner has nearly all his assets tied up in the company.
By contrast, a top manager in the corporate world of publicly owned companies has most of his or her assets invested diversely in stocks, bonds and other instruments. The diversity in 401K’s and personal portfolios lowers risk and provides liquidity.
“Our first role often is to help business owners recognize when the time has come to convert a treasured asset to an ample reward for a job well done. Then we make sure that reward is as large as possible,” Berry said.

Fortunately, Mary was ready to sell in a market that was ready to buy. She stood to benefit from professional M&A services because there was a constellation of prospective buyers, some ready to be motivated to make premium offers.

“Seventy-five percent of business sellers working on their own will leave as much as 75% of their companies’ value on the table,” Berry explained. “That’s astounding.” He explained that GW Equity takes companies like Mary’s to market with a series of complex and thorough procedures:
Concise, detailed, comprehensive information is gathered and assembled regarding the business.
Sound financial projections are developed based on sound market analysis and research.
The intangible benefits and future opportunities of the business are defined and the potential synergies of a pro forma combination are exposed.
With a complete, attractive portrait of the company ready, GW Equity identifies and approaches the right buyers.
Consultants conduct a structured, competitive sales process.
When the seller agrees and buyers are in place, GW Equity assists with the structure and negotiation of a deal on the seller’s terms.

“A shrewd, successful entrepreneur like Mary recognizes value,” Berry said. “She knows the cost of professional M&A assistance is small compared to the additional value it will help her recover from her company.”