Selling a company requires more than just setting a price. To get the best value for the business and the highest price in a transaction, a valuation analysis should be done to determine the fair market value of the company and the potential benefits from combining it with a buyer.
Fair market value is the highest price, in cash terms, at which a property can be sold between a willing buyer and a willing seller in an open and unrestricted market with no pressure to buy or sell and both parties have reasonable knowledge of relevant facts.
Hiring independent, stand-alone valuation advisory services can help highlight key value drivers to increase your company’s value. To maximize value, you should show potential buyers that your business has strengths and opportunities, including:
Strong management team: Having a strong management team in place is critical for the success of your company. This can include experienced executives and key personnel who have a proven track record of success and have demonstrated their ability to drive growth and profitability. Potential buyers will be interested in seeing that your company has a talented and capable leadership team in place.
Well-established customer base: A loyal customer base is a valuable asset for any company. This includes both repeat customers and those who have been with the company for an extended period of time. This demonstrates stability and a proven track record of delivering quality products or services.
Solid financial track record: Financial stability and a solid financial track record are important factors for potential buyers. This includes a history of profitability, consistent revenue growth, and a strong balance sheet. Buyers will want to see that your company has a stable financial foundation and a strong potential for future growth.
Unique products or services: Differentiating your company from competitors by offering unique products or services can be a significant advantage. This can include proprietary technology, innovative products or services, or a unique business model. Highlighting these factors can increase the value of your company in the eyes of potential buyers.
Potential for growth and expansion: Demonstrating the potential for future growth is critical for attracting potential buyers. This can include expanding into new markets, increasing market share, and developing new products or services. Buyers will want to see a clear roadmap for growth and a solid plan for future success.
Patents, trademarks, and proprietary technology: Patents, trademarks, and other proprietary technology can provide a competitive advantage for your company and increase its value. Potential buyers will be interested in acquiring these assets as they can provide a unique selling point and increase the company’s competitiveness.
Positive industry trends and market conditions: The current market conditions and industry trends can also have an impact on the value of your company. If your industry is experiencing growth, for example, this can increase the value of your company and make it more attractive to potential buyers.
Shareholders must be able to effectively communicate and defend the intangible value of the company to potential buyers, such as customer relationships/contracts, existing workforce, established policies and systems, intellectual property, patents, trademarks, copyrights, proprietary software, and the goodwill attached to the company’s location or brand name. To achieve the highest value, it is crucial to show that the business, its customer base, intangible assets, and goodwill can be transferred and utilized commercially.
To attract potential buyers, shareholders must highlight the key strengths of the business, its competitiveness in the market, market share, and positive risk factors, presenting the business as a valuable opportunity. In case negative risk factors are brought up during deal negotiation, shareholders must have a plan in place to address them.
While maximizing the stand-alone value is important, it’s also crucial to find special interest purchasers. According to the International Glossary of Business Valuation Terms, special interest purchasers are acquirers who see post-acquisition benefits such as economies of scale, synergies, or strategic advantages by merging the acquired business with their own.
A special interest purchaser would be willing to pay more than the intrinsic or stand-alone value, as a special interest premium. For this premium to have value, it is assumed that there are multiple special interest purchasers in the market.
Understand the intricacies involved in maximizing shareholder value when selling your business. Contact our toronto team today to learn more on how our experienced team of professionals can assist you in value creation.