A New EBITDA Adjustment to Drive Business Selling Price (a short video)

Click Here to Watch Our Short Video          The Key to driving strategic value in the sale of a technology company is to move buyers up from their starting price based on a conservative Cash Flow multiple. As a  seller, you must first earn your strategic value by building a great company. In your business sale, that must be captured and articulated in a competitive M&A process in order to unleash your optimized selling price.  In this series of videos we will present 7 factors that we use to drive maximum strategic value.

Another arrow in our valuation driving quiver for our sellers is we restate historical financials using the pricing power of the brand name acquirer. We had one client that was a small IT company that had developed a fine piece of software that compared favorably with a large, publicly traded company’s solution. Our product had the same functionality, ease of use, and open systems platform, but there was one very important difference. The end-user customer’s perception of risk was far greater with the little IT company that could be “out of business tomorrow.”

It turns out that our client was having to discount his product license fee by 50% in order to compete for sales with the large, brand name competitor.  We did an analysis where we re-priced our smaller client's product sales as if they were at the same pricing level as the large company competitor.  We were literally able to double the financial performance of our client on paper and present a compelling argument to the big company buyer that those economics would be immediately available to him post acquisition. It certainly was not GAP Accounting, but it was effective as a tool to drive transaction value.

We want the buyer to consider the potential value creation of your assets in their hands post acquisition and to base their price on this view, not a 5 X multiple of EBITDA. The best way to move them in our direction is to present these compelling value arguments. They are skilled and experienced negotiators and try to deflect our message. The one message that lingers is that they understand that we are making the same presentation to their competitors and our message may be resonating with them. The number one factor in realizing strategic value from a business sale is a competitive bidding process among the best buyers.