How Middle Market Companies are Valued and Sold
By: Zane P. Tarence
For most people the steps to selling a middle market company are generally not that well known. Yet there is proven methodology that, when followed, increases the likelihood of a company obtaining a premium value and getting a deal done. The challenge usually isn’t finding potential buyers, it’s finding the right buyer or investor. It takes a systematic approach to identify and connect with the best candidates, because it is not always obvious who the best buyer might be.
If you already know potential buyers because they are a customer, partner, family member, or competitor, you should ask yourself if they are willing (and able) to pay fair market price. Fair market value is the most likely price at which a business will change hands within a reasonable period of time between a willing buyer and a willing seller in an “arms length” transaction. That definition tells you what fair market value is, but it doesn’t shed much light on how price is actually determined.
As I previously mentioned, there is proven methodology that, when followed, increases the likelihood of obtaining a premium value and getting a deal done. So what is that methodology?
At Founders, we believe the best way to achieve a premium valuation is to run a disciplined sell-side process. A sell-side process creates a competitive market by presenting the company and soliciting offers from multiple pre-qualified and informed buyers. It sounds simple enough, but there are five major phases to creating a competitive deal environment with an incredible number of steps and nuances along the way:
- Preparation & Packaging
- Buyer Research & Development
- Marketing & Buyer Communications
- Negotiations & Letter of Intent
- Due Diligence & Closing
Experienced M&A advisors manage this complex process to ensure a smooth and orderly transaction. For additional details about the phases of the process, download our eBook “How Middle Market Companies are Valued and Sold.” In the eBook we dive into each of these phases in detail from the vantage point of owners and CEOS who seek both a premium price and high probability of getting the deal done.
About Founders Investment Banking
Founders Investment Banking (Founders) is a merger, acquisition & strategic advisory firm serving middle-market companies. Founders’ focus is on oil and gas, SaaS/software, industrials, internet, digital media and healthcare companies located nationwide, as well as companies based in the Southeast across a variety of industries. Founders’ skilled professionals, proven expertise and process-based solutions help companies access growth capital, make acquisitions, and/or prepare for and execute liquidity events to achieve specific financial goals. In order to provide securities-related services discussed herein, certain principals of Founders are licensed with M&A Securities Group, Inc. or Founders M&A Advisory, LLC, both members FINRA & SiPC. M&A Securities Group and Founders are unaffiliated entities. Founders M&A Advisory is a wholly owned subsidiary of Founders. For more information, visit www.foundersib.com.