Telecomms Technology MBO
Have the mighty really fallen ?

If the price is right - why valuation isn't always meaningful

Shareholders in businesses are interested to know what their shares are worth.  Some even have professional valuations prepared.  Some of these are useful; valuations for tax purposes, to settle divorces, or to organise the buyback of shares from exiting shareholders.  But for most owner managers its the realistic value that they might get from actually selling the company that matters.

This will vary depending on who might want to buy - sorry if that seems really obvious, but for some otherwise quite good business there may be a narrow market, as they may have limited appeal.  Also competition amongst buyers will help uplift the price - I have seen deals where the ultimate price was uplifted beyond the realms of sanity by competitive pressure.   The best way to get an idea of what a business is worth - short of selling it - is to get an adviser with access to the data to do a search for sales of similar businesses to benchmark what people are really paying.   

The buyer may have its own way of looking at price and valuation that influences the outcome.    I have recently been involved in selling a business to a quoted plc which was very focused on the headline price, as it would be intensely scrutinised on this by the stock-market.  However there were lots of other areas where we were able to negotiate  benefit for the Vendors of the business where the plc was much less sensitive. 

So value is not just about the headline price, and desk based valuations are often nothing to do with ultimate price.   

Valuation can also become a really heated topic when raising venture capital - some thoughts on that in a subsequent post.


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