I attended a competitor's seminar the other week on selling businesses - more of a pile them high broker than a bespoke M&A boutique or seller of quality business as we like (modestly!) to think of ourselves. However competitive intelligence is good for the soul!
A lot of what they had to say was quite sensible. In particular they rightly pointed out that while the normal distribution of outcomes for company sales suggests that a earnings multiple of 7 is the likely outcome one should aim to be at the end of the graph where strategic premiums are paid.
I take issue with two things. The first is the suggestion that accountants just use the average and "value" businesses on a 7 times multiple. No doubt some do - but we are at pains to understand what will really drive value in a business and make it strategic to a buyer. We also work hard to find - from some serious research and thinking - a good range of potential strategic purchasers, internationally if necessary. I tell anyone who will listen that "valuation" is only of interest to tax accountants, lawyers and the divorce courts. I do accept however its relevance to share options and Venture Capital pricing .
Incidentally beware of anyone who quotes the law of averages at you. This suggests that because on average the earth suffers a catastrophic asteroid strike once every 65 million years that we are OK for another 35 million years. Of course one could strike tomorrow and not disturb the long term average if the following strike was over 100 million years out!
The second thing I disagree with is the implication that there is a strategic buyer out there for every business if you just research hard enough, make enough calls, and scatter the businesses details wide enough! This is washing your linen very very publicly - and the reality is that some businesses whilst no doubt making a good living for the owner are just the wrong size, shape, colour, location or whatever to capture a strategic buyer.
Of course if you take the broker approach and take a big enough fee for your up front work that you make good money regardless of whether the strategic sale materialises then you don't care. I'd rather put my money where my mouth is and take on assignments where I really feel that we could make a difference, and I think honesty at the outset about the prospects for the sale is a far better way to do business.