What Does Maximum “Value” actually mean when selling a business?

When the time comes for business owners to think about selling their business it is usually one or, if not the, most valuable assets they possess.   And so it’s important that they get something truly valuable in return.   Typically, that’s money.   But most transactions have lots of other valuable features – so in company sales it’s not just about the money.

When a company owner hires an M&A adviser like PEM Corporate Finance to work with him or her on the sale of his/her business we are typically charged with helping to maximize value.  But not all business sellers appreciate fully that “value” can mean much more than money.   “Value” can of course be extracted in many forms other than cash, such as:

• Loan Notes
• Earn-out agreements
• Releases of liabilities, such as guarantees.
• Waiver of contingent liabilities
• Ongoing benefits, such as insurance coverage or use of a vehicle or premises
• Consultancy agreement for the Vendor
• Employment agreements for employees
• Agreement to lease certain real estate or other assets

In the sale preparation process, we work with Vendors to determine what they would enjoy or find value in.  Of course there’s no telling what a strategic buyer might be prepared to pay until we can get them into a competitive process, but its useful to prioritize before going into an auction.

For example:

1. Cash at closing
2. Long-term “market” lease of property that the Vendor owns personally or in his/her pension fund
3. Firm obligations to pay cash post-closing – i.e. deferred consideration rather than earn out.
4. Employment agreements for top 3 executives
5. Earn-out agreements
6. Release of contingent liabilities

This priorities list can then inform the negotiation, and it’s a useful expectations setting exercise ahead of the sale process. 

So “maximising value” relates to anything that is of value to the seller.  It will probably should be much more than cash because the buyers have a limited amount of cash they can provide at closing, and yet they usually have other “things of value” they can deliver if the negotiation is skilfully handled.  This is one reason why its better to have skilled experienced M&A/corporate fiannce advisors on your side rather than working with a brokerage which simply puts buyers and seller together and then leaves them to it.