Eric Bosveld of B&A Corporate Advisors discusses a typical problem in M&A dealings termed as "The Perpetual Valuation Gap". This is when the owner's valuation of the company perpetually exceeds market-based valuation. Even after a business grows to the owner's initial valuation, they elevate their expectations. This can lead to failed selling attempts, deterring potential buyers. The most successful sales processes occur when parties reach a consensus on potential value before initiating the sale, coupled with proper preparation, professional marketing, and structured incentives for alignment between client and advisor.
This article by Eric Bosveld addresses common misconceptions in business valuation myths. It challenges beliefs that asset value equates to business value, arguing that cash flow drive value. Standard EBITDA multiples aren't reliable business valuation methodologies and enterprise value doesn't translate to equity value. Working capital shouldn't be added to business value as these constantly change. The author plans to address more myths in future articles.
This article discusses the importance of Pre-Sale Due Diligence in business transactions. Sellers often underestimate the impact of withholding information, which may jeopardize the sale. Conducting a thorough pre-sale due diligence helps identify and resolve issues beforehand. The process involves a comprehensive review of the business, compiling important information for potential buyers and addressing possible queries or concerns they may encounter. It reiterates that disclosure and rectification of shortcomings before negotiations is preferable, as buyers inevitably uncover hidden issues.
When selling a business, transparency with EBITDA addbacks is crucial as it impacts buyer's valuation perspectives. Unjustified addbacks might harm negotiation outcomes. It’s advisable to present accurate adjustments, ensuring clear justifications, before the buyer's due diligence process.