How Much is My Company Worth? Who is Going to Buy It?
Throughout the history of TechBargains, my brother and I, like many entrepreneurs, would frequently ask ourselves what someone would pay for our company if we decided to sell. Our motivation to start the company had little to do with an eventual “exit,” but we knew we had built something of value after achieving five years of steady growth and solid profit margins.
The Subjectivity of Valuations
As we asked other entrepreneurs and potential advisors what they thought our company was worth, we got a broad range of responses. Advice often pointed to multiples of revenue or earnings, with one advisor suggesting a discounted cash flow as the best methodology. Growth rate seemed to be an important, but subjective, variable as was size of the company and future financial projections.
When we met the Arbor team, they somewhat bluntly told us that “Your company is worth exactly what someone is willing to pay for it, not a penny more.” While this seemed obvious and true, their explanation of the elasticity of potential outcomes resonated. They focused on the process of driving deal terms up through a competitive process which made sense to us. Their approach to negotiation was unique, and the eventual outcome was beyond what we had expected.
The Buyer Wasn’t Obvious!
Because we were fairly early in the daily-deal space, we felt like we knew the logical buyers, who we assumed would be large companies in our sector. Because there weren’t too many of them, we struggled with the decision of whether we needed a bank to make introductions for us.
In the end we ended up hiring Arbor and doing a deal with a buyer we had never heard of. We met with both public and private companies during the process, and many of the companies who were most interested in us came from the “non-obvious” category. The company that acquired us, Exponential, was an overall good fit for us, and Arbor was able to negotiate a deal that surpassed our expectations.
As I reflect back on the deal, we had assumed that having relationships with the buyers and making introductions was the primary value-add on the part of the investment bank. While Arbor did succeed at finding a non-obvious buyer, the biggest value-add was in negotiating a deal that pleasantly surprised us.
Norman Fong is currently with BuyVia, which he founded in 2012.