Set an Asking Price?

By Dennis McCarthy – (213) 222-8260 – – 

Welcome to the M&A Series – M&A for middle market companies considering a sale.

In this video, I’ll address a tactical issue which comes up frequently with first time sellers, that is, whether a seller should set an asking price.

If you’ve sold a house, you’ve probably set an asking price.  For home sales, there’s lots of data about comparable homes and prices.  Even for some businesses, say a franchise business where there’re lots of comparables, an owner might set an asking price.

For most businesses, however, I don’t suggest setting an asking price.  It’s not the way to get the best price.

For most businesses, there aren’t enough good comparable.  Plus, the seller shouldn’t settle for a price based on the business standalone.

Instead, a seller should seek a higher value, a value that includes something of what it’s worth to the buyer. 

The seller should try to get some synergy value from the buyer which comes from cost savings or additional revenues or something.

Not surprisingly, buyers don’t want to pay the seller for the extra value the buyer creates.

To get a potential buyer to pay that extra value a seller must create a sense of competition among potential buyers.

I’ve seen cases where a buyer, often a very big company with lots of cash, “absolutely must have” the seller’s company to meet some corporate or personal goals. 

These buyers can pay whatever they want.  No excel model really captures the value proposition there. 

Because the value of your business is really “in the eye of the buyer”, it’s very difficult to determine that value. Let the buyers propose a value.  Let the competition encourage high bids. 

I can help your company to run a productive auction that creates a sense of competition among potential buyers.

Please contact me to help your company to get top dollar from a sale or to complete any capital market project.