As part of a video series produced by Dave Kauppi, president of MidMarket Cpaital, this short video discusses how to get the best value for your assets while engaging the highest bid possible from your potential buyer.
Hi. I m Dave Kauppi, president of MidMarket Capital, a technology focused Mergers and Acquisition firm and the Editor of the Exit Strategist Newsletter.
The Key to driving strategic value in the sale of a technology company is to move buyers up from their starting price based on a conservative Cash Flow multiple. As a seller, you must first earn your strategic value by building a great company. In your business sale, that must be captured and articulated in a competitive M&A process in order to unleash your optimized selling price. In this series of videos we will present 7 factors that we use to drive maximum strategic value.
Another approach we use is a customer acquisition cost model to drive value in the eyes of a potential buyer. What we want to estimate is what does it cost the buying company to acquire a new customer. They will not volunteer that information so we can estimate it by calculating our client's customer acquisition cost and using that as an estimate for the buyer's costs.
Let's say that your sales person at 100% of Quota earns total salary and commissions of $125,000 and sells 5 net new accounts. That would mean that your base customer acquisition cost per account was $25,000. Add to this a 20% company overhead component and your acquisition cost is $30,000 per account.
Let's say your company has 100 installed accounts, for example, and the company value, using this methodology would be $3,000,000. Meanwhile your EBITDA is $500,000 and the buyer is trying to buy you for a 5 X multiple, or $2,500,000. We could use our customer acquisition cost approach to point out that at a value of $3,000,000 it is likely more cost effective to acquire this customer base than it would be to grow it organically, because likely with their higher overhead, their customer acquisition costs would be higher than that of the small company.
We want the buyer to consider the potential value creation of your assets in their hands post acquisition and to base their price on this view, not your 5 X multiple of EBITDA. We will use this approach in combination with several other strategic value drivers to help the buyer justify paying a higher price.
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