The most common question a business owner asks me when discussing a potential sale of his company is, “What do you think my business is worth?” Regarding valuation, there are some rules of thumb that apply to different types of companies. However, my pat answer rarely surprises: “Your company is worth what someone will pay for it.”
The buyer who is willing to pay the highest price has typically made an internal evaluation that provides the highest return on investment as compared to other buyers. In other words, that potential buyer sees the best value in what an owner has already built and can most clearly see a bright future for the company. The trick is finding someone who will pay the best and soliciting that offer from him or her.
How does one find what the market will truly bear when selling anything? It’s not rocket science: The larger the sample size, the better the analysis. That is why eBay is a popular channel for sales. I am not suggesting an eBay public auction for a business, but the concept of reaching a critical mass of potential buyers to ensure achieving market rate remains.
One of the distinguishing elements of IVS Investment Banking’s process for finding investors is the “dual path” we run with both potential strategic buyers and potential financial investors. No other investment bank does what we do within the energy markets. This gives our clients a larger “sample size” and a proven method of receiving a better price.
Financial investors are sometimes highworth individuals called angel investors. More often, they are private equity groups (PEGs). A PEG is an investment manager who makes investments in the private equity of operating companies. The fund may be made up from contributions by highworth individuals, trusts, retirement funds, etc. The idea is an investment in a company (or across companies) will provide a higher rate of return than other investments like bonds, savings accounts, etc. PEGs like to acquire a controlling or substantial minority position in a company and then look to maximize the value of that investment. Typically, financial investors aren’t deeply tied to one type of investment. Be it medical manufacturing or oil field service, the real key is the evaluation of return on investment.
A strategic buyer is typically another operating company in the same general field as the seller. A strategic buyer might acquire a firm providing similar services in order to enter a new geographic market or a new industry, to acquire specific contracts or even to eliminate a competitor. Also, a strategic buyer may acquire a firm providing related services to the same clientele, expanding its service line horizontally and leveraging its sales and business development team. Oftentimes overhead is cut in the acquisition process by eliminating duplicative support services (i.e., no need for two accounting departments or two human resources groups). In any case, these acquisitions make “strategic sense” to the buyer when one plus one equals two and one-half or more.
Regarding financial investors, IVS Investment Banking’s managing partner John Zapalac has more than 20 years’ investment banking experience. Tapping into his contact base and our own efforts since closing our first transaction in 1997, IVS has accumulated direct ongoing relationships and contact with almost every PEG interested in the energy services and manufacturing sector.
Regarding strategic investors, IVS Investment Banking’s status as a sister company within BIC Alliance affords us unmatched contact and relationships with potential strategic buyers. Because we operate BIC Magazine, thousands of operating companies are within our easy reach, and we maintain cell phone relationships with hundreds of business owners and CEOs in the energy sector. No other investment bank can come close to our contacts in the energy markets.
If you are an energy-related business looking for a buyer with a strategic reason to partner with you or for a financial investor who evaluates your position and growth potential most aggressively, BIC Alliance and IVS Investment Banking can make that connection.
For more information, visit www.ivsinvestmentbanking.com or call (281) 538-9996.
