Offers to buy my company basically out of the blue… not sure what to do next

[Anonymous]

I own a pretty successful business that generates $2M-$2.5M net profit annually. For the last few years I’ve had people generically approach me and ask if I would sell. I always say if the numbers were right, yes. Thus far it hadn’t gone anywhere.

Yesterday I had an ambush lunch where I was asked at what price I would sell. The deal involved my staying on board for a few years after the sale, investing some of my sale proceeds and then making more money when that company presumably sells again (classic private equity deal). Based on past conversations I through out that I would sell at a $8-$10M price, based on how long I had to stay and any earn out provisions (thresholds that had to be met for me get fully paid).

Today I got an entirely unrelated offer from a very big player at $10M or so cash at the table. 1 year commitment to stay for a small additional earn out.

I have plenty of other assets and some other businesses. Id probably still make $1M-$1.5M from those sources so I obviously it’s not a question of is it enough money for me. I don’t have to sell. I could do this another 10-20 years and would clearly make a lot more. But on the flip side it is extremely stressful and I could walk. Id probably do something else after but no clue what.

My problem is that i have no idea whether the offer is a good offer. From what I know it’s good and gut instinct say that I can push it up a bit and during due diligence they will push it back down a bit. Im Mindful of tax increases. They say that they can close by year end and the tax difference is about $1M if I close this year as opposed to next of the proposed increases go into effect.

Where do I go from here?

[Anonymous]

I don't know if anyone here has the chops to advise you on this. I don't know if anyone on Bogleheads could either, but at least they are a dedicated money site. You might get more answers there.

Congrats on the offers, and having choices!

[Anonymous]

That’s not a great multiple unless your EBITDA is lower than I’m assuming from your profit number? It would only make sense if you are getting that buyout but keeping a decent percentage of equity? And is the buyer PE or in the industry? Industry there’s no guaranteed exit in a decent time frame so I’d want an earn out. PE what is their track record? And what’s their average life before exit?

[Anonymous]

Anonymous wrote:That’s not a great multiple unless your EBITDA is lower than I’m assuming from your profit number? It would only make sense if you are getting that buyout but keeping a decent percentage of equity? And is the buyer PE or in the industry? Industry there’s no guaranteed exit in a decent time frame so I’d want an earn out. PE what is their track record? And what’s their average life before exit?

With knowing the type of business how do you know whether the ebidta multiple is low or high? The earn out is an extra .5 EBIDTA. It’s fairly insignificant. The offer is effectively cash with a 1 year transition period.

[Anonymous]

I don’t understand how you could be at this level of success and yet go to DCUM, a mommy forum, for advice.

Don’t you have a mentor or something?

[Anonymous]

Anonymous wrote:

Anonymous wrote:That’s not a great multiple unless your EBITDA is lower than I’m assuming from your profit number? It would only make sense if you are getting that buyout but keeping a decent percentage of equity? And is the buyer PE or in the industry? Industry there’s no guaranteed exit in a decent time frame so I’d want an earn out. PE what is their track record? And what’s their average life before exit?

With knowing the type of business how do you know whether the ebidta multiple is low or high? The earn out is an extra .5 EBIDTA. It’s fairly insignificant. The offer is effectively cash with a 1 year transition period.

Yeah - If you expect fairly low growth of profits, the offer may be good. If you expect high growth of profits, then it’s probably low.

[Anonymous]

You need to understand what the company is worth in such a sale transaction, which is not the same as what you are willing to accept. I strongly recommend you get an advisor to help us value the company in a sale if you are serious about moving forward.

[Anonymous]

Anonymous wrote:You need to understand what the company is worth in such a sale transaction, which is not the same as what you are willing to accept. I strongly recommend you get an advisor to help us value the company in a sale if you are serious about moving forward.

*us = you

[Anonymous]

How is it possible that you have built and operated multiple successful businesses, make more than $1m per year, have the opportunity to sell one of the businesses for 8 figures, and still have absolutely no idea how to value that business, such that your come to an anonymous forum to ask, "where do I go from here?"

I'm really having trouble wrapping my head around that.

[Anonymous]

Anonymous wrote:How is it possible that you have built and operated multiple successful businesses, make more than $1m per year, have the opportunity to sell one of the businesses for 8 figures, and still have absolutely no idea how to value that business, such that your come to an anonymous forum to ask, "where do I go from here?"

I'm really having trouble wrapping my head around that.

+1. I’m not really buying this story because there’s no way OP built a business to that size without having some kind of resource with more experience than DCUM that they could tap for insight/advice. Even if just an Internet forum more targeted to business owners.

[Anonymous]

Why would you only sell for 4-5x of annual PROFIT? These guys are low-balling you.

[Anonymous]

Anonymous wrote:

Anonymous wrote:How is it possible that you have built and operated multiple successful businesses, make more than $1m per year, have the opportunity to sell one of the businesses for 8 figures, and still have absolutely no idea how to value that business, such that your come to an anonymous forum to ask, "where do I go from here?"

I'm really having trouble wrapping my head around that.

+1. I’m not really buying this story because there’s no way OP built a business to that size without having some kind of resource with more experience than DCUM that they could tap for insight/advice. Even if just an Internet forum more targeted to business owners.

+1. If this post is legit, I need to quit my law firm immediately and start a business. Yeeesh.

[Anonymous]

I would not do it for 5x net profit.

[Anonymous]

Anonymous wrote:How is it possible that you have built and operated multiple successful businesses, make more than $1m per year, have the opportunity to sell one of the businesses for 8 figures, and still have absolutely no idea how to value that business, such that your come to an anonymous forum to ask, "where do I go from here?"

I'm really having trouble wrapping my head around that.

Indeed. Gob smacking.

[Anonymous]

My guess is it something real estate related, probably commercial real estate, and some kind of bigger investor wants to increase their holdings.

If so, what is the value of the properties combined with a multiple on annual rent, how long are the current leases, and history of leases.

I think someone who has accumulated properties over decades might not have necessarily have a mentor or contacts who know how to sell.

I recently was asking the same sort of question of a banker who deals in real estate and he knew exactly how to determine what a commercial property was worth.