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

[Anonymous]

Anonymous wrote: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?

To be fair, there are some “mommies” who are pretty good at this stuff.

But I wouldn’t ask random strangers on ANY forum for advice on something this large. That’s just asking for trouble.

[Anonymous]

Anonymous wrote:I would not do it for 5x net profit.

+1
I'm certainly no expert and have never owned or sold a business but even I know it's worth at least 8-10x net profit.

[Anonymous]

Is it anything at all tech related? If any recurring revenue, this is a BAD deal for you.

[Anonymous]

I'm an entrepreneur with a company in a similar situation. I get offers once every 1-2 months. I've been struggling with this also. As others have noted, there's no one right way to value a company -- it varies widely by industry. Also, right now there's a lot of capital and few opportunities, so things are getting bid up.

My hesitancy in selling is you cut off the "ATM" that is your business. There's a psychological barrier in how you spend (at least it would be for me) when you know next year you'll make more money, vs after selling when you're living off "savings" (my plan is not to have to work again once I sell).

I worked with my financial advisors to come up with what number would allow us to sustain our current spending lifestyle, also account for big upcomgin spending (kids college), and how much we'd need in the bank to make that happen living off the investment returns. That's the number I'd be comfortable at selling for, once I'm ready. If I get more, great. If I don't, I'll work another yera and put anothre $1mln+ in my pocket. It's hard to cut off that gravy train.

Besides all that, look closely at taxes as those are a BIG hit at these kinds of numbers. $10mln may end up being $5mln in your pocket after federal and state taxes (remember NIIT comes into play also at the federal level).

[Anonymous]

Anonymous wrote:

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.

Building and running a business is a separate discipline than mergers and acquisitions. People who can value a business also may not be able to run let alone build a business. Just because you are a home owner for 20 years doesn’t mean you would make a good realtor just because you lived in a house.

[Anonymous]

Are you nuts? Only 4-5x profit? Seriously that is absurdly low. Table stakes are 8-10x profit.

[Anonymous]

Anonymous wrote: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?

Hey cheapskate, go hire an evaluator instead of scrounging for free advice here.

[Anonymous]

Anonymous wrote:Are you nuts? Only 4-5x profit? Seriously that is absurdly low. Table stakes are 8-10x profit.

NP but again, it depends! Multiples like that are typically for business with most, if not all, recurring subscription revenue. If it's a professional services firm, maybe with cyclical business or a long sales cycle, the multiple could be quite low. Industry, pipeline, all these things matter. FWIW, I also agree that M&A is entirely different than running a business. I have 3 family members who own small businesses and NONE of them now how to do a valuation nor have they gotten one done - in spite of my steady pressure to do so.

- Signed my DC mom who has managed the acquisition of 3 companies

[Anonymous]

Anonymous wrote:

Anonymous wrote:Clarifying point on above; if at no time it had $50M in assets you can grant yourself shares or equity that will have QSBS treatment.

You have to hold the shares for at least 5 years.

Yes also true. There are some provisions, but it’s not impossible.