Jaroslav was a typical 1990s entrepreneur. He was 57 and had no longer fun doing business, his company did not require much of his managerial skills and he did not feel like starting up something new.
He came to a conclusion that he had saved enough for his family and that after the years of hard work he deserved to retire. His only daughter was not interested in the business, she was actually successful in an absolutely different field.
The most rational solution seemed to be to sell his company. Being a successful and diligent entrepreneur, Jaroslav thought of risks, which is why he considered thoroughly who he could sell his company to, for how much and how to avoid mistakes when selling his “beloved child”. He felt relieved when his friends that he was staying in mountains with recommended him Meriglobe, an advisory company they had good first-hand experience with.
“They’ll help you, no matter the condition of your company. They’ll find you an investor and they are really fast. Just be as frank as you can. There’s no point in making up anything. Lots of entrepreneurs tend to sanitise figures, but if you want to have a deal done, it is important you do not pretend anything,” our regular clients recommended him openly.
Jaroslav arranged a meeting in our office. When he came he looked rather unconvinced.
“How long do you need to find me a buyer?” was one of his very first questions.
“It depends. In the case of an ill company it is usually immediately, but for a healthy one, which seems to be your case according to the information you’ve given us, it may take several months, maybe even years. It will depend on the actual condition of your company and in what industry it does business,” Aleš, our consultant, informed him.
“Well, I don’t want to go much in details for the time being. In my industry it can be a big drawback if people learn too early that the company is for sale. It could damage it and decrease its price. I have no idea what your services will cost me, but I would like to get 30 million from the sale,” said Jaroslav confidently.
Aleš was not surprised by his impatience or his confidence concerning the selling price. After many years in consultancy and dealing with entrepreneurs he knew that their initial expectations are often far-fetched, regardless of whether they own assets worth hundreds of millions or have debts of the same amount.
“Before we proceed any further, I suggest we sign a Non-Disclosure Agreement,” said Aleš, describing the essentials of the process. Mutual trust is the cornerstone of any deal. Anything that we do afterwards is to the benefit of our clients and with the purpose of promoting their interests.
“We understand your arguments, but we need to vet the actual situation. By signing the NDA we mean to reassure you that you don’t need to worry about being upfront with us and we guarantee that we won’t misuse any information or disclose it to your competitors.”
Nevertheless, Jaroslav was still hesitant to tell us more details about his company’s business, leave alone naming it. “Can you make me an anonymous offer?”
“We can run an approximate initial analysis and make a rough evaluation of your company,” Aleš admitted. “However, some investors are only interested in synergies in specific industries and if we don’t tell them which one it is, your chances of getting the best buyer shrink. How can we do the best for you without you having confidence in us? But for the sake of your peace of mind we can arrange that you disclose us different pieces of information one after another when we need them.”
Just like vast majority of other entrepreneurs, even Jaroslav eventually decided to reveal the identity of his company and nothing hindered us from conducting a detailed analysis. He could consider himself lucky for he had a very diligent accountant.
“Having a conscientious accountant is a blessing for any company,” were Aleš’s words of praise when he was going through figures pertaining to supplies and products. Surprisingly, the information presented by the accountant was not much distorted, perhaps with the exception of an expert opinion of the property price that we found rather lowish. “I presume you’ve got divorced recently,” said our advisor, judging on his experience, and he was right.
He probably left an impression on Jaroslav and all barriers were broken since then. “How much can you sell it for then?”
“Generally speaking, we deduct liabilities from assets and add a multiple of net annual profit depending on the industry,” Aleš explained how we typically proceed. “The multiples may differ greatly: in restaurants it is a double, whereas when selling a well-established factory with real estate and tradition it may be up to seven annual profits. With respect to what I know about your company, we can talk about a quintuple. I expect the final price will not differ much from your initial estimate, which is not often the case.”
Company owners, particularly the indebted ones, are often surprised that they can’t sell their company for a sum they envisioned at first. However, in Jaroslav’s case we only needed to make a few retouches and in a couple of months we found him a buyer willing to pay 27 million. His company was in a good condition and since he had no one he could hand it over to, selling it in such a situation was the best solution for him.