The simple answer is this. Talk to several buyers!
To establish the value of your company at a specific point in time, it is necessary to talk to several number of potential buyers. Why you may ask. Isn't there an objective ‘right’ value for the company? And the simple answer to that is no.
One of the main reasons for this is that today's company valuations are primarily based on expectations of future earnings; a method that differs significantly from times gone by when valuations were primarily based on the company's substance or equity. The keyword in this context is the ‘future’. It is filled with uncertainties, both regarding opportunities and risks, which means that it is always open to interpretation.
One must speak with many buyers to establish a market value for the company.
Depending on the perspective one adopts, one can see several different positive or negative outcomes. This stands in contrast to, for instance, real estate valuation which is based largely on a relatively constant and predictable rental income. A company's profit can multiply by ten or go down to zero in just a few years!
Buyers' valuation of the company's future earning potential and possible growth is based on their subjective view of market development, perceived competitive advantages, and existing risks. Therefore, it is logical that their valuations vary greatly, and we see that this is valid for both industrial and financial buyers.
The outcome of the above is that the highest bid can often be twice as high as the lowest. To summarize: Since it fundamentally is about guesses when it comes to company valuations, it is impossible to know in advance who will pay the most and how much more or less someone else would pay.
Therefore, one must speak with many buyers to establish a market value for the company.
Knowledge
We don't hide behind jargon and complexity. Instead, we aim to open up the black box of M&A, illuminating the path with clear insight, simplifying the process, and delivering valuable information.
