GUIDE

The offer you've received is worse than you think - but how can you be sure?

The answer is simple – because the first offer is almost never the best one.

Just consider your own behaviour.  If you decide to buy a house, do you place your maximum bid right away?  Probably not, right?  Sure, there is a difference between a company and a property, but the fact is that company valuation is often a guessing game.

Bidding process 

While it is certainly flattering to receive a bid for a business you have built, a hasty acceptance can lead to disappointing consequences. Our experience shows there can be a 100 per cent difference between the lowest and highest bids during a business sale. 

Calculating value

So how is it that investors calculate the value of a business so differently, despite having the same information to work from? 

The answer is that companies are built on ideas and people, not bricks and mortar. Fifty years ago, the value of a company lay predominantly in its machines or factories – physical things that were easy to value. Today, the process is almost exclusively focused on an understanding of the future of the company.

Of course, the future is subjective. How many products will the customer want to buy in five years? How will my product compare to competitors? What will the general economic situation look like? There is no correct answer, and therefore there is no such thing as a correct valuation.

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It is flattering to receive a bid for a business you have built but a hasty acceptance can lead to disappointing consequences.

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Potential risks 

There are also many pitfalls to watch out for if you enter a process without ensuring you have good advisors. Many buyers will require you to sign a confidentiality agreement and do not want you to discuss the deal with anyone – it's a clear sign that they've placed an underbid. You should always reserve the right to seek advice to check if the price is reasonable.

It's also common for buyers to present various imaginative ways to structure the deal – complicated setups with preference shares or various additional purchase prices. Our experience reveals that many of these arrangements are designed to make the bid seem better than it is.

Another risk of settling for a bid can arise quite far into the process. If the deal is over €10m, you can be certain that the buyer will start a very extensive investigation of your company and scrutinise every detail. If they then find something during due diligence that makes them want to lower the bid, you'll be in a weak negotiating position; you've put a lot of effort and time into a buyer and have no others to turn to.

If you have received a bid for your company, or are considering selling, you have everything to gain by contacting a trusted financial adviser.

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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.