How do I evaluate an acquisition offer for my company?

QUESTION:

I have been approached by both individuals and investment organizations about purchasing my company, PetTravelCenter.com. I started the business four years ago to ensure an income stream for my retirement years, but a purchase could make that happen sooner. How do I estimate the market value and evaluate an offer? I own other domain assets (e.g., PetTravelProducts.com) associated with the industry segment that enhance the value of the business, and I have #1 Google and other major search engine rankings for terms such as “pet travel products.”

ANSWER:

by Budha Has  (financial enlightenment advisor)

2 Pronged approach.

1) Setting the price: What is your target? How much do you hope to make, what is your current revenues, what is the valuation of a business of your revenue in your space. What is the google ranking worth in terms of driving % traffic to your website (i.e. put a price on the leads you’re getting per day, keeping in mind the actual conversion, revenues generated)?

2) Due Diligence, and Market evaluation: What is an industry benchmark – Who are your target acquirers, what is their interest in your business. How will your business add to their goals in 1, 3, 5 years. How much will your business make for them in the next 1, 3, 5 years. Is a multiple of 3-5 on your revenues OR 10-15x Profit After Tax somewhere near your target price?

3) Beauty is in the eyes of the beholder. How many potential acquirers are there? Who will benefit most from acquiring you? A foreign company looking to expand to your market? A local company that could increase revenues, a competitor who wants to merge the 2 entities and make it a global big player? Find out what appeals to an acquirer.

4) Negotiations and Sale: How much do you want to disclose before the other learns enough about your business to decide whether to acquire you or not. Do the numbers speak for themselves, without showing too much of a sustainable advantage (without disclosing it?)? Is their offer good? If it is way out of your expected range, then communicate so, immediately. (in multiples – I was looking at 3x that amount) where you can. Do remember there will be further negotiations, so always quote above what you want as the value, if there is enough market intelligence backing for your case.

5) Your role once the acquisition is done: Does the company want you to stick around and run the business once they acquire you? In which case, this isn’t exactly retirement for you.