inspirator schreef op 7 september 2012 07:35:
TomTom = Potentiele winnaar
TomTom aandeel is kansrijk
TomTom is interessant voor belegger en speculant
TomTom is vette vis voor Apple
“Having products or services that damage competitors is an effective way of making them want you and willing to pay a premium price.”
High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail.
September 7, 2012 12:08 am
Selling a business: Valuation can be more of an art than a science
By Jane Bird
Entrepreneurs dream of selling their business for a high price. Achieving this depends not just on commercial success, but also on timing, competitive pressure and market sentiment.
Selling a business can be a painful process, says Bryan Morton, who founded two private-equity-backed drug development companies: Zeneus Holdings, sold for $360m to Cephalon in 2005, and EUSA Pharma, bought by Jazz Pharmaceuticals for $700m in June this year.
More
On this story
Overview ‘Golden era’ for those with confidence
Private equity Tighter loans make for smaller deals
Investment Innovation is key to staying in the game
Access to finance There is more than one way to fund a company
Corporate ethics Freedom can boost sustainable credentials
IN Private Business 2012
Communications Companies still need to employ a mixture of methods
Private Business Awards Entries surge in second year
Entrepreneurs Time to recognise and help start-up founders
Methodology How the awards were chosen
“You need a strong but experienced board that doesn’t panic at the slightest pressure,” says Mr Morton, who admits to many “dark days” of funding challenges or delays in regulatory approval.
Having a good management team and rigorous financial processes are essential to get the best price, says Mr Morton.
“You need the sort of corporate governance that goes with running a public company, because buyers put a lot of value on your decision-making process and legal compliance.”
One way to drive up the perceived value of your business is to talk about its success stories and ability to disrupt the market, says Alex van Someren, general partner at Amadeus Capital Partners, a European venture firm. “Having products or services that damage competitors is an effective way of making them want you and willing to pay a premium price.”
At EUSA, says Mr Morton, the plan was to go public in 2011, but the market was not brilliant. Then, in the fourth quarter, a drug for childhood leukaemia that EUSA had been developing won approval from the US Food and Drug Administration.
This generated an unsolicited offer that showed the company’s perceived value, so Morgan Stanley was hired to conduct an independent public offering or trade sale. By June 2012, the deal with Jazz was finalised.
Though a trade sale is seen as the “short, sharp” option, it still takes four to six months, says Mr Morton.
Interested buyers are invited to inspect confidential financial records, cash flow forecasts and documents such as patents and regulatory approvals. They then submit a bid price and details of finance, business development plans and conditions for closing the deal, such as whether they need approval from their board or shareholders.
“You can keep the top two or three offers rolling to see who comes up with the best offer first,” says Mr Morton. “Or you can give a favourite buyer a small window of exclusivity.”
This focuses minds, but it is a nail-biting time, he says. “The buyer conducts a massive investigation into all the detail and many things can go wrong, so you normally try to keep the pressure on to the last stage.”
Creating a competitive environment with multiple buyers is a good way to get the best price. A bidding war with Garmin for Tele Atlas helped push TomTom’s initial bid of €2.3bn up to €2.9bn, says Charles Cotton, who was a Tele Atlas board member.
The sale also came about partly because TomTom was Tele Atlas’s biggest customer and the chief executives had a longstanding relationship.
Commercial partnerships such as licensing agreements let potential buyers sell your products or services.
“Eventually, they might decide life would be easier if they take over your business,” Mr van Someren says.
Timing is crucial. Tele Atlas sold at the peak of the market in 2008, just before the financial crisis. It had an amazingly good exit, says Mr Cotton. “Our timing couldn’t have been better.”
Company value is usually calculated as a multiple of annual profit – maybe 10 or 20 times – or of average profitability for the sector.
Low-margin businesses tend to need higher volumes to achieve good valuations than those with higher profits. Companies that are not yet profitable could be valued at two to five times annual revenue, depending on size and growth rate. Valuations for those not yet generating revenues could be based on staff numbers, say $2m per employee.
“This is not very satisfactory but sometimes happens for fire sales or ‘super early’, where people are happy to take the money immediately,” says Mr van Someren.
Sometimes, the value is arrived at in a completely different way, for example if a buyer is worried its competitor might acquire the target company. Then the price depends more on what the owners are prepared to sell for.
When venture capital companies are in control, they can choose to exit at a time that suits them, even though this might not be in the best interest of the founders who might want to hold on for a few more years, says Mr Cotton.
He says: “There is no easy formula to follow when selling a business, except when it becomes obvious that there is an exit value that outstrips expectations.” Rather than being based on a multiple of sales, this may reflect people’s perception of the future opportunity being so large.
The dark reality of entrepreneurship is that nobody knows how to sell a business until they have done it, says Mr van Someren. “Inevitably, this means that sometimes people get it wrong, which is why professional advice for mergers and acquisitions is so important.”
Copyright The Financial Times Limited 2012. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.
www.ft.com/cms/s/0/1356906a-f0fe-11e1...