When you heard that the LA Clippers sold for $2B, what did you think? That’s a lot of money was what crossed my mind. But then it struck me: a number of lessons could be learned from the sale. Why did it get $2B when many thought it would go for less than $1B? Why did the parties move so fast? How does this apply to smaller, private companies?
All great questions. All applicable if you own a company.
The value of a valuable enterprise
The principal of scarcity played a big part in the recent sale. "There just aren't enough teams for all the billionaires who want them," explained Ed Desser, a former president of NBA Television and New Media Ventures. Deal flow in professional sports is low. By nature, only 30 NBA teams means few investment opportunities.
But scarcity wasn’t the only contributing factor. The rise of the Clippers from the depths of the loss column, bringing in key players, and being in the second largest market in the country, all matter.
The private-company implications
In order to receive the highest value, business owners need to focus on scarcity. Build a company unlike any other, and buyers will flock to your door. Compared to others in the marketplace, what makes your business unique and compelling? Strategic and financial buyers don’t want to miss unique opportunities; they don’t like to lose out to others. Like the former Clipper owners, when multiple parties want to be involved, it’s a strong position to be in.
Buyers are willing to offer higher prices for valuable companies. Companies that have unique processes, proprietary products, a strategic position in the market, and strong trends, will fetch higher prices and appeal to more investors.
A tight process
In addition to scarcity, a tight sale process maximized the Clippers' transaction value. Bank of America Merrill Lynch advised Shelly Sterling throughout the process and got all the parties involved at the same time. The result? Rather than letting time kill the deal, they pushed forward and received multiple offers at the same time. This allowed Shelly to evaluate all the offers and choose the best one.
By focusing on scarcity, and when it comes time to sell, on a tight process, you too can maximize value.