Valuation

2016 Private M&A Market Report

We are pleased to share that we recently published our 2016 M&A Report. We published it to provide insights for business owners and advisors in the lower middle market. It focuses on activity in 2015 and expectations for the remainder of 2016.

Report highlights include: 

  • Deals by buyer type
  • Valuation multiples
  • Interview with an active buyer
  • Buyer perspectives on 2016

To download the report, please click here: http://www.compass-advisors.com/reports/

The 2iC Effect

You’ve heard it said: “Price isn’t everything.” It’s true, it isn’t—but, in our experience, it’s important to every business owner. In fact, it’s often at the top of the list. There are, of course, other factors, such as acquirer type, deal terms, post-sale changes, and timing. But when you watch a business owner read an offer, the price is the first place they go. Because of that, business owners are always interested in achieving peak value.

As we’ve written before, having a management team is important to achieving peak value. But what seems to often happen is that a management team is built, but no one could step up and run the company if the owner stepped down—there’s no second-in-command (2iC).

What is Blue Sky?

"Blue sky" is a colloquial term that means, according to Merriam-Webster, "having little or no value" and "not grounded in the realities of the present." The term is often used in reference to the intangible value of a business, but that doesn't sound like the definition! Business usage of "blue sky" terminology is probably best replaced with the term "goodwill" which does specifically refer to the intangible value of a business.

Measuring Customer Value

In past articles I wrote on how a business owner can be confident their business is valuable and sellable when the time comes to transfer ownership. I recommended what to look for in cash flow and how to retain key employees. Now customers will take the stage. Everybody knows customers are important, but what exactly makes them valuable to a buyer?

Customers are valuable because we expect them to buy again in the future. Two key factors point to the value of a customer base. First, how “sticky” are the customers? Second, what is the loss if a customer leaves?