Whether you are thinking about selling one or multiple businesses, there are a few things you need to consider. These include: the nature of your businesses, the level of competition, the value of your companies, the net worth of the business, and your future plans.
Privately held company transactions are private
Unlike public companies, private companies are able to take on more risk and focus on long-term objectives without the burdens associated with compliance and disclosure obligations. Moreover, they are able to avoid litigation, a common occurrence in the public equity markets. These companies are often operated by large conglomerates such as Koch Industries, but they can also be small family businesses.
The illiquid nature of a private company's investments means that they are not available for trading in the stock market. Similarly, a private company's value is determined primarily by interest rates and debt financing. The impact of rumors on a private company's valuation is less significant than it would be in the public equity markets.
Another advantage to going private is the fact that private companies don't have to report quarterly earnings. This allows the company to focus on its longer-term goals, and to make better decisions than it would in the public markets.
There are several types of private companies, ranging from high-tech startups to family-owned businesses. Some examples of these companies include venture-backed high-tech startups, such as Freescale Semiconductor, Del Monte Foods, and Koch Industries. Other examples of privately held companies are mezzanine funds and estate and trust structures. These companies typically have many classes of stock.
Evaluating the multiple
When you sell your business, you'll want to make sure you're valuing the multiple businesses to sell properly. A business valuation expert can help you determine the best multiple. Some of the most common methods include discounted cash flow, market value, and return on investment. Depending on the complexity of the target business, other valuation techniques may be appropriate.
The SDE method of calculating business value is a popular method for smaller companies. This technique takes the emotion out of the valuation process by focusing on the financial performance of a business, instead of the owner's personal interests. Most businesses will sell for between two and six times SDE. This is determined by the customer base, industry outlook, and risk factor of the owner.
EBITDA is used for larger businesses and is used to measure a company's cash flow. It is a proxy for income that includes profits before taxes, depreciation, and amortization. This method is most often used by private equity firms.
No comments yet