Whilst deal price may understandably rank highly with the Seller, business value from the Buyer’s point of view will place intangibles and future opportunity firmly at the top of his list. As Albert Einstein once said, “Not everything that can be counted counts; and not everything that counts can be counted.” To optimise a deal, the Seller needs to understand business value from the Buyer’s point of view. Some of the many questions that can’t easily be “counted” in the data may include:
- Do I believe in this leadership team?
- How do they deal with challenges?
- How do they work together?
- Where would I need to invest in this business to grow it?
- What is the quality of their customer relationships?
- What is their process for innovating to meet customer demands?
- What differentiates this company from its competitors?
- If this business is so great, then why are they selling it?
Often, a key factor in the success of a deal is how the Buyer values the management team. Have they made tough decisions, placed the right bets, handled crises, and overcome obstacles? Buyers listen carefully for clues about the state of relationships with customers, employees, and partners. They will offer less—or even walk away—if they don’t believe they can get a maximum return on their investment.
So, a Seller must communicate variables that are typically not found in a standard presentation. These are the intangible assets of the deal and at the heart of business value to the Buyer. They are the “goodwill” that should add significantly to the purchase price. When Sellers fail to convey the intangibles, they may leave significant dollars on the table and sell themselves, and their business, short.
Intangible assets can be hard to identify from a Buyer’s perspective, but here are a few of those typically considered important to the deal:
- Intellectual property (Trademarks, Copyrights, Patents).
- Intellect, know-how, rigor of leadership team.
- Company brand and product brand names.
- Customer relationships and partnerships.
- Expertise/know-how/business processes.
- Unpatented proprietary technology.
- A trained, assembled workforce.
- Order backlog.
- Licensing, lease or franchise agreements.
- Employment contracts.
- Use rights (such as mining rights or water rights).
- Computer software.
- Trade secrets (such as secret formulas and recipes).
For the Seller to communicate business value from the Buyer’s point of view, he must clearly understand what drives the Buyer in the first place.