Selling the Intangible Company Quotes

“Revenue Multiples. In the section on myths we also discussed the problems associated with revenue multiples and why they are poor indicators of value. Multiples of revenues are bogus for four reasons. First, because the range of multiples is too wide to be useful. Second, because comparisons using the multiple are simply not valid. Just because one company sold for a certain multiple of revenue does not mean that another company will sell for that same multiple, even if the companies are similar. Third, revenue multiples do not consider cost structures, management talent, pricing, profitability, or growth. And fourth is the problem of narrow markets; there are only a limited number of strategic buyers who can benefit from the seller’s key assets. These buyers care only about the strategic fit with their company, not some revenue multiple. WHAT”
― Thomas Metz, Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm

“A Narrow Value Range. The myth of a narrow value range is a subtle one. It is important to understand that the range of value can be quite wide. A seller may receive offers of $3 million, $6 million, or $11 million for the same company. The variations in price reflect the fact that different buyers will find different levels of strategic value. Revenue”
― Thomas Metz, Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm

“Intrinsic Value. In our earlier discussion regarding the concept of intrinsic and extrinsic value, I pointed out that the value of an intangible company is extrinsic; it depends on the market, on the buyer. By definition there is no intrinsic value in an intangible company. A”
― Thomas Metz, Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm

“Sometimes management thinks it must determine a minimum acceptable price upfront. This is not possible when selling an intangible company. The price, the real price, is determined by the market and not by any other means. I suggest to sellers that they not worry so much about the valuation right now but rather that we go out to the market, contact all the good buyers, get offers, and negotiate the best price that we can and then accept the highest offer. People”
― Thomas Metz, Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm

“There are more myths, misinformation, and misunderstandings about value than any other topic in the merger and acquisition field. It is difficult for people to truly grasp the concept that the value of an intangible company is whatever a buyer is willing to pay. Most people believe that companies have intrinsic value, that value falls within a narrow range, and that multiples of revenues are worthwhile. This is simply not true for intangible companies. The”
― Thomas Metz, Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm

“What is the potential for appreciation? Is the outlook bright for the future financial performance of the acquiring company? Do your homework—check out the stock and its upside potential. If you had received cash instead of stock, would you purchase a large quantity of the company’s stock? Review stock analysts’ reports. Ask the company which analysts follow the company and get copies of recent reports from their brokerage firms.”
― Thomas Metz, Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm

“The number of shares in the hands of the public that are available for trading is called float. (As opposed to shares in the hands of founders and management that are restricted.) Find out what the float is. If only a limited number of shares are available to trade, it will be difficult to liquidate stock. If a founder sold his company for $8 million in stock and later decides to sell the shares in the market, he may find it difficult to sell that many shares without pushing the price of the stock down significantly. What”
― Thomas Metz, Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm

“Liquidity of the Market Are enough shares traded to establish a real market? Are the shares actively traded? What is the daily trading volume—just a few hundred shares or many thousands? Some smaller public companies have very little trading activity which makes it difficult to sell even a moderate number of shares without driving the price down. The”
― Thomas Metz, Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm

“Show the profitability for each of your company’s products. You should also be able to demonstrate profitability for each customer. If you do not already have this information, it is essential that you implement the necessary procedures. If you do identify any unprofitable customers, get rid of them. They drag the margins down. Any overdue accounts receivable should be either collected or written off. If”
― Thomas Metz, Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm

“Reviewing the financial condition can be a good exercise for the company. A company that plans to sell should get its accountants involved before the sale process begins. The company needs to be sure that its financial house is in order. And it needs an experienced accountant to tell them exactly what that entails. Use it as an opportunity to improve your internal controls and clean up your financial reporting. A”
― Thomas Metz, Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm

“It is a good practice to have interim financial statements prepared throughout the year. A buyer will always want to review the most recent financial information on the company. If it has been nine months since the company’s last official income statement, this can be a problem. It may take another month or two to prepare an interim statement. It makes a seller look bad when it cannot provide timely financial statements to a buyer. Put the procedures in place so that statements can be prepared on a monthly, or at least quarterly, basis. Review”
― Thomas Metz, Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm

“Addressing customer and market issues is one of the primary ways that a company can improve its profitability prior to a sale. First, diversify the customer base. If only a few customers account for a large portion of your revenues, it will reduce the company’s value.”
― Thomas Metz, Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm

“Where is the company exposed? What are the red flags? • How can we increase profits and reduce the risks? • What management decisions and practices should be reevaluated? • What mistakes can be avoided when selling? • What documents and other information should be prepared? • How can you make due diligence less arduous? • What areas of weakness need to be addressed? • How do companies leave dollars on the table? First”
― Thomas Metz, Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm

“The transaction time frame can be as short as three months or as long as a year and a half. A typical time frame is six months or maybe seven months at the most. Occasionally a transaction will encounter some serious obstacles and the process must be restarted. How”
― Thomas Metz, Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm

“The negotiated sale is a more effective approach than the two-step auction when selling an intangible company, particularly those with a transaction size of less than $30 million. The small and midsized buyers do not have the in-house resources to respond to the strict time deadlines of an auction process. The”
― Thomas Metz, Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm

“Executing a disciplined process is the key to a successful sale of an intangible company and management should have a good understanding of the process at the outset.”
― Thomas Metz, Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm

“First, it is important to understand that after the transaction has been completed, both customers and employees will be better off. The company will be on stronger footing. It will have greater resources behind it and will be a more stable firm. The company will usually have greater access to capital. There will be less risk. This outcome benefits both employees and customers. Informing”
― Thomas Metz, Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm

“FIGURE 3.1 Typical Transaction Time Line In”
― Thomas Metz, Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm

“How long does it take to close a deal? Generally, six to seven months is a reasonable estimate of the required time to close the transaction.”
― Thomas Metz, Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm

“The search for buyers generally falls into three groups. The first group of buyers includes the obvious candidates and a handful of buyers in the core market. The second group of buyers is identified by digging into closely related markets. The third group is made up of buyers who are identified later in the process. These are probably the least obvious of the buyers and they are discovered by examining smaller niche markets that are on the periphery. The”
― Thomas Metz, Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm

“not be deceived by revenue multiples; for most purposes they are irrelevant. Revenue multiples are rarely comparable from one transaction to another and they ignore some key business concepts—profits, pricing, expenses, and growth. The”
― Thomas Metz, Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm

“The value of an intangible company is strategic value and it is truly in the eye of the beholder. It is worth whatever the buyer is willing to pay. Strategic value can vary widely depending on how well the buyer can capitalize on the seller’s strategic assets. Do”
― Thomas Metz, Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm

“The best buyers for an intangible company are small and midsized companies, not the larger companies. The negotiated sale is a more effective process for selling a sub-30 intangible company than is the auction process that is used on large transactions. And finally, a CEO should never attempt to sell his own company. He is too close to be objective and he cannot possibly execute a disciplined sale process and run the company effectively at the same time. Now”
― Thomas Metz, Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm

“This is a summary of the negotiated sale approach: 1. Package the company. Identify and describe the company’s strengths clearly and accurately, both in the descriptive memorandum and in phone calls, e-mails, and meetings. 2. Identify and contact all the potential buyers. Employ discipline and creativity in pursuing more than just the likely buyers. 3. Execute a disciplined process for following up and moving the buyers forward. 4. Negotiate by understanding the strategic implications of the acquisition for each buyer. 5. Endeavor to get multiple offers at the same point in time. Take the highest offer. Package”
― Thomas Metz, Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm

“Making a small acquisition can be an excellent strategy for an acquirer to gain a foothold in a niche market, gain new customers and new talent, acquire new capabilities and technologies, and serve as a platform to build upon. Small acquisitions are less expensive, easier to integrate, and often simpler to transact than large acquisitions. A”
― Thomas Metz, Selling the Intangible Company: How to Negotiate and Capture the Value of a Growth Firm