My firm is worth a billion $

Recently I have been looking at a few businesses with regards to finding a firm which could be grown into something significant, and have been targeting private individuals selling their firms via various sources (including )

(For those of you how do not know me) I spent a few years on the “professional” side of creating / buying / selling firms where the methodologies normally lead to the right order of magnitude of price, or at least the right starting point for a negotiation.

What I have found to be quite an eye opener when dealing direct with the owners (rather than through an intermediary accountant / banker / lawyer) is the amazing valuations that the owners attribute to their firms.

For example, a typical conversation….

Me: thanks for the financials and background data

Seller: no problem

Me: what kind of price are you looking for your firm

Seller: 1 billion $

Me: ok, could you tell me how you arrived at that figure

Seller: it is what I think the firm is worth

Me: but your gross profit is 2% and you have zippo on the balance sheet

Seller: does that matter?

Me: it sort of does

Seller: what is your valuation then?

Me: a maximum price of 25,000 Euros

Seller: that’s absurd, there is no way I will sell the firm for that

Me: (explains why the valuation is max 25k Euros)

Seller: what do you know about this business? you are a bean counter

Me: Sorry for wasting your time, get back to me if you are still looking to sell and do not get 1 billion $ for your business

Now I understand and appreciate it is normal behavior for parents / business owners to “over price” the “baby” (overheard at a drinks party – “my child can solve partial differential equations at 2 years old”) – thus there will always be an emotional price and market price spread.

I have even been guilty of “overpricing the baby” myself when someone phoned to buy a firm I owned and I gave him “the 1 billion $ finger” as we did not want to sell at the time.

What amazes me is the people (see above) who really do want to sell their firm, yet give the “1 billion $ finger”. I admire the passion for their business which blinkers them from the real value, but in other ways it is quite concerning that when they finally come around to agreeing to sell at the true value they will feel so emotionally “let down”, they are likely to be very bitter.

I guess the job of a good broker is to be a counselor too.


~ by Nigel on June 27, 2007.

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