Blog – May 2019
An interview in CRN Channelweb caught my eye last week. It was from the MD of a £23m Managed Service Provider and he was bemoaning the fact that too many sellers are coming to market with unrealistic expectations of their value.
As a narrative this is more often said by those with shorter pockets and looking for more structured deals but I do think he made a couple of valid observations.
He suggests that the very active M&A market may be in part to blame – perhaps giving over-confidence to sellers in their perception of demand. He also quite correctly raises the issue of the relative merits of funding an acquisition versus alternative investment in the business (eg. spending on developing operations & sales teams instead).
To take the first point first – we have consistently warned of reading too much into published M&A data and have especially warned about assuming valuation multiples apparently achieved by others must apply to you too. Unless you know the real details, you should not assume that these automatically apply to you.
With regard to the second point, any sensible potential acquirer will evaluate the merits of an acquisition against other spending priorities, and indeed other targets.
Whilst our objective is always to maximise the sale price, going to market with an unrealistic expectation is likely to be counterproductive. You may not only waste valuable management time but might also alienate yourselves from otherwise viable acquirers. We suspect those coming across Mr Timms’s desk recently have simply been poorly advised – or not advised at all. If you are thinking of going to market, don’t just dive in – get proper, carefully considered, professional advice from people who understand the value drivers and the buyers in this sector. There are likely to be things that can be done to enhance your valuation. That is what Prism does – so call us (in confidence and without obligation).