Tuesday, March 19, 2013

How Does MAXIMA Maximize Value?


There are many reasons to use a M&A intermediary such as MAXIMA to sell your business. The number one reason sellers engage MAXIMA is they believe we can maximize the value their business will transact at.  I would like to review the some of the processes that we use at MAXIMA to maximize the value owners receive for their business.

We start by preparing an independent fair market value of the intrinsic value of the company. Warren Buffet is famous for saying that “Price is what you pay, value is what you get”. A valuation cannot determine what price your company will receive on the open market. The valuation allows us to understand the business model, value drivers of the business, and to set a baseline price that the owner is prepared to accept. The value drivers will assist the business owner in knowing what factors to focus on to increase the value of the business, and provides the intermediary with the tools to effectively market the business.

The key for value maximization is to conduct an auction format with the greatest number of participants. To recruit the widest range of potential buyers MAXIMA does not limit our searches by type of buyer, industry segment, or geographic scope. 75% of the time the seller was not aware of the identity of the buyer prior to the transaction.  

Transactions are rarely completed with 100% of the cash due on close. The seller typically wants the maximum of cash up front, and buyers generally want to defer the payment through an earn out or a vendor financing arrangement. We negotiate on behalf of the vendors to ensure they are compensated for any time value of money, or risk associated with any payment that is deferred. The realized value for the business can be maximized when the vendor has the flexibility to consider payment in the form of stock, royalties, earnouts, options, lease agreements, or management contracts. Management continuity is typically required for 12-24 months from close.

To successfully execute a transaction for privately held businesses requires a fulltime commitment to the process. As a result of the required time commitment it is advisable for business owners to focus on operating their business as if they had no plans to sell it for the next 24-36 months. The same MAXIMA project consultant who conducted the initial valuation, contacted the potential buyers, negotiated and structured the transaction will be assigned to your project right up to the cheque exchange. Engaging a professional intermediary will allow the business owner to maintain or increase the value of the business through what can be a 6-24 month process. MAXIMA will assign a professional that is dedicated to work with you from start to finish.

George Pinder, CMA