Osborne Group Principal Michael Dick passes on some thoughts from The Value Builder System on how strategic buyers view the opportunity to purchase your business.

So how do you get a public company like multiple for your business? One approach is to look for a strategic buyer. Unlike a financial buyer that is looking for a relatively safe return on their capital invested (which is the reason investors place a premium on big, stable companies trading on the stock market), a strategic buyer will value your company on how buying you will impact them.

Imagine you have a grommet manufacturing business predictably churning out $500,000 in pre-tax profit. These days, a financial buyer may pay you around 4 or 5 times earnings – in this case, roughly $2.5 million – if you can make the case your profits are likely to continue well into the future.

Now, imagine that a company selling a billion-dollar worth of widgets starts sniffing around your manufacturing business. They think if they integrate your grommets into their widgets, they can sell 10 percent more widgets next year.

That means your little grommet business could add 100 million dollars of revenue for the widget maker next year – and that’s just year one after the acquisition. Imagine what your business could be worth in their hands if they continue to sell more widgets each year because of the addition of your company.

The widget maker is not going to pay you $100 million for your business, but there is somewhere between the $2.5 million a financial buyer will pay and the $100 million in the sales the widget maker stands to gain next year that is a good deal for both you and for the widget maker.

Premium multiples get paid to big companies, and to the little ones that can figure out how to make a big company even bigger. If you’d like to know how your company could become a strategic purchase, first take our Value Builder Assessment, simply complete the 20-minute on-line questionnaire http://www.thevaluebuildersystem.com/osborne-group . Then we’ll arrange a complimentary review of how a purchaser would value your business.

Mike Dick

Operations and Human Resources