Business Valuation, Process and Negotiation

This chapter offers a basic grounding in the key elements of buying or selling a business. It provides guidance in making critical decisions regarding valuations, what to accept or pay for a business, which advisors are required (internal or external), the process itself and most importantly the key pitfalls to be aware of. It addresses when and which advisors to engage and offers precautionary insight as to the difficulty of extricating oneself from the process if circumstances suggest this is necessary. The chapter initiates a discussion as to the various classifications of buyers, and who might be considered ‘ideal.’ In terms of valuing a business, it introduces the two most frequently used approaches whilst avoiding overly complex detailing of less common methods. Following on from matters of strategy, due diligence and integration dealt with earlier in the book, this section reviews the process steps of acquisition, attending to frequently neglected elements, such as precursory intelligence gathering. Further key areas reviewed include management distraction, subsequent underperformance and conflicts of interest with existing management who favour a particular buyer or choose to mount a Management Buy Out (MBO). These are not minor concerns and need careful management. Finally, it considers the strengths and weaknesses of running an open tender process as opposed to an exclusive sale.