If you make an improper valuation of a company, it can be outstandingly difficult to get a strong return on investment. Much like buying a house, when you invest in a company, you need to be strategic and mindful about your offer to acquire the company.
SYE bases valuations on EBITDA or SDE valuations at industry-specific multiples. These fair valuations consider concrete numbers, industry data, and business performance. Along with financial performance indicators, SYE also attaches a monetary value to ‘intangibles.’
Some assets simply do not show up within a profit and loss statement, and Wick has a keen eye for recognizing these intangible valuables. For example, a large customer list and social media following proved valuable for marketing efforts in increasing the valuation of his first eCommerce acquisition.
In addition to avoiding overvaluation of companies, investors also have to be careful when making offers to sellers.
If too low of an offer is given, a buyer risks offending the business seller, damaging the relationship, and losing the deal. One of the most important factors within an acquisition is a fair offer that provides a positive outcome for both the buyer and seller.
The valuation phase in the acquisition process covers key areas, such as, but not limited to: financial performance, business assets, revenue sources, return customer rate and the ability to scale.
Oftentimes, sellers will overvalue their businesses due to emotional attachment, sunk costs and hard work. However, it’s critical to determine a fair value for both parties so the return on investment can be proven.