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Multiple Buyers Enhance Value

Economists agree that a basic determinant of "market demand" is the number of consumers in the marketplace. We also know that "market demand" is a key variable in the perception of value. This economic principle is relevant in the valuation of middle-market companies.

Valuation of a business is not a science. There is a myriad of variables at work that enhance or inhibit a buyer’s perception of worth. What is of value to one buyer has lesser value to another.

In order to maximize the sale price of your firm, it is absolutely necessary to confidentially expose your unique opportunity to many qualified potential buyers.

When a seller retains an investment banker to manage a pro-active marketing program, the buyers know that they are in a competitive environment. Buyers would prefer to be the sole suitor; now they must be willing to pay top dollar or risk losing the opportunity to a competitor.

To demonstrate the importance of multiple buyers, let me briefly describe some recent transactions in which Oxford Mergers and Acquisitions represented the seller.

Company X had an offer of $11 million from a private investment group. They retained Oxford to prepare a Business Valuation because the business was partially owned by an ESOP. The Business Valuation indicated a value range of $13 to $15 million. The stockholders retained Oxford to take the company to market, and the initial response to our inquiries was very positive. The private investment group immediately asked to enter into exclusive negotiations to hold our marketing effort in abeyance, and they ultimately bought the company for $13.7 million. Stockholder value was increased by $2.7 million, or 25%, because the buyer was threatened by competitive pressures of the marketplace.

After Oxford commenced a marketing program, the owner of Company Y was offered $3.1 million for the stock in his company. A second offer was received a few days later for $3.5 million. The original offer was negotiated to $3.4 million, but on more attractive terms. While these negotiations were underway, a third buyer came forth, and paid $4.2 million for the company.

Company Z was contacted directly by a major public company, and the seller agreed to accept the buyer’s offer. But because the buyer was not completing the transaction in a timely fashion, Oxford was given an opportunity to market the firm. Within 45 days, Oxford procured a buyer who offered 40% more than the consideration being tendered. With this offer in hand, the seller sold his company to the initial suitor, closing the transaction 10 days later, and at a substantially greater price than he had originally accepted.

Multiple buyers add value and insure that a seller is not leaving money on the table.