Going to Market without a Price 

Although we value every business, we may have a conversation with our sell side clients about the advisability of going to market without a price, which is confusing to some buyers and some sellers.  With the goal of eliminating some of that confusion, we thought that it would be appropriate to explain the thought process goes into advising our clients.

In most cases, the decision is fairly simple, as in discerning black from white.  It is the middle portion of the spectrum, with the multiple shades of gray, where the decision becomes more challenging.  For smaller, less complex businesses with fairly consistent earnings, we would typically advise a potential seller to put a price on the business.  More likely than not, most buyers, their advisors, and lenders will look at that type of transaction in similar ways and come up with the about the same value.  Additionally, for those types of businesses, the buyer may have less experience in buying a business and not having a price, may confuse the buyer to the point that he or she abandons further investigation and moves on to the next deal to pursue.

On the other end of the spectrum for larger more complex transactions, where the buyer is more likely to be an industry acquirer or a private equity group, we would typically advise the client to go to market without a price, as the buyers are likely to be experienced in that type of process and the business could have different values to different buyers due to market synergies.

It is those in-between situations that experience and an understanding of market conditions come into play.  For those businesses in the gray areas we could consider several factors in advising the client.  These factors would include

1) The trends of business - If a business has a history of strong growth we would be more likely to advise going to market without a price.  If market conditions were strong, as they are now, we would be more likely to advise going to market without a price.  And, if the business was in an industry with favorable demographics, such as healthcare, we would be more likely to go to market without a price. 

2) Another factor that we would consider is the time line the seller has for selling a business.  If the seller was motivated or compelled to sell the business in a shorter period of time, we would be less likely to recommend going to market without a price as the controlled auction process can be more time consuming.

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