Making a choice
When marketing a business for sale, there are normally two clear choices when determining your asking price. Either:
- You set a fixed $$ asking price, or;
- You seek ‘Expressions of Interest’.
Each strategy has its own strengths and weaknesses, and care should be taken in determining what is the better option in light of your circumstances.
Fixed $$ Asking Price
Essentially, this is where your business is marketed for a real dollar amount, for example, $4,500,000.
This strategy normally assists with the qualification of interested parties, as there is a clear indication provided as to what level of investment is required to acquire your business.
Often however, potential acquirers will view your asking price as being at the upper-end or higher than what is a reasonable value for your company. Hence, you will almost inevitably receive offers of a lower value to your asking price. A skilled negotiator may still have the ability to drive your sale price to the asking price or beyond, however this process can prove challenging!
Expressions of Interest
The other method of setting your asking price is to seek ‘Expressions of Interest’. This is where you do not attach an asking price to your business, and ask the market to respond to you with offers for your consideration.
When utilising this strategy, the qualification of prospective acquirers takes more time. It is possible that a number of unsuitable or under-funded acquirers may show interest, so it is important that suitable vetting processes are in place to minimise confidentiality risks as part of your divestment campaign.
This strategy is best suited to enterprises where it is difficult, or impossible to reasonably predict what value acquirers will attach to the opportunity. This often occurs with businesses that are strongly suited to strategic acquirers (like competitors or suppliers).
When marketing a business on an ‘Expressions of Interest’ basis, it is vital that the sales process is planned and executed with precision. Importantly, your divestment plan should be designed to ensure optimum levels of competitive tension are generated throughout your divestment campaign to encourage all interested parties to put their best foot forward.
Find Out More
If you are seeking a professional advisor to assist you with the merger, acquisition, divestment or valuation of a business with an enterprise value of between $1 million and $50 million please contact Quinn M&A on 02 9223 9166 or email info@quinnma.com.au to find our nearest office.
