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Ask HN: Selling my first company - need help with the process

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Re: Ask HN: Selling my first company - need help with the process

#11

Post by inboulder »

drewcrawford wrote: post #2

I've never been in your shoes, but one small tidbit I've learned about business in general is that the first person to say a number loses. If you can, try to get an offer out of them, and start negotiations there. The other rule of thumb I've seen acquirers use is (yearly revenue) * X, where X is some indicator of the risk of the business evaporating. Values of 0.9-1.6 for X seem pretty common for a product with litt…

0.9 to 1.6 as a multiplier is absolutely terrible, that's a crazy discounted cash flow rate, at those multiples you are guaranteed to be better off just holding onto the business unless you know it is going under very rapidly. 5x is starting to become reasonable.

Re: Ask HN: Selling my first company - need help with the process

#12

Post by inboulder »

From reading a lot of VC blogs, the thing that affects their valuation the most is competition. I think the most important thing you can do for your deal is get a competing bid of some kind, any kind, any outside interest at all will do more for the price than you can do within the confines of the deal with company x. This may sound difficult and it is, but I think it's absolutely critical.

Re: Ask HN: Selling my first company - need help with the process

#14

Post by [deleted] »

inboulder wrote: post #10
kirse wrote: post #7

Earlier quoted context omitted.

the first person to say a number loses This is really just a myth. If you present a buyer with well-justified and thought-out reasons for your number, it's going to be hard for them to counter-offer with something ridiculous, unless they're just being an ass. Not to mention you should always have your base number in mind, at which point you just walk away. The OP also said the company has agreed with most of his init…

"This is really just a myth. If you present a buyer with well-justified and thought-out reasons for your number, it's going to be hard for them to counter-offer with something ridiculous, unless they're just being an ass" Wrong, you're missing the point entirely, I'd like to buy a business from you... The point is that if you offer a price first, this is the HIGHTEST the buyer will pay, he might have valued the busin…

[deleted]

Re: Ask HN: Selling my first company - need help with the process

#15

Post by kirse »

inboulder wrote: post #10
kirse wrote: post #7

Earlier quoted context omitted.

the first person to say a number loses This is really just a myth. If you present a buyer with well-justified and thought-out reasons for your number, it's going to be hard for them to counter-offer with something ridiculous, unless they're just being an ass. Not to mention you should always have your base number in mind, at which point you just walk away. The OP also said the company has agreed with most of his init…

"This is really just a myth. If you present a buyer with well-justified and thought-out reasons for your number, it's going to be hard for them to counter-offer with something ridiculous, unless they're just being an ass" Wrong, you're missing the point entirely, I'd like to buy a business from you... The point is that if you offer a price first, this is the HIGHTEST the buyer will pay, he might have valued the busin…

In my deals, I usually take $Well-Justified-Price and then tack on $Extra to swing the deal far in my favor. Usually $Extra brings the price close to where I think the buyer would walk away.

You must have missed this. If a buyer is willing to pay my seriously inflated price, then I think I'm making off like a bandit and the buyer thinks they're getting a discount (assuming they were going to offer more than my inflated price). Easiest deal ever.

At some point you at least need a price in your head where you say "yea, I'd be happy exiting for $X and $Y would be icing on the cake"

Everyone's happy with the terms, sign the papers, deal's done, go pop the champagne.

Re: Ask HN: Selling my first company - need help with the process

#16

Post by malahoo »

Since you and buyer already agree on bottom line impact (i.e. profit, not revenue), I would recommend estimating the intrinsic value of the business using discounted cash flow analysis as a baseline. Make a reasonable assumption about the product's lifetime - let's say 5 years - project out those 5 years of profit, discount each year using a reasonable rate of return for a similarly risky investment (maybe 5-10%), and add up all discounted cash flows. The negotiation then becomes "how much of the business value should each of us retain?" instead of "how much are you going to give me?"

http://www.investopedia.com/terms/d/dcf.asp

Re: Ask HN: Selling my first company - need help with the process

#17

Post by thiele »

inboulder wrote: post #11
drewcrawford wrote: post #2

I've never been in your shoes, but one small tidbit I've learned about business in general is that the first person to say a number loses. If you can, try to get an offer out of them, and start negotiations there. The other rule of thumb I've seen acquirers use is (yearly revenue) * X, where X is some indicator of the risk of the business evaporating. Values of 0.9-1.6 for X seem pretty common for a product with litt…

0.9 to 1.6 as a multiplier is absolutely terrible, that's a crazy discounted cash flow rate, at those multiples you are guaranteed to be better off just holding onto the business unless you know it is going under very rapidly. 5x is starting to become reasonable.

0.9 to 1.6 multiplier seemed really low to me too. I'd love to hear some more opinions of "common" multipliers.

Re: Ask HN: Selling my first company - need help with the process

#18

Post by matwood »

jaxn wrote: post #9
sdesol wrote: post #5

Earlier quoted context omitted.

Care to share your experience. It would probably help others.

We had an application that was getting interest from a company that wanted to license the tech and add the product to their portfolio. I felt their licensing deal was convoluted and left too much room for us to get screwed. I then picked what I thought was a best-case kind of number and it ended up being so much higher than they were thinking that they didn't even want to counter. It is hard to recover from that. So…

It sounds like they may not have really wanted you to begin with and used your high number as their out. If they really wanted your tech/app/whatever they would have come back with something closer to what they wanted to pay.

Re: Ask HN: Selling my first company - need help with the process

#19

Post by helveticaman »

inboulder wrote: post #12

From reading a lot of VC blogs, the thing that affects their valuation the most is competition. I think the most important thing you can do for your deal is get a competing bid of some kind, any kind, any outside interest at all will do more for the price than you can do within the confines of the deal with company x. This may sound difficult and it is, but I think it's absolutely critical.

Or improve the option that always exists: walking away.

Re: Ask HN: Selling my first company - need help with the process

#20

Post by bmr »

thiele wrote: post #17
inboulder wrote: post #11

Earlier quoted context omitted.

0.9 to 1.6 as a multiplier is absolutely terrible, that's a crazy discounted cash flow rate, at those multiples you are guaranteed to be better off just holding onto the business unless you know it is going under very rapidly. 5x is starting to become reasonable.

0.9 to 1.6 multiplier seemed really low to me too. I'd love to hear some more opinions of "common" multipliers.

I've done grunt work on some deals and seen multipliers in the 6-14X range. But the multiple was of EBITDA, not revenue.

If you talk in terms of revenue, multipliers can vary as wildy as companies' margins do. EBITDA (or one of its zillion variations) common-sizes the multiple.

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