Something I hear regularly is, “I don’t want to overpay for a business.” My question is, why not? As it’s all relative.
If you see a business firing on half their cylinders and you know how to get the other half to fire, don’t quibble about price. As a large company executive told me once, “Growth hides a lot of operational warts.” Get growing and then get rid of the warts.
We worked with a buyer who paid over 6X earnings for a company making just under $1 million annually. Sounds outrageous, doesn’t. He grew it over 50% the first year and now it looks like it’s a 4X multiple. It didn’t take much, he created a better culture, put in a bonus plan, and went after customers the seller didn’t want to bother with.
The old line “Beauty is in the eye of the beholder” is so true. But you better be able to see that beauty, aka opportunity, because it doesn’t mean pay more for the heck of it.
It means making sure there are no major issues and this is why buyers look under the hood (as should sellers and their representatives) at things like:
- Customer concentration
- Owner dependency
- Supply chain issues
- A lousy lease
- Dated equipment and bad technology
It doesn’t happen often, but when it does, paying more than others might pay can pay off.
“The future is already here. It’s just not evenly distributed yet.” William Gibson