Ready to sell? Know your firm’s value first

WESTMINSTER — MatchLogic Inc., which sold to Excite Inc., an Internet search engine company for more than $100 million, is proof positive that things can go smoothly in a business valuation handled by the buyer and seller.

Still, circumstances have to line up exactly right.

While business owners usually look for buyers, MatchLogic, a company that provides a source for business ad campaigns on the Internet, was approached by Excite. The deal happened without any business brokers or other middlemen, said John Moinester, MatchLogic vice president of finance. The sale happened in May.

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One of things that helped the deal go smoothly was that Excite came ready to buy, according to Moinester.

MatchLogic had just received a second round of financing and wasn’t in a desperate position, Moinester said. The second thing that made the deal go smoothly was that rather than hire a business broker or investment banker, Moinester appraised MatchLogic’s value comparing it to other public and private companies in the field. More importantly, his appraisal was close enough to Excite’s offer to make for a very smooth deal.

“There was enough understanding between us that we believed we could get the deal done,” Moinester said.

But even Moinester admits that MatchLogic’s is a best-case scenario. Far more common, according to area business brokers and investment bankers, are instances where a business owner is ready to sell, but runs into problems because he or she doesn’t understand what the business is worth.

Determining value is complicated, said Merle Northrop, managing broker at VR Businesses Brokers of Boulder. Value usually doesn’t have just one price tag. Instead it’s a price range that’s as sensitive to human interaction as it is to economic factors, Northrop said.

“The approximate ranges and real value will depend on the motivation of the seller and buyer,” Northrop said.

Also evaluated are factors like type of business, fixed assets, market estimated value, location, financial statements, gross revenue, net cash flow, adjusted cash flow, benefits and terms.

The owner’s attitude is especially important to the prosperity of the business just before a sale. If he or she quits caring about the business, it can lose money. If employees learn that the business is up for sale, the business can lose money if employees leave for more secure positions. Timing is important.

“It’s not the best time to sell when you are looking at money,” Northrop said. “You should sell a week before you no longer like the business.”

Business owners can expect to pay eight to 12 percent of the sales price to a business broker for valuation of the business. Brokers also list the business, provide consulting and maintain contacts with potential buyers and sellers. State certification doesn’t exist for business brokers, but inquire about professional training and certification.

Investment bankers, such as Dave Grenat, managing partner of Quist Financial Inc., provide valuation of businesses for large firms. Many of the issues of valuation don’t change with larger businesses, Grenat says. Sellers should have reasonable expectations and be clear about their organization and personal expectations.

Business owners looking to sell should get good advice, Grenat said. Especially when millions of dollars are at stake, “you need to have a sense of what the buyer is capable of offering,” he said. Additionally, who the owner wants to sell the business to will change its value.

“I have a client that wants to sell his business to a management team. This will be different than a strategic buyer angling to buy a company,” Grenat said.