One of our clients is trying to sell his e-commerce and online retail and wholesale business. Just as deal Capital was completing the marketing materials such as the Teaser Letter and the Confidential Marketing Memorandum, one of Deal Capital’s Private Equity partners learned about the opportunity and expressed an above average amount of interest in acquiring the company. As our client was hoping to close the deal by yearend for tax advantages, and our partner believed that it could do so, an offer was made and accepted. Prior to the acceptance the principles at Deal Capital suggested that we wait till we can take the company to market in hopes of creating a biding war and thus increasing the selling price.
While this client was not so interested in waiting, sometimes it is particularly beneficial to wait until the company can be marketed to other investors so we can create a bidding war among all parties interested in making the acquisition. When you have an offer on the table, however, you do always run the risk of losing that offer if you hold off for a better one. And this client would have lost the offer if he held off.
In order to create a bidding war among various investors you need to ensure that you have a business that is profitable. Many owners have asked me what their business is worth; when I give them an answer some have discovered that it is only worth the value of their assets or inventory. When they express concern I simply explain that in all reality investors are trying to buy cash flow. No investor is going to want to tie up a large amount of capital for a business that is not going to produce, that holds true with private investors, private equity groups, strategic business acquirers, and venture capitalists; however, venture capitalists are more willing to buy in based on the future cash-flow potential.
Contact us Deal Capital for a free consultation and valuation of what your business will sell for.