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If you buy pretty much anything, you generally look to see how much it costs.  Even big ticket items like houses and cars, generally have listing prices.  Yet, when we sell a business, we don't have a list price.  That probably seems odd.

First, let me say that just because we don't have a listing price doesn't mean we don't know what the company is worth. 

Generally, before we go to market with a business, we have done an evaluation and we are all comfortable with the range of values provided.  As M&A advisers, when we provide a value for a business, it is based on our understanding of the business, the current market for those types of businesses and the appetites of different kinds of buyers.  When we give a business owner a valuation, we are very confident that it represents the value the business owner will achieve should a transaction occur.  

So, you might ask "If you know what the company is worth, why don't you create a listing price?"

Two concepts make a business sale produce the best results:  competition and fit.

Competition

When you sell a business, you go to a group of qualified buyers and you provide them all with the same information at the same time.  This means that the information you get back when you ask them for bids will be consistent (based on the same set of fact) and competitive (because the bidders know they are one of many).  

So when you hear from buyers, you know that they have put their best foot forward so as not to be beaten by another potential suitor.  Remember - you only close with one buyer so you only need to create one outlier value.  The best way to do that is through a competitive process.  

As a secondary benefit, a competitive process also allows you to hold value as you negotiate the fine points of the deal.  There is a much lower risk of bait-and-switch tactics when buyers know there are other bidders right behind them.  

Fit

The real reason you create a good group of buyers is so that you can find that outlier.  Outliers usually occur because a buyer has a particular need or desire.  Big company needs extra capacity in the Southeast?  You have a warehouse there!  Big company wants to expand into new markets?  Your markets are perfect! 

You get the idea.  You know the value of your business but you don't know its value to someone else.  Buyers generally don't pay business owners for all the synergies an acquisition, but they will pay for some - especially if they are part of a competitive process.  

That is exactly why we don't put prices on businesses they way we do for shoes, houses, or cars.

Shoes generally have the same value to every buyer and you can be certain that if those shoes don't work out, you can find another pair that would work.  The same principal works for houses or for cars.  There is a generally accepted price and plenty of alternatives if that particular purchase doesn't work out.  For businesses though, the value to each buyer is different and a competitive process will force each one to think hard about its worth - which creates the highest possible outcome for the seller.

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