Liquidity Events

Liquidity Events

Acquisition can be an attractive liquidity option for development stage or mature private companies. Acquisition-related valuations are typically performed (and negotiated) by the management of the target and/or buyer. The liquidity event could be a planned event such as the entrepreneurs planning to retire after putting many years or decades running the business or it could be an unplanned event such as receiving an unsolicited, but seemingly attractive, offer from a competitor (strategic buyer) or a private equity consortium (financial buyer).

Planned Liquidity Events: For planned liquidity events, we recommend a comprehensive business valuation be done at least three years bore the event. This ensures that the business owners can maximize the value of the business at the liquidity event. Small changes in the business can increase the multiple that acquirers are willing to pay for a business. The valuation provides a roadmap of how to increase the value of the business from the acquirer’s point of view. Some of the changes are simple and can be done quickly with little expense. Other changes are strategic that require more time to implement. Business owners can utilize business valuation to optimize their resources to maximize the value of the business prior to planned liquidity events.

Unplanned Liquidity Events: For unplanned liquidity events, having an independent valuation done as soon as possible will inform the business owners and management about the true value of the business and land them in a better bargaining position. Investors and acquirers can be turned off to a business when the owners present an unrealistic value to the business. The business valuation provides a fair assessment of the true value of the business and the due diligence necessary to justify the valuation. The business owners are better prepared to negotiate the value of the business with potential acquirers and investors. Many business owners only experience one liquidity in their lifetime where the acquirers and investors have experienced multiple liquidity events. Understanding the questions that these investors will ask and having well thought answers prior to the negotiations puts the business owner in a stronger position to receive a higher value in the transaction.