Valuation Surprises: What to Do When Your Company is Worth Less Than You Expected



September 1, 2022

It’s one of the most common challenges in the world of mergers and acquisitions: An owners hires a business broker to guide them through the M&A process, with big hopes for the final sale price. And then a valuation reveals that the business is worth a fraction of what the owner hoped—often because of issues the owner either didn’t know about or didn’t identify. So what now? It’s difficult to be objective about your business. In fact, for many owners, assigning a value to their business is akin to assigning a value to their child. It’s possible to move onto a successful M&A even after learning your business isn’t worth nearly as much as you hoped. Here are some options to consider in consultation with your business broker. 

Consider Sticking it Out—and Weigh the Risks of Doing So 

If there are identifiable issues with your business and you have the power to fix them, consider staying a the helm long enough to do so. Importantly, you should only do this if there’s a chance to add significant value and your business broker tells you market conditions are right. In today’s market, access to capital is becoming more difficult even as the value of that capital diminishes. So unless you have the chance to increase your business’s value by a double digit percentages, you may be better off selling. 

Assess Why There Was a Disconnect

Whether you decide to sell or stick around, it’s critical to understand why there was a disconnect. Could it be a different understanding of value drivers? Did you discover something in the valuation process that decimated value? Or did you rely on overly rosy forecasts and expectations? Identifying the problem helps you avoid replicating it, and may even empower you to generate some additional value if you elect to stay at the helm a little longer. 

Get a Second Opinion

Valuation experts aren’t always right. Maybe the person you hired isn’t an industry insider, or doesn’t see a key value driver you think is important. If you have significant disagreements about what is driving your business’s value, or how value is likely to evolve over time, consider getting a second opinion. Value is, after all, in the eye of the beholder. So a disappointing valuation could be a sign that you need a buyer who recognizes the unique offerings of your business. 

Find the Right Buyer 

A buyer hoping to pay bargain basement prices so they can break your business up into component parts is quite a different animal from a buyer who intends to grow your business or use it as an add-on to their own. Consider the profile of your ideal buyer—how they will view your business, and what they hope to get out of it. Then work on marketing your business in a way that maximizes its appeal to your ideal buyer profile. A business broker who understands your niche is critical to this endeavor, because they can reach out to the right buyers and screen them before you even talk to them. 

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