One of the common objections we get when affecting a leveraged buyout is valuation. Business owners in the SME space sometimes have the misconception that businesses trade at 5-10x multiple of profit. The reality from over 100 of our own deals, research from Harvard, various business sale experts and Kingston University is most don’t actually sell and those that do transact at an average multiple of 2.52x. One reason for this misconception is generally the deals you hear about tend to be very large companies (that do sell for higher multiples) and also brokers that to justify their fees will “value a business” at a higher price than reality . The challenge with SMEs even good ones is they are highly risky and lack liquidity in their shares as they are private. Larger companies tend to have diverse income streams and geographical coverage so if one area of a large company is underperforming they still have plenty of parts to it that do perform. Take Virgin as an example they have a travel agency , airline , gyms etc. if a SME business owner has a chain of 3-4 gyms then they are very exposed to one country or region and the micro economic climate. Virgin operates globally in many sectors. Whilst we will always try to educate a business owner on valuation sometimes you just can’t get them to accept the reality if they do sell they will sell at 2-3 x. When we pitch an offer to acquire - if it doesn’t progress because of misalignment on valuation we will usually park it in the pipeline and revisit in 6-12 months when aspirations may be more realistic. Two deal structures that can however be used either at point of making an offer or in a revisit could be virtual merger or option agreement. Effectively your pitch is about creating a multiple arbitrage by putting them in a larger group that would justify a higher price. Let’s say you have a company in the recruitment industry as a stand alone £10m turnover and £1m profit - in our normal model the goodwill would be worth £2.5m.

I have acquired a Call Center business with office in the UK and operations in Pakistan. I am looking for partners with experience in this area.

So, we´ve built a relationship with the seller and we know the financials of the business we can start preparing the offer. How do we do that? We recently created a 7-Day Free learning, for those who want to start making or continue to make acquisitions and grow their revenue. This is result of having made over 100 business acquisitions in the last 12 years. 👉Please go ahead to buybuildsell.net and join the 7-Day Free Learning for more info. You´ll receive one video every day for the next 7-days of us showing you the principles to get going!

What is your experience in responding to brokers sales inquiries ? What is their value in that process ?

Our two recent acquisitions - please add in the comments 'YES' if you would find it useful and interesting to have a deep dive into the two deals. I can produce a deal case study covering were the deal was sourced from, the negotiations, how we funded and structured the deal and what we learnt along the way. If we do these will be confidential and not to be shared outside of the community.