Transition Companies & The Absolutes of M&A - Gene Sartin.
The Transition Companies and Gene Sartin advises every business owner to remember the absolutes... you cannot control the external factors that determine your company’s value. You cannot control the absolutes of Interest Rates, Capital Gains Taxing, Foreign Exchange Rates, etc. but these affect your companies value immensely.
Never think you can mathematically determine your companies worth, you can not.
Every potential buyer / investor sees value through their eyes, not yours.
Do not think like you think, think like the buyer or investor thinks, they are the ones that determine value
According to The Transition Companies advisors, you should be asking, who can benefit from the acquisition of your company’s future, synergistically? Synergy increased the value of your company in the eyes of the right buyer.
Where in your P & L are intangibles and synergies accounted for? And what do value do these have to just the right buyer?
Executing upon a high quality liquidity event is a process that can take 4-9 years to complete. But the planning and preparation is truly worth it.
Never negotiate with only one buyer. You should have many buyers looking at your company.
Ninety-two (92%) of business owners leave money and terms and conditions on the table when they exit because of one simple fact, they waited too late to start a process of positioning and analyzing their value through the eyes of a buyer or they sold to the wrong buyer or investor. One cannot negotiate what they do not know.
It is never too early to properly plan, but often too late. The Transition Companies stands ready to help you plan and prepare.
An economic value is the worth of a good or service as determined by the market. The economic value of a good or service has puzzled economists since the beginning of the discipline. First, economists tried to estimate the value of a good to an individual alone, and extend that definition to goods which can be exchanged. From this analysis came the concepts value in use and value in exchange. Wealth maximization predicts that a person will choose to obtain the good or service in the place where it is cheapest, where the amount given up is the least. Value is linked to price through the mechanism of exchange. When an economist observes an exchange, two important value functions are revealed: those of the buyer and seller. Just as the buyer reveals what he is willing to pay for a certain amount of a good, so too does the seller reveal what it costs him to give up the good. Additional information about value is obtained by the rate at which transactions occur, telling observers the extent to which the purchase of the good has value over time. Said another way, value is how much a desired object or condition is worth relative to other objects or conditions. Economic values are expressed as "how much" of one desirable condition or commodity will, or would be given up in exchange for some other desired condition or commodity. Among the competing schools of economic theory there are differing metrics for value assessment and the metrics are the subject of a "Theory of Value." Value theories are a large part of the differences and disagreements between the various schools of economic theory.
In neoclassical economics, the value of an object or service is often seen as nothing but the price it would bring in an open and competitive market. This is determined primarily by the demand for the object relative to supply. Many neoclassical economic theories equate the value of a commodity with its price, whether the market is competitive or not. As such, everything is seen as a commodity and if there is no market to set a price then there is no economic value. In classical economics, the value of an object or condition is the amount of discomfort/labor saved through the consumption or use of an object or condition (Labor Theory of Value). Though exchange value is recognized, economic value is not, in theory, dependent on the existence of a market and price and value are not seen as equal. This is complicated, however, by the efforts of classical economists to connect price and labor value. Karl Marx, for one, saw exchange value as the "form of appearance" of value, which implies that, although value is separate from exchange value, it is meaningless without the act of exchange, i.e., without a market.
In this tradition, Steve Keen makes the claim that "value" refers to "the innate worth of a commodity, which determines the normal ('equilibrium') ratio at which two commodities exchange" To Keen and the tradition of David Ricardo, this corresponds to the classical concept of long-run cost-determined prices, what Adam Smith called "natural prices" and Karl Marx called "prices of production." It is part of a cost-of-production theory of value and price. Ricardo, but not Keen, used a "labor theory of price" in which a commodity's "innate worth" was the amount of labor needed to produce it. "The value of a thing in any given time and place", according to Henry George, "is the largest amount of exertion that anyone will render in exchange for it. But as men always seek to gratify their desires with the least exertion this is the lowest amount for which a similar thing can otherwise be obtained." In another classical tradition, Marx distinguished between the "value in use" (use-value, what a commodity provides to its buyer), "value" (the socially-necessary labor time it embodies), and "exchange value" (how much labor-time the sale of the commodity can claim, Smith's "labor commanded" value). - Source Wikipedia and Gene Sartin
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