Kevin M. Short
Managing Partner and CEO
Clayton Capital Partners
I recently wrote a book for business owners about a unique process that my company uses to sell mid-sized businesses ($10 million to $250 million in value) for outrageous prices. I define “outrageous” as a price twice that of the industry’s average multiple and “ordinary” as any company that is doing anything short of curing cancer or making something other than a diet pill that actually works. The goal of the “Outrageous Price Process” is to make buyers willing to pay outrageous prices for successful companies like yours.
In Sell Your Business for an Outrageous Price published by AMACOM, I describe in detail the Outrageous Price Process. The first part of that process (Steps 1 and 2 below) apply whether you plan to sell your company for an outrageous price or simply wish to avoid leaving money on the table. I’ve learned that while these steps lead to outrageous prices in boom markets (and occasionally in slow markets as well), they are no less critical when owners wish to sell their companies for solid/reasonable prices in tough markets.
Step One: Identify the Seller’s Competitive Advantage
A company’s Competitive Advantage is what it does more cheaply or better than any of its competitors. Some companies develop a means of making a product more cheaply than competitors while others create ways of delivering a service that customers prefer. There are almost as many ways to create, maintain and sustain Competitive Advantages as there are types of companies. Most business owners concentrate a great deal of energy on creating or improving their companies’ Competitive Advantage(s) although some can not pinpoint exactly what their Advantage(s) is.
If you are considering a sale, you must know exactly what your Competitive Advantages are or you will sell your company too cheaply. At Clayton Capital Partners we have developed a methodical process to uncover the Competitive Advantage in any type of business.
Step Two: Evaluate Potential Buyers’ Willingness to Pay for Your Competitive Advantage
Once you know what your company’s Competitive Advantage is, we then must determine which buyers will pay to acquire that Advantage. There are several types of buyers (financial, entrepreneurial and strategic) and we must find the one who will either (1) gain the most from acquiring your company; or (2) suffer the greatest pain from allowing your business to continue. Clayton Capital draws upon numerous sources of buyer data (including those developed by its in-house research analysts) to determine which buyers are active in the marketplace and further, which individual buyer will pay top dollar to acquire your company.
Step Three: Create a Strategy to Use Your Competitive Advantage as Leverage
the Outrageous Price
Once you know exactly what you are selling that is valuable to a buyer, your transaction advisor must craft a strategy to entice that buyer to pay top dollar. Strategies are as unique as companies, but one might include bringing a number of buyers to the table simultaneously to bid for your company (also known as a controlled auction). Or, the strategy might be to disrupt the status quo in your marketplace to highlight how much pain your company is capable of causing. I’ve orchestrated a number of these strategies and describe some of them in my book.
Step Four: Flawlessly Execute the Outrageous Price Strategy
To execute the “Outrageous Price Strategy” the owner and the transaction advisor (and often the owner’s key managers and other advisors) must understand their roles in the process and adhere to their scripts. Owners must often act as if they are disinterested in a sale. My role as transaction advisor is to continually increase the buyer’s interest as the process evolves. At the same time, I must limit the buyer’s opportunities to chip away at the sale price, make unreasonable demands or ultimately, walk from the deal. Clayton Capital has developed and orchestrated a number of Outrageous Strategies over the years. We can tell you what to expect so you can play your role to perfection.
Getting outrageous prices for mid-size companies is not impossible—we do it on a regular basis. If you aren’t sure what your company’s Competitive Advantage is, or whether there are buyers with enough cash to pay for it, or if there is a way to leverage your company’s Competitive Advantage to attract a buyer willing to pay top dollar, we’d be happy to answer your questions.
I hope you’ll give us the opportunity to help you assess your company’s strengths and analyze your sale options. Selling ordinary companies in both boom and bust markets requires a hard-to-find combination of clear-eyed analytical skills and creative, experienced salesmanship. That’s what we do best at Clayton Capital Partners.