26 Jan Valuation, Top Killers & Reasons to Sell
Comment from Tom West:
Following is an advertising piece used by travel expert Bob Sweeney president of Innovative Travel Acquisitions, in Atlanta, Georgia. It is valuable information on the very practical side of business valuation and deal making in general. Too many business brokers forget why the seller hired them in the first place – to sell their business. Business brokers are duty-bound to try to get the seller – theirs client – the highest price possible. Thanks to Bob for allowing us to use this piece.
Greetings from Alpharetta, GA: Would you like a reality-based, no “pie in the sky,” opinion of the current value of your company? Year-end income statements are coming in for 2011 as CPA’s do not want to delay releasing final figures with corporate taxes due in seven weeks. Having consulted on 542 successful closing transactions, we know that sellers’ inflated expectations delay and kill many transactions. Any business is worth whatever the most motivated buyer is willing to pay at the time the seller wishes to exit the market. Yes, there are benchmarks of three to five times recast EBITDA for all types of service industries including travel and tourism, but each transaction is unique and things like level of barrier to entry can increase value just as no barrier can decrease value.
Buyers are interested in acquiring a business for four times earnings and paying it back in two and a half years due to cost savings, increased revenues and synergy. Thus, from the buyer’s perspective, it is all about length of payback on the investment. Travel and tourism distribution businesses usually do not have hard assets. So a portion of the closing terms might involve an earnout component, whereby the incumbent stays on for a period of time that meets the seller’s desired schedule after the closing to ensure a steady supply of business.
Our database of over 9,000 mid-size travel and tour-related business owners reports that 2011 was a little better versus 2010, with 2012 starting out stronger than last year. Luxury, corporate, medical and school group travel sectors are all reporting significant strength and growth patterns. Hopefully, our economy will continue to inch upwards so that 2013 can match 2007 levels across the board. We have just hired Mr. James F. Sweeney as a full-time acquisition consultant after ten years of part-time work at our firm. His efforts will be needed to help accommodate the uptick in business transactions we are anticipating for 2012 and beyond.
3 Top Transaction Killers
- Seller’s ego on realistic value.
- Non-industry CPA’s & lawyers.
- Lack of trust between buyer & seller.
Always remember that the best time to sell is after a great year of financial performance.
7 Reasons Owners Sell:
1. Age (planned sale at age 65)
4. Spouse Transfer