The financial sponsors looking at our company are treating us like a standard service business with a low multiple, but we have built proprietary distribution systems. How do we use guideline transaction data and our Step by Step Exit Business Integrity Review to force a strategic valuation?

Question

Tyler Smith · Accepted Answer

Financial sponsors look at historical cash flows and apply a baseline industry multiple. Strategic buyers, however, value your business based on what they can achieve by plugging your assets into their larger distribution engine. To demand a strategic multiple, you must shift the conversation from a multiple of your current EBITDA to a multiple of synergistic EBITDA. Start by conducting a Step by Step Exit Business Integrity Review (BIR) to map out your core value drivers and operational redundancies. This review provides the empirical proof that your proprietary systems are highly scalable and ready for rapid integration. Next, pull guideline transaction data from strategic acquisitions in adjacent sectors, highlighting transactions where buyers paid a premium for proprietary technology or distribution networks. In your investment memorandum, present a clear model of the buyer's post-acquisition synergies. Show how your distribution systems will immediately lower their customer acquisition costs and increase their average order value. By presenting a de-risked, highly structured operating system backed by your BIR results, you force the buyer to value your company based on the strategic leverage you bring to their balance sheet.