We have strategic and financial buyers bidding. How do we play their different valuation methods against each other to raise the price?

Question

Tyler Smith · Accepted Answer

When you have both strategic and financial buyers at the table, you must leverage their different valuation methods to drive up your final price. Financial sponsors, like private equity firms, generally value your business using capitalization of earnings and leverage buyout models. They focus heavily on historical cash flow stability and debt capacity. Strategic buyers, on the other hand, are looking at synergies and market share, and they often use discounted future earnings to model the value your business will bring to theirs.

To play them against each other, you must speak both of their languages. For the financial sponsor, present a highly optimized, clean historical EBITDA with clear, audited adjustments. Show them your EOS® Accountability Chart to prove the business can run profitably without you. This lowers their perceived risk, which directly lowers the capitalization rate they use, increasing your multiple.

For the strategic buyer, build a detailed three year forecast that highlights the immediate cost savings and cross selling opportunities they will gain. Use your V/TO® to show how easily your operations can scale when combined with their distribution channels.

By presenting a clean historical track record to the financial buyer and a high upside synergy model to the strategic buyer, you create a competitive bidding environment. Use the strategic buyer's premium valuation to push the financial buyer to increase their cash offer or improve their deal structure.