How a Bidding War will push up a sale price, and how to get one

Hi ,

This week: how to triple your valuation by knowing your market

We’ve written a lot about things you can do on the back end to raise the price of your company on sale, but what about the front end?

The worst kind of sale is one where there’s only one potential buyer: 

They can pull out at any time, you have no leverage, and they can be ‘flexible’ with the terms (translation - pay less up front)

In short, they hold all the cards…

Figuring out how to get multiple competing offers is not only a must-have for mental peace, but it’s the best way of increasing the final sale number.

So how do you achieve this? I’ve pinned it down to three major reasons:

1. Have a strategic location, brand or intellectual property. If you don’t have this already, consider making an acquisition to buy some. If the final acquirers are buying to add equity, why shouldn’t you? They’re doing deals to make money after all

2. Be in a ‘hot market’ where there’s lot of investment coming. If you’re not already in this then use marketing and branding to position yourself into that space (think of how many people have boosted the valuations of low multiple businesses by branding themselves as a software or AI integrated company)

3. Have multiple major clients who compete with each other in their main business. If one of them acquires you and can deprive/charge their competitor for your niche service, there’s strategic value there.

This isn’t a fantasy—it’s exactly what happened to a business owner I recently spoke with.

Case Study: How a Bidding War Tripled Focus Solutions’ Sale Price

Focus Solutions Group is a software company that was floated on the British small cap AIM Market, part of the London Stock Exchange, in 2000. It had blue chip customers, profit, and over one hundred employees, but the ‘dot com bust’ of the early 2000’s greatly damaged their share price over the next few years despite strong fundamentals

By 2003, the company was trading at a $10m valuation, barely more than their cash balance, let alone a normal profit multiple for a software company.

It seemed like the market just didn’t understand how to properly value small cap software stocks like Focus

But there was a strategic holding the company had that the market had not spotted: 

Focus’s customers, several major British banks and insurance companies, had their XML software for their customer databases run through Focus, which was very hard to replicate. The penny-drop moment was that if one of the customers bought them, their competitors would find it very hard to replicate the software and would have a major advantage over their rivals and a major help in onboarding new clients.

The Board of Directors discretely marketed the company with this new angle, and soon enough many bids came in. The PE Giant Carlyle Group and insurance heavyweight Standard Life both began circling with bids, both trying to top each other.

It started the phenomenon of reflexivity in markets, where sentiment compounds itself and valuation starts driving the fundamentals, not the other way around. The market psychology had completely changed.

The share price tripled as multiple players all put in bids and a hype train started. Ultimately the deal closed in 2010 with Standard Life for over $50m, one of the great success stories of the year in the London stock exchange.

All of this was in the middle of the global financial crisis, it just goes to show that more strategic buyers will always give you more options, no matter what the market situation.

Hopefully you’ve seen how positioning yourself into a bidding war can add tens of millions to your company’s valuation. So create an auction-like environment and see your company achieve the valuation it deserves.

To Your Next Deal,

Unlocking Wealth Weekly Team

p.s. Have you ever been involved in a bidding war, whether buying or selling? Hit reply and let me know your experience!