King & King undertook a valuation of a durable medical equipment sales, service and supplies business located in the Mid-Atlantic area. The company had been in business for over 25 years and had positive cash flow, an experienced management team, and no debt.
A few large industry players had expressed an interest in an acquisition of the company. Intrigued by their sudden interest but unsure what the company was worth, the owner engaged us to determine if a merger or sale of the company would provide sufficient enough funds to allow for retirement.
When we first met with the seller, he had no idea what his business was worth but hoped to sell it for as close to $2 million as possible. Our goal was to value the business accurately and get the client the best possible price in the shortest period of time.
Determining the Most Probable Selling Price
The initial engagement evolved over a 2-month period and was comprised of five major elements:
- Analysis of the company’s historical performance and relative competitive position
- An assessment of the markets in which the company participated, including their size, growth drivers, and anticipated future earnings
- An assessment of its growth prospects, including opportunities for the target to expand into a broader set of healthcare equipment supplies
- Determine to a certainty the seller’s discretionary earnings for each of the last five calendar years
- Analyze recent relevant sale data for similar companies to determine the likelihood of a market sale in a reasonable period of time
After completing a comprehensive valuation of the business, which had many facets and several profit centers (including retail sales of equipment and supplies, equipment rentals, government contract sales, and design, installation, and service of custom-engineered elevators, stair lifts, and custom wheelchairs) we came up with a value that was $800,000 higher than they expected.
Finding the Right Buyer
After sharing our findings with the owner we were engaged to represent the company exclusively and given the go-ahead to contact the large companies that had approached him about acquiring the business. They were each given an opportunity to make offers for the business, but they all turned out to be lower than our recommended price range—unsurprisingly. The seller was disappointed with their offers and, at the same time, somewhat concerned that our valuation might have scared them off.
However, we stressed at that time the need to simultaneously seek a market sale to ensure that they get the best price and terms for the business, rather than only relying on these large business’s offers. We used our proprietary database to reach out to individual buyers, strategic buyers, corporate buyers, and private equity groups.
Within 90 days we identified a market buyer who subsequently made an all-cash offer to purchase the company for a price that was within the range we had established. The transaction was under contract within 90 days and closed 75 days later.
We went to market at approximately $3 million and sold the business ultimately for $2.5 million. We got the client more than he expected, which more than covered our brokerage fee. The client ended up with $325,000 in premium over his expectations.
We can’t stress enough the value of our proprietary system for finding market buyers. Initially, the seller was adamant that the only buyer for his business would be a large competitor who had lost the ability to sell certain products that he was able to sell through Medicare by virtue of the competitive bid process. But these large competitors didn’t want to pay the right price. Ultimately, it was our proprietary database that allowed us to find the right buyer for this client.