The short answer is no, Bigfoot will not buy your business. But it's amazing how many business owners act as if he will.
Everyone has heard the legend of Bigfoot, the mythical beast that lives deep in the forests. For years we have watched grainy videos and heard the stories, but nobody can seem to find a real, live Bigfoot.
The same Bigfoot legend is alive and well and wandering through mergers and acquisitions negotiations every day. Business owners have heard about Bigfoot from their associates, relatives and others who are supposed business experts. In this case, the legend of Bigfoot is based upon unfounded rumors and stories about a mythical strategic buyer who appears from nowhere and will pay a business owner significantly more than anyone else for their company.
Virtually everyone has heard of a Bigfoot wandering around during mergers and acquisitions negotiations, or has a Bigfoot story, but nobody has ever been able to actually find one.
Here’s what you need to know about Bigfoot.
Bigfoot creates chaos when selling a business
Some owners are perfectly willing to accept a reasonable offer for their business. Then they hear of a Bigfoot sighting in their industry, and they begin to question the bankers, themselves and the process.
They go on a search for Bigfoot and sometimes pass up great opportunities to sell their business. Or, they find what they think is Bigfoot, and sell their company, only to realize it was not Bigfoot after all.
Bigfoot can steal your company
One business owner insisted on limiting sales discussions to strategic or corporate buyers. He thought these buyers would be more motivated to pay the most for his business. He was really looking for Bigfoot.
He spent four years trying to sell his company, but the Bigfoot buyer he longed for never appeared. Finally, one buyer made him an offer that was twice as much as previous bids. The owner was convinced he had finally found Bigfoot and accepted the offer.
The owner was correct in rejecting the initial offers. They were about half of what the company was worth. However, this was the mid-to-late 1990s, and the company was an internet service provider. Valuation multiples for that type of company had increased two to three times while the owner was searching for Bigfoot.
Unfortunately, the Bigfoot offer was actually about half the true value of the company.
This owner’s approach to selling his company was not unusual. He didn’t do the required research, and he didn’t use proven business methods to establish the value of his company. He also failed to use an auction-styled sale to sell the business. So even though the offer he accepted seemed like a good one, the truth is that he hadn’t done the groundwork to produce the offer his company really deserved.
Auction-styled sales can produce Bigfoot-like offers
Using an auction-styled sale can actually help create Bigfoot-like offers. We had one client that believed his oilfield services company was worth approximately $24 million. He was not looking for Bigfoot--just a solid price for his company.
An experienced investment banker marketed the company to a large number of private equity groups and corporate buyers. The company was very attractive, well managed, and well prepared for the sale. The marketing generated numerous bidders. The company sold for $90 million--almost four times what the owner’s original estimate. That was a Bigfoot sales price, but it was made by a real buyer.
If you are thinking of selling your business, do your homework. Prepare your company to be sold. Hire an experienced investment banker. Use an auction-styled sales process. Don’t go looking for Bigfoot. He does not exist--unless you create your own legend by effectively marketing your company to maximize the sales price.
JEFF GROSS is a Vice President at Allegiance Capital. He has closed more than 100 transactions, and made seven private equity investments valued at more than $2 billion dollars during his 15 year career. @jgrossibank