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How Much Is Your Company Worth?

With more than a trillion dollars in play in the market, it's more important than ever to prepare your business for M&A.

How much is my business worth? It's a question every entrepreneur, founder and business owner asks themselves. This is particularly true during acquisition conversations with a prospective buyer. Because most companies are privately held, the acquisition details of the roughly 10,000 businesses who sell themselves for less than $500M each year in the US remain hidden. There are enormous forces at play in the M&A market that indicate M&A activity will increase substantially in the next few years. Consequently, every business leader ought to develop and maintain a good understanding of their business' market value.

As the data in the chart above shows, the amount of capital held by large public companies has roughly doubled from $675B to $1.2T in 5 years, a burgeoning war-chest that will fuel increasing M&A activity for years to come. In addition to an abundance of public company capital for acquisitions, private equity firms have amassed a 10 year high of $412B in dry powder, more capital for M&A.

Today, Axial, the largest company M&A market place in the US released a valuation tool to help CEOs all over the US estimate the value of their business.

Axial's Valuation Tool uses discounted cash flow analysis and collects a few bits of information about a company to provide a Zillow-like Zestimate of a company's value. Because the DCF model uses profitability as a core variable, the estimator won't work for many startups whose main concern is growth. But for the millions of businesses in the US which do generate a profit, Axial's Valuation Tool works very well.

In addition to helping business owners understand the value of their business, Axial connects business owners with acquirers, lenders and investors, providing entrepreneurs clarity in a traditionally opaque market. Last, the company provides advice and guidance on how to start and manage M&A processes.

As the M&A environment continues to heat up because of increasing cash positions held both by public companies and private equity firms, it's more important than ever for CEOs to understand the value of their businesses when exploring strategic options. The discounted cash flow method provides a quick and dirty estimate, which can be a powerful tool when engaging in initial conversations with potential acquirers.

Last updated: Jul 24, 2014

TOMASZ TUNGUZ | Partner at Redpoint Ventures

Tomasz Tunguz is a Partner with Redpoint Ventures. He was previously the Product Manager for Google's Social Media monetization team, including the Google-MySpace partnership, and managed the launches of AdSense into six new markets in Europe and Asia. Before Google, Tomasz developed systems for the Department of Homeland Security at Appian Corporation. Tomasz blogs daily here.

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