Split Up a Sale for Maximum Proceeds
Sometimes people have a business that has multiple parts.
You have to assess.
Are the sum of the parts greater than the whole?
Are the parts on their own worth more than they are combined together?
Sometimes we can find a buyer who wants the whole enchilada, the whole package.
Other times we have buyers who are looking for a specific thing,
For instance, let’s say you own a car dealership.
A business doing cash flow.
But you have real estate also.
And you have cars.
Is the real estate necessary to run the business.
If so, then we can’t really split the sale.
However, if we can.
Selling the real estate would open up a pool of buyers that might not be interested in the business obviously.
However, it could be valuable for a business to include real estate because many real estate buyers are coming off of a sale and have a 1031 exchange in play. This is a tax deferment strategy that involves locating a property within a specified period of time and rolling money into the new purchase of real estate. Overpaying for real estate and underpaying for the business can be an example.
This is a rudimentary example but sometimes you have parts of your business like software, intellectual property, cash flow, inventory, assets that can all be separated.
The general rule of thumb is there are more pools of buyers looking for something of quality that has specific messaging for a lower price.
If you have a very unique offering and there might only be a few buyers and we have to find those people.
Our job regardless is to find that buyer.
Every pot has a cover, so to speak.
In the movie Wall Street, Gecko buys companies and then dismantles them. Bluestar was a company that fit this description and was an extreme example of the horrors of people losing their jobs to a corporate raider.
The main thing to take away for purposes of this article though is that there is money to be made in this arena – selling off its parts.
If you ever saw the movie Pretty Woman, Richard Gere’s job description was buy companies and sell the parts.
Whether that’s you or not, the premise for your business is – does the value maximize when you dismantle the company or does it increase when you combine. That answer is different for many businesses and it also differs for each buyer.
In 2001, Lorenzo and Frank Fertitta, established Zuffa, LLC to acquire the assets of Ultimate Fighting Championship (UFC), a mixed martial arts promotion and live event provider, from Semaphore Entertainment Group for $2 million. According to some interviews surrounding the purchase, the previous owner seemed to have dismantled the company and sold off its IP rights to stay alive including rights to video games, real estate, inventory, agreements, etc. Dana White recalls that their purchase of $2 million got them “three letters”. Luckily for the Fertitta brothers and Dana White, they were able to rebuild the company back and sell it for $4 billion.
However, you have to be careful when buying a business because elements like this do come up.
So what does that mean for you.
We generally assess waht kind of industry you are in, your price point, and what kind of buyers your business and asking price relative to EBITDA and assets will attract.
Then we analyze the true value of your assets apart and then, together.
If you are in an industry where there are generally stingy buyers looking for deals, you want to lower the price as much as possible and that means splitting up as much as you can to get the price down for each item down to a level where the buyer feels it is a buy.
If you are selling something where the buyer is looking for more and more intrinsic value, you want to paint the picture like the sale has so much included. This is generally positioned for a group that is seeking to acquire not for the value of the business but for ancillary benefits of the business that can help their current business.
Bargain buyers who look at cash flow only will probably want the assets stripped down.
If you want to maximize the sale for your business, reach out to JARBLY LLC at (800) 773-1523 or email us at email@example.com. We look forward to working with you.