Four out of ten entrepreneurs overestimate the sales value of their businesses. On average, those entrepreneurs think they will get 30% more for their business than the fair market value, a price that is "fair" to both buyer and seller.
This is one of the results of the Brookz Takeover Barometer, the semi-annual research of takeover platform Brookz, on figures and trends in the takeover market. The survey was conducted among 178 merger & acquisition advisers (approx. 700 advisers) who together represent more than 90 percent of the SME takeover market (businesses with revenues between 1 and 30 million euros).
Reasons for overestimation
In most cases, the overly optimistic valuation is caused by wishful thinking (36%). For example, entrepreneurs assume the amount they need for retirement and see that as the starting point of negotiations. Other reasons for overestimating the value of the business are: Misinformed by friends/acquaintances (24%), Self-overestimation (23%) and Misinformed by the business acquisition advisor (17%).
In addition, according to Floyd Plettenberg, responsible for this research within Brookz, there are still many entrepreneurs who really have no idea how buyers look at the value of their businesses. Plettenberg: "Selling entrepreneurs look too much at the past and also confuse the actual value of their businesses with emotional value (invested blood, sweat and tears). Those things are of no interest at all to a buyer. He looks primarily to the future, where synergy can be realized and how long it will take him to earn back the purchase price paid.'
Outlook
Although more than 15% fewer businesses were sold in the second half of 2015 than in the first half, the outlook for 2016 is still positive. A majority of acquisition advisory firms (52%) expect the current high level of activity to continue in the next six months as well. 35% even expect the market to pick up even further. Only 13% of advisers expect the acquisition market to deteriorate in the next 6 months.
Report grade
Expressed in a report grade, takeover advisory firms give the takeover climate in the second half of 2015 an average of 6.9. For the expected acquisition climate in the next 6 months, respondents gave an average report grade of 7.3.
