Marketed Sale vs. Direct Acquisition: How You Can Maximize Value

Marketed Sale vs Direct Acquisition: How Canadian Businesses Can Maximize Value 

When Canadian business owners decide to sell, a pivotal decision involves choosing between a broadly marketed sale and a direct acquisition. The chosen approach can significantly impact the final valuation, experts say. 

Episode Transcript

SPEAKER_01 (00:00):
Okay, let's dive in.
If you're a Canadian businessowner thinking about selling,
well, you got this huge decisionright at the start, don't you?

SPEAKER_00 (00:07):
Absolutely.
It's basically uh do you gowide, market the company
everywhere, try to get a biddingwar going?

SPEAKER_01 (00:13):
Right, the competitive auction route.

SPEAKER_00 (00:15):
Or do you go direct, maybe talk to just one buyer,
prioritize getting it donequickly?

SPEAKER_01 (00:20):
Aaron Powell And that choice it really shapes
everything that follows,especially the final price tag.

SPEAKER_00 (00:25):
Exactly.
So our mission today, using thesources you've gathered, is to
really drill down into thenumbers.
Which path actually gets you,the seller, the best valuation?

SPEAKER_01 (00:36):
Aaron Powell Let's start with the first option
then, the marketed sale.
This is uh the more structuredprocess, right?
Yeah.
Usually run by an investmentbank.

SPEAKER_00 (00:44):
Correct.
The whole point is exposure.
You want to cast a really widenet.

SPEAKER_01 (00:48):
Catch the eye of strategic buyers, private
equity, maybe even wealthyindividuals.

SPEAKER_00 (00:52):
Aaron Powell Precisely.
And that wide exposure, thatcompetition, it's powerful.
The data we looked at shows awell-run marketed sale can boost
the final price by, well, quitea bit.

SPEAKER_01 (01:03):
How much are we talking?

SPEAKER_00 (01:04):
Potentially 20% to 50%, sometimes even more,
compared to just dealing withone buyer.

SPEAKER_01 (01:08):
Aaron Powell Wow, 50%.
That's in this.

SPEAKER_00 (01:11):
It's because multiple bidders, they create
real urgency.
Nobody wants to lose out.
It fundamentally shifts thenegotiation leverage.

SPEAKER_01 (01:18):
Aaron Powell, so more competition equals more
value.
Makes sense.
But there's always a catch,isn't there?
What's the trade-off for thatpotential 50% bump?

SPEAKER_00 (01:28):
Time and effort.
It's definitely not the fasttrack.
You need months often forpreparation, getting the data
room perfect, handling all thequestions, the due diligence.
It's intensive.

SPEAKER_01 (01:40):
So you need patience.
As uh Adam Smith apparentlysaid, competition drives value,
but it sounds like it demands alot from the seller, too.

SPEAKER_00 (01:47):
It really does.
Yeah.
Which brings us neatly to thealternative, the direct
acquisition.

SPEAKER_01 (01:52):
The single buyer negotiation.
Yeah.
Maybe with a competitor, youknow, or perhaps an internal
team.

SPEAKER_00 (01:57):
Could be, yeah.
The big appeal here is speed anduh simplicity, less disruption.

SPEAKER_01 (02:03):
Okay, but what's the cost of that speed?
If you avoid the big auction,what typically happens to the
valuation?

SPEAKER_00 (02:08):
Aaron Powell Well, that's where you potentially pay
the price.
The sources suggest valuationsin these direct deals might
fall, say, 10% to 30% below whata competitive process could
achieve.

SPEAKER_01 (02:19):
Aaron Powell 10 to 30% lower.

SPEAKER_00 (02:21):
Yeah.

SPEAKER_01 (02:21):
But maybe for some owners, avoiding months of
stress and distraction is worththat, you know, 10% haircut.

SPEAKER_00 (02:28):
It certainly could be for some, yeah.
Personal circumstances matter,but purely financially, the data
leans heavily the other way.

SPEAKER_01 (02:36):
How so?

SPEAKER_00 (02:37):
Carl Sigurdist was quoted pointing this out.
Speed and simplicity often comeat the cost of valuation.
Without competition, the buyerjust inherently has more
leverage.

SPEAKER_01 (02:46):
But no, they're the only game in town.

SPEAKER_00 (02:47):
Exactly.
So unless there's some trulyunique, irreplaceable synergy
between just those twocompanies, you risk leaving
serious money on the table.

SPEAKER_01 (02:55):
Aaron Powell Okay, let's make this concrete.
Imagine you've got a Canadianbusiness, solid performer,
making$1 million a year inEBITDA that's operating cash
flow.

SPEAKER_00 (03:04):
Right.
A million in EBITDA.
If that owner goes the directsingle buyer route, what kind of
multiple might they expect?

SPEAKER_01 (03:11):
Aaron Powell What does the data suggest?

SPEAKER_00 (03:12):
Generally, maybe in the range of 3.75 times to say
4.25 times that EBITDA.

SPEAKER_01 (03:19):
So the business sells for roughly$3.75 million
to$4.25 million.

SPEAKER_00 (03:24):
Okay.

SPEAKER_01 (03:24):
Yeah.
Somewhere in that ballpark.

SPEAKER_00 (03:26):
But what if they take a deep breath, invest the
time, and run that competitiveprocess?

SPEAKER_01 (03:30):
Aaron Powell Ah, well, and the picture changes
quite a bit, the multiple jumps.
You're likely looking at fivetimes to maybe 5.75 times
EBITDA, possibly even more.

SPEAKER_00 (03:38):
So five million to five point five million dollars.

SPEAKER_01 (03:41):
Aaron Powell Or higher, yeah.
That's a difference of what,potentially one and a half, two
million dollars or more, simplyfrom creating that competitive
tension.

SPEAKER_00 (03:49):
Aaron Powell And that five X might even be
conservative depending on theindustry or region, right?
Like tech in Vancouver or energyout in Alberta.

SPEAKER_01 (03:56):
Aaron Powell Absolutely.
Hot sectors or strategic assetscan push those multiples even
higher in a competitive bid.

SPEAKER_00 (04:02):
So wrapping this up then, the core takeaway seems
pretty clear.

SPEAKER_01 (04:05):
It really boils down to a fundamental choice, doesn't
it?

SPEAKER_00 (04:08):
Do you value speed, simplicity, less disruption
above all else, knowing itlikely means a lower price?
Or are you willing to invest thetime and let's face it, the
effort to run a competitiveprocess and potentially capture,
you know, 20, 30, maybe even 50%more value?

SPEAKER_01 (04:25):
It's a major strategic fork in the road for
any seller.

SPEAKER_00 (04:28):
It is.
And maybe a final thought foryou to consider, connecting back
to the sources.
If competition is truly the keydriver of maximizing that sale
price, how certain does a sellerneed to be about the uniqueness
of a specific synergy in adirect offer before deciding not
to test the wider market,especially given that potential
value difference?