I own a privately held, web-based business with revenue in the low millions and around 1M EBITDA. We've seen strong growth over the past few years, but are currently on somewhat of a plateau. Future prospects look decent though, so I expect we will remain comfortably profitable, and I could see outcomes over the next 1-2 years anywhere from flat or slight decline up to perhaps 50% growth.
Having run this company for a number of years now, I am starting to consider an exit. I'm not in any particular hurry, but am at least starting to think about what our valuation might be. Since the company was entirely bootstrapped, I don't have any real experience working with VCs or M&A firms. I know if I was looking to sell I would want representation that understands the market, but beyond that, I'm interested in advice on how to choose a good mid market M&A firm.
I've seen it recommended not to go with firms that charge an up-front fee, because incentives are more aligned if the firm only earns when a sale is done. That makes sense to me, but I don't know how common the various cost structures are, so how feasible that is. Any info on that, as well as industry standard rates/ranges in general would be helpful.
Plus any other advice. Most of what you find online is put out there by the firms themselves, who of course have an interest in focusing on their various strengths. Input from people who have sold companies around this size would be invaluable.
Thanks!
I worked at a company that used this exact strategy. Took a few years to play out, but it allowed the founder to take some money off the table through a private equity round, and finally get a meaningful acquisition spearheaded by the new CEO.
As for private Equity, it probably depends on the fund, but I would assume most of them look for growth companies.
So then the question is who is left? Maybe another entrepreneur looking to diversify, then maybe you could try at one of those market places where you can advertise your website. However I wonder if you are not to big.
Evaluation depends on where you are located (US, Europe, etc..), target market size, competition, metrics (growth, churn, potential), Software as a service vs services/consulting, etc... If you are not selling a product (Saas), or you are not growing (which seems to be your case), be prepared to be valued at a multiple of your earnings, and not total revenue. As for growth, everyone will look at past growth to extrapolate future growth. If you have no past growth, no one will believe you that you will grow your business next year 50% more.
As for the fees, I would expect you to pay a fee when you bail out because the price is too low, or decide not to sell, as they have also done work on their side. Otherwise no one wants to work with you anymore as well in the future. Still you should increase their revenue share the higher they sell. Don't expect though that they know all the companies to target, or have all the connections to those companies.
Most buyers will also require you to stay onboard for 2-3 years.
You should provide more details about region, type of business, market, growth rate, then you can get better replies.
There's transcript so you can search it, he mentioned the company he used and why... "The way I ended up, I sold my company eventually through the brokers, FE International. "
So if you feel growth will increase, I would put the pedal to the metal, and ramp up growth for a year or 2, then sell for the highest possible valuation.