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M&A POLL

Will Business Values Increase Over Next 12 Months?

Substantially - 10%
Moderate - 31.4%
Stable - 30%
Decrease - 24.3%
Plummet - 4.3%
The voting for this poll has ended on: 06 Mar 2012 - 21:24

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M&A Home -> Valuation Articles -> SURPRISING WAYS GEOGRAPHY MAKES A DIFFERENCE WITH M&A

SURPRISING WAYS GEOGRAPHY MAKES A DIFFERENCE WITH M&A

Recently, BizBuySell reported on the Businesses sold, by Business Brokers in CT as well as the rest of the US, as well as businesses sold by owner.  The results were based on businesses for sale during the third Quarter of 2008.  I found a startling fact when I compared the CT statistics from business brokers with statistics from business brokers across the US.

On BizBuySell, Business listed for sale across the US had a price that averaged .92% of the revenue of such businesses for sale, and a price that was equal to 346% of their cashflow.  Contrast that with businesses for sale in CT, and business brokers and others listed those companies with a price that averaged 73% of revenue, and 279% of cashflow.  Why would the business multiples used for valuing CT companies by business brokers be so much lower?  What affect does this have to business owners everywhere who are trying to get the maximum value for their companies?

I do not know the disparity of the highest average multiple of cashflow by state vs. the lowest multiple of cashflow, but it is obviously significant.  Remember, this is not a one to one proportion, so a business with a cashflow of $500,000 in CT is worth on average about $1.4 million, and the same business somewhere else is worth about $1.75 million.  That is a significant amount of money.  Assuming CT is not the state with the lowest multiple, and the average of the US is obviously not the highest, the difference on a $500,000 cashflow business could be as much as 2x's, or $1 million.

The possible reasons are too long to mention.  The reason could be the cost of living, unemployment rates, cost of space or office rates, etc.  The important issue is what you can you or your business broker do about it to make your business more valuable, whether it is in CT, NY, or anywhere else in the US.

The way to make your business valuable is to make it as portable as possible.  A business that can be run from anywhere can be sold to someone in a geography where businesses are valued at a higher multiple.  Your business broker or business intermediary should be marketing that business in their home state such as CT, but also in every state in the US.  The more portable the business, the more likely you can get a buyer who is willing to value the business based on a higher multiple.

Princeton Capital Strategies, LLC

www.PrincetonCapitalllc.com

 

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