Joubin Bashiri, partner at Tenzing Partners, commented that even before signing a non-disclosure agreement, Tenzing assesses a realistic price range with the financial information provided by the seller, based on the multiples in previous transactions, databases, etc.
Sellers are increasingly looking for smart money... with aligned interest
Tenzing needs “to feel comfortable” that the expected asking price falls within such a range. He said that it would walk out of a negotiation should the seller’s asking price be above the upper range. “Our goal is to find an acquiring firm that will [detect] added value in the selling firm [so that the seller can] get a higher valuation than for an average company with an average multiple.”
Who pays more?
In Bashiri’s experience, industrial groups are ready to pay a higher price than financial buyers such as a private equity fund, given the higher potential for synergies. However, he noted that industrial groups will encounter greater competition from specialist private equity funds which can also extract synergies.
Bashiri thinks that the financial buyer option makes more sense when a seller is looking to get equity capital for its development stage while maintaining control. Yet he also noted that more and more industrial groups are willing to play the minority owner role, but with an option to buy the remaining shares over a specific timeline.
“Sellers are increasingly looking for smart money... with aligned interest,” stressed Bashiri. He thinks that sellers nowadays expect the buyers to exhibit a strategic competence “to double the turnover by the exit.” Indeed, higher revenues may increase the total exit income for the seller on the back of favourable earnout agreements.
Improving valuation does not come from thin air
Christophe Bianco, head of sales & bids, cyber digital solutions business line at Thales, commented that their corporate VC, Sonea Capital, which acquired a majority stake in Excellium four years before its sale to Thales, was instrumental in driving value creation, i.e., improving the focus on profitability, before the exit.
Bianco explained that the fund changed the management approach in such a way that “we can predict, we are delivering, and we can measure” to master all material elements to improve the performance of Excellium. He thinks that hiring the consultancy BCG helped to identify “several small dysfunctional issues... We agreed with their observations but less so with the proposals.”