4 ms·
There's a range of answers to this question, but the simplest answer to "Why take N years of earnings today and give up the business?" is "Because then I get N
by patio11 11y ago
There's a range of answers to this question, but the simplest answer to "Why take N years of earnings today and give up the business?" is "Because then I get N years of earnings today and can spend my next N calendar years doing something else."
The exact setting for N comes down to a variety of factors, market conditions, and a negotiation between a particular buyer and a particular seller. As someone who happens to be long SaaS companies at the moment I would prefer N=50 but I know SaaS owners whose lives would be improved by a sale at 2. (As mentioned in sibling comments, market right now is 3ish.)
- jacquesm 11y agoI was more than happy to score a 20 and I would have settled for 10... but don't tell the buyers.
- dennisgorelik 11y agoDo you mean your buyers paid 20x your business' yearly profits? Why?
- jacquesm 11y agoExcellent question! But I don't have the answer for you.
- dennisgorelik 11y agoBut did you actually sell at 20x yearly profits?
- jacquesm 11y agoNo, I sold at 20x turnover.
- dennisgorelik 11y ago20x gross revenue? Wow! What was the name of that business and what year was that?
- jacquesm 11y agoNone of your business :) But it's very well possible to make deals like these, it just matters that the buyer has a different idea of the value of the business for them than you do. Which answers your earlier question in a way, but the 'why' is actually probably a lot more complicated than that and I can't really speak for the buyers, the only thing I know for sure is that they had a totally different idea of where they were taking this than I did. They probably thought it was cheap. Beauty is in the eye of the beholder...
- dennisgorelik 11y agoActually, I just compared your deal with Twitter: 12 months revenue ending 2013-12-31: $664.89M Twitter IPO Valuation: $24 Billion (Nov. 07, 2013) Price/Gross revenue ratio = $24B / $664.89M ~= 43x That makes your 20x sale look like an underperformer.
- jacquesm 11y agoYes, there are many other deals that are better. You forgot to ask the key question though :) But I'll let it rest, none of this is for public consumption and I shouldn't have written the first comment.
- dennisgorelik 11y agoWhat is "the key question"?
- kirubakaran 11y agoPurchase price, most likely.