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. 

You're listening to The Shaughnessy Group Podcast—insights on buying, selling, and growing Canadian businesses in the lower-middle market.
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Transcript

SPEAKER_01 0:08

Okay, let's dive in. If you're a Canadian business owner thinking about selling, well, you got this huge decision right at the start, don't you?

SPEAKER_00 0:16

Absolutely. It's basically uh do you go wide, market the company everywhere, try to get a bidding war going?

SPEAKER_01 0:22

Right, the competitive auction route.

SPEAKER_00 0:24

Or do you go direct, maybe talk to just one buyer, prioritize getting it done quickly?

SPEAKER_01 0:29

Aaron Powell And that choice it really shapes everything that follows, especially the final price tag.

SPEAKER_00 0:34

Exactly. So our mission today, using the sources you've gathered, is to really drill down into the numbers. Which path actually gets you, the seller, the best valuation?

SPEAKER_01 0:45

Aaron Powell Let's start with the first option then, the marketed sale. This is uh the more structured process, right? Yeah. Usually run by an investment bank.

SPEAKER_00 0:53

Correct. The whole point is exposure. You want to cast a really wide net.

SPEAKER_01 0:56

Catch the eye of strategic buyers, private equity, maybe even wealthy individuals.

SPEAKER_00 1:00

Aaron Powell Precisely. And that wide exposure, that competition, it's powerful. The data we looked at shows a well-run marketed sale can boost the final price by, well, quite a bit.

SPEAKER_01 1:11

How much are we talking?

SPEAKER_00 1:12

Potentially 20% to 50%, sometimes even more, compared to just dealing with one buyer.

SPEAKER_01 1:16

Aaron Powell Wow, 50%. That's in this.

SPEAKER_00 1:20

It's because multiple bidders, they create real urgency. Nobody wants to lose out. It fundamentally shifts the negotiation leverage.

SPEAKER_01 1:27

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 that potential 50% bump?

SPEAKER_00 1:36

Time and effort. It's definitely not the fast track. You need months often for preparation, getting the data room perfect, handling all the questions, the due diligence. It's intensive.

SPEAKER_01 1:49

So you need patience. As uh Adam Smith apparently said, competition drives value, but it sounds like it demands a lot from the seller, too.

SPEAKER_00 1:56

It really does. Yeah. Which brings us neatly to the alternative, the direct acquisition.

SPEAKER_01 2:00

The single buyer negotiation. Yeah. Maybe with a competitor, you know, or perhaps an internal team.

SPEAKER_00 2:05

Could be, yeah. The big appeal here is speed and uh simplicity, less disruption.

SPEAKER_01 2:12

Okay, but what's the cost of that speed? If you avoid the big auction, what typically happens to the valuation?

SPEAKER_00 2:17

Aaron Powell Well, that's where you potentially pay the price. The sources suggest valuations in these direct deals might fall, say, 10% to 30% below what a competitive process could achieve.

SPEAKER_01 2:27

Aaron Powell 10 to 30% lower.

SPEAKER_00 2:29

Yeah.

SPEAKER_01 2:30

But maybe for some owners, avoiding months of stress and distraction is worth that, you know, 10% haircut.

SPEAKER_00 2:36

It certainly could be for some, yeah. Personal circumstances matter, but purely financially, the data leans heavily the other way.

SPEAKER_01 2:44

How so?

SPEAKER_00 2:45

Carl Sigurdist was quoted pointing this out. Speed and simplicity often come at the cost of valuation. Without competition, the buyer just inherently has more leverage.

SPEAKER_01 2:54

But no, they're the only game in town.

SPEAKER_00 2:56

Exactly. So unless there's some truly unique, irreplaceable synergy between just those two companies, you risk leaving serious money on the table.

SPEAKER_01 3:03

Aaron Powell Okay, let's make this concrete. Imagine you've got a Canadian business, solid performer, making$1 million a year in EBITDA that's operating cash flow.

SPEAKER_00 3:12

Right. A million in EBITDA. If that owner goes the direct single buyer route, what kind of multiple might they expect?

SPEAKER_01 3:19

Aaron Powell What does the data suggest?

SPEAKER_00 3:21

Generally, maybe in the range of 3.75 times to say 4.25 times that EBITDA.

SPEAKER_01 3:27

So the business sells for roughly$3.75 million to$4.25 million.

SPEAKER_00 3:32

Okay.

SPEAKER_01 3:33

Yeah. Somewhere in that ballpark.

SPEAKER_00 3:34

But what if they take a deep breath, invest the time, and run that competitive process?

SPEAKER_01 3:38

Aaron Powell Ah, well, and the picture changes quite a bit, the multiple jumps. You're likely looking at five times to maybe 5.75 times EBITDA, possibly even more.

SPEAKER_00 3:47

So five million to five point five million dollars.

SPEAKER_01 3:50

Aaron Powell Or higher, yeah. That's a difference of what, potentially one and a half, two million dollars or more, simply from creating that competitive tension.

SPEAKER_00 3:57

Aaron Powell And that five X might even be conservative depending on the industry or region, right? Like tech in Vancouver or energy out in Alberta.

SPEAKER_01 4:04

Aaron Powell Absolutely. Hot sectors or strategic assets can push those multiples even higher in a competitive bid.

SPEAKER_00 4:10

So wrapping this up then, the core takeaway seems pretty clear.

SPEAKER_01 4:14

It really boils down to a fundamental choice, doesn't it?

SPEAKER_00 4:17

Do you value speed, simplicity, less disruption above all else, knowing it likely means a lower price? Or are you willing to invest the time and let's face it, the effort to run a competitive process and potentially capture, you know, 20, 30, maybe even 50% more value?

SPEAKER_01 4:34

It's a major strategic fork in the road for any seller.

SPEAKER_00 4:36

It is. And maybe a final thought for you to consider, connecting back to the sources. If competition is truly the key driver of maximizing that sale price, how certain does a seller need to be about the uniqueness of a specific synergy in a direct offer before deciding not to test the wider market, especially given that potential value difference?