CASE STUDY: Value Unknown
Cornerstone’s Challenge: The Buyer Wanted a Number
Our client needed a number. A billion dollar multi-national corporation wanted to buy his business, but he had no idea what it was worth. The buyer told him he’d have to name an asking price or they’d walk from negotiations.
The company was a business development firm based in Moscow. Its primary function was to help U.S. manufactures do business in the Russian rail market. The company had a 10 year history, 12 employees, and strong revenues.
The client knew that by acquiring his company the buyer would accelerate market entry and stifle other manufacturers’ ability to compete. He had a number in mind he thought would be fair, and planned to ask for double that and negotiate down. Thankfully, he called Cornerstone first.
We convinced him that naming a price was not in his best interest as it would either A) set a ceiling on the acquisition price or B) be so aggressive as to chase the buyer away. Instead, we set out to identify the synergies and negotiate accordingly.
Our Approach: Refuse to Set a Price and Demonstrate the Value
- Tell the Growth Story. We created a Confidential Information Memorandum that validated the company’s earning potential, outlined the synergies between the two companies, and reinforced the ultimate value to the buyer.
- Create the Right Perceptions. We also proved that our client had clear-cut growth opportunities, even without acquisition. In other words, we let them know we didn’t need to sell.
- Negotiate Up, Not Down. Because we refused to name an asking price, we were able to negotiate up from the buyer’s offer, not down from any given price. The buyer’s initial offer came in just above what would have been the client’s “aggressive” asking price. Negotiating from there, we brought in an additional 50% in total consideration (a 30+ multiple of EBITDA) with a financial structure our client believed in.
Results: Successful Acquisition for Seller and Buyer
Today, the acquisition remains successful for both parties. The buyer and its subsidies are having strong success and our client continues to have a significant impact on the Russian rail market.