One of my pet peeves is the amount of bragging done by both buyers and sellers when it comes to M&A deals. Why it bothers me is that this bragging tends to improperly set expectations by both future buyers and sellers, ultimately doing the industry harm. Speaking personally, I then get buyers who contact me asking why valuations are so high. This is inevitably followed up by sellers who contact me wondering why valuations in the MSP profession haven’t advanced beyond where they were during the dotcom days. It creates a mess and it doesn’t need to be that way. Here’s an example.
If Company A makes a statement about how little they purchased Company B for it does make them seem very savvy when it comes to business dealings. However, it also makes future sellers wary to either sell (or at least to sell to that company) because they don’t want to be underbid for their company.
Sellers, on the flip side, can also spoil the market by making statements to the effect of how much they made on a deal (or by over inflating their worth) so that it causes unrealistic expectations for other sellers who want to sell or merge.
So, what’s the moral of the story? Be careful of what you have heard when it comes to valuation multiples. Each deal will be different, so even if you have information about a previous deal, it’s not like real estate where you can use “comps” as an indicator of current valuations.
With all the incorrect information there are also a lot of good potential deals, especially mergers. Just be careful and wait for the right deal; eventually, it will come around.
[...] This post was mentioned on Twitter by Bob Leonard. Bob Leonard said: Charles Weaver has a sense of humor. Good post re MSPs lying about the size of their deals: http://tinyurl.com/3xcxv8q [...]