A One-Word Answer to Why a Valuation is Important

Posted by Rock LaManna

A One-Word Answer to Why a Valuation is Important

Why is a valuation important? The one-word answer comes from the previous owner of a print finishing company: SOLD. As in, if you want your company SOLD, you need a valuation. This is his story.Meet Brad Van Leeuwen, former owner of Trade Printing Finishing.  Brad had been kicking around the idea for selling his company for a long time when he first came to us.  He didn’t really know where he was headed with the sale of his company, so we started at the same place we start with everyone: With a business valuation.

Brad Van LeeuwenBrad Van Leeuwen

Why? Because the valuation signifies the endpoint of the sales process. That number can serve as the guiding point to your final destination: A successful close.  

Let’s prove our point by sharing Brad’s story, one that starts with a valuation and ends with...Colombia!

The Last Generation of a Family Business

Like myself, Brad hails from a family business. He is a third generation business owner.  The company was originally started by his grandfather, and they specialized in engraving social announcements and stationery.  His parents then inherited the business, and he took it over from them.

“It was a typical transition, from one generation to the next,” Brad recalls.

Brad and family.

Brad, at right, with his sister Lisa and brother Craig, both who worked in the business.

Like all printing businesses, the company went through a series of changes over the years as the marketplace changed. The company had been successful with in-grade commercial stationery services, including speciality services such as foil stamping, die cutting, and uv coating.

When stationery died with the onset of the FAX machine, Brad moved on to wide format print finishing processes like foil stamping, die cutting and UV coating.  

The company grew, and he started to fix his eye on the ultimate prize.  “I always had the goal of retiring earlier,” he said. “I kept saying, ‘5 years from now, I want out.’ It was always a moving target.”

Retirement was a moving target.

Personal Life Throws a Curve -- but the Goal Gets Straightened Out

Brad had initially entertained the idea of selling his business to a key employee.  “I wanted to give him an opportunity, and I thought it would work out,” he said.

What had started out as a somewhat altruistic notion turned into an exercise in foot-dragging.  Both Brad and the key employee were putting half-hearted efforts into coming to a consensus on how to sell the business, and as the days turned to weeks and months, he realized his opportunity was slipping away.

Brad Van Leeuwen Interview

Around that time, Brad experienced a setback on the personal front.  He went through a divorce, and then eventually married a woman from Colombia.  He and his new wife agreed on the idea of moving to her home country, and so the idea of selling the business took on added urgency.

After giving the key employee a selling ultimatum that was not accepted, Brad decided to sell his business outside the company. But to do that, he needed to know what it was worth.

General Industry Valuations Wouldn’t Work

Brad had always kept tabs on the value of his assets.  He was mindful of the fair market value of the big iron his company had on the floor. But he knew that wouldn’t help him determine the ultimate value of the company.

He did some research on his own, and found some sources for valuations of businesses. Unfortunately, most were about the general printing industry. Brad wanted something specific to the print finishing business, which was his true speciality.

He researched on his own.

That’s when he reached out to us. He’d heard of our focus on the printing and print-related industries, and he requested our business valuation services.

For someone who is just looking to get a sense of where they stand among the competition, we might recommend our PeerComps report. But Brad was in sell-mode, so we suggested a complete business valuation report.  He agreed.

Eye-Opening Valuation: It’s Profit, Not Assets, That Matter

When the valuation for the company came back, Brad was surprised.  The number was lower than he’d expected.

“I had always watched the equipment to see what I could sell it for if I had to liquidate,” he said. “But the valuation indicated that profitability was the true driver of value.”

Profitability was the true driver of value.

Brad’s oversight isn’t uncommon. Too often sellers think the buyer is solely focused on the value of the company on the day of the sale.  They are, but they are really looking at what your company is worth 3, 5 or 10 years down the line.

The big iron wasn’t a good indicator of what the future held for Brad’s company. “In retrospect, I’m sure if I would have spent more time building up customers and clientele, I could have commanded a higher price,” he said.

With Value in Hand, Lady Luck Smiles Upon Brad

Brad began the next part of his search in a manner that we don’t always recommend: He looked for a buyer on his own.

Over a period of three years, Brad contacted customers, competitors and suppliers. He engaged in several discussions with potential investors, but couldn’t find a mutually beneficial fit.

Finally, he contacted a private equity firm that had purchased a similar company to Brad’s. The PE firm had found the company wasn’t generating the revenues it wanted, so they made Brad an offer.

Lady Luck smiled upon Brad.

It was a case of Lady Luck smiling upon Brad, because his patience with the solo shopping had reached it’s end. “I really thought I’d hire the LaManna Alliance if this didn’t work out, but I wanted to play the last card,” he said.

Fortunately, he liked the hand he was dealt.

Reasons for Valuation: Credibility, Starting Point

Whether you embark on the selling journey by yourself or with another investor, there’s little doubt that a valuation is critical for the sale.  

“If you approach a potential investor, you have to be able to offer up financial information,” he said.  “I didn’t offer up anything that could come back to hurt me in the end. “

Brad believes the valuation was helpful because it established a negotiating point.  “No one disputed it,” he said.  “It gave credibility to the price I was asking.”

Valuation validated his asking price.

Transition to a New Life - for Employees and for Brad

As Brad and his wife begin preparations for their move to Colombia, he reflects on the transition period he’s undergone since the sale of his company.

The hardest part, he admits, was the reaction from his employees.  Even though the new ownership provides more financial security for the company, the employees had to transition to a different culture.  “A lot of them, to this day, are sad,” he said.

The hardest part was employee reaction.

Also difficult was the fact that Brad was no longer relied upon as a key decision maker. In fact, his input into decisions and the business dwindled faster than he’d expected.

However, the relaxed constraints on his time are allowing him to focus on Colombia.  “We’ll be trying a new venture once we’re down there,” he said.  “Maybe a B&B, or start a restaurant. I’m going to take it easy for a while, and assess the situation.”

He added with a laugh, “My family members think we’re crazy.”

Having sold his business, Brad seems far more savvy than crazy.  It’s obvious that he’s reached his final destination: His future is now entirely his, and he can shape it how he chooses.  And all it took was a simple valuation to get the ball rolling.

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Topics: Business Valuation