The Definition of YBAWS!

August 27, 2016

In the world of small business transactions especially working buy-side mandates, it is astonishing to be confronted with the vender expectation for a multi-million dollar payout when the target company was worth little more than its adjusted book value. The reality of the actual transaction value versus the expected glorious payday impacts the family and retirement plans in the most devastating way.

This especially when you know that your offer is the best this guy will ever get and you are already paying a small premium. But the vender’s need for his number for whatever reason, pride or necessity, will prevent a deal from closing. This is bad for everyone. YBAWS!

Equally surprising is the vender who will take a book value price without considering the built up intangible value that can be exploited. We are talking about brands,  patents and other intellectual property that although not monetized, in the right hands, is worth a lot. This is only bad for the vender. YBAWS!

So we have to two scenarios; a business owner who overvalues a low/no value company and one who assumes no value for a high-value company. The expression, YBAWS! can be used in both circumstances. (YBAWS! Definition)

It is incumbent on the business owner to do two things; namely, get a proper TRANSACTIONAL valuation, a realistic after tax number he can expect from the sale of his business. Second, listen to advisers. Advisers come with a wealth of experience and don’t bring emotion and sentiment to the board room table.

A smart man named Solomon once said, “Plans fail for lack of counsel, but with many advisers they succeed.”

If you have similar stories on how deals have failed because of irrational expectations, I would love to hear about them. I believe there is need for many business owners to see why deals fall through and that advisers create more value then they cost.