[drewcrawford]

I've never been in your shoes, but one small tidbit I've learned about business in general is that the first person to say a number loses. If you can, try to get an offer out of them, and start negotiations there.

The other rule of thumb I've seen acquirers use is (yearly revenue) * X, where X is some indicator of the risk of the business evaporating. Values of 0.9-1.6 for X seem pretty common for a product with little history.

[kirse]

the first person to say a number loses

This is really just a myth. If you present a buyer with well-justified and thought-out reasons for your number, it's going to be hard for them to counter-offer with something ridiculous, unless they're just being an ass. Not to mention you should always have your base number in mind, at which point you just walk away. The OP also said the company has agreed with most of his initial estimations, so he's clearly in a better position with regards to the number he can ask.

In my deals, I usually take $Well-Justified-Price and then tack on $Extra to swing the deal far in my favor. Usually $Extra brings the price close to where I think the buyer would walk away. Then it's up to the buyer to do their due diligence and we can talk about the facts behind the number and do our negotiating there. Usually it comes down, but that's the point of inflating your own value first.

Regardless, I've done this for selling my Facebook apps, vehicles, negotiating job salary, etc. If a buyer is pulling lowball crap, you basically tell them to cut the BS, reiterate the facts behind the number and make a call-to-action (i.e. "Buyer, you know everything behind this number is legit, now let's come to agreement"). If not, you walk away, simple as that.

Sometimes the buyer does have legitimate sticking points though, and that's usually where you just have to listen and go into "understanding" mode to get to the root of their concerns. Once you hear them out, you cut them a little slack on the price and then again reiterate all the facts behind what you're giving them (ABC - Always Be Closing)... When you present someone with solid facts, they can't help but agree with you, so it helps to get that final "Yes" when you ask them to close with you.

For the OP, you really need to do your research and come up with a solid justification for a number you have in your head. Drew gave one example of revenue * X, which is what I used when I sold one of my Facebook apps. If you're adding $$$ to their bottom line, then use that to make your argument also. This is a flexible process and depends greatly on industry. For websites it can often just be Drew's formula. Regardless, make sure there's at least some "science" behind your wild-ass-guess, and that way it'll at least look like you put in the work to come up with a legitimate price.

To be honest though, that's the fun of deals... it's really a flexible process and there's a ton of learning involved, so have fun with it. Don't be afraid to ask for something inflated though, so long as it's well justified and not pulled from your rear. After that it's the buyer's responsibility to negotiate down.

[inboulder]

"This is really just a myth. If you present a buyer with well-justified and thought-out reasons for your number, it's going to be hard for them to counter-offer with something ridiculous, unless they're just being an ass"

Wrong, you're missing the point entirely, I'd like to buy a business from you...

The point is that if you offer a price first, this is the HIGHTEST the buyer will pay, he might have valued the business at more, in this case you have left money on the table.

[kirse]

In my deals, I usually take $Well-Justified-Price and then tack on $Extra to swing the deal far in my favor. Usually $Extra brings the price close to where I think the buyer would walk away.

You must have missed this. If a buyer is willing to pay my seriously inflated price, then I think I'm making off like a bandit and the buyer thinks they're getting a discount (assuming they were going to offer more than my inflated price). Easiest deal ever.

At some point you at least need a price in your head where you say "yea, I'd be happy exiting for $X and $Y would be icing on the cake"

Everyone's happy with the terms, sign the papers, deal's done, go pop the champagne.

[dkersten]

If you won't be happy with $Well-Justified-Price + $Extra because you feel they may have offered higher, then either your $Well-Justified-Price or your $Extra is too low, since you obviously wouldn't be happy with that amount anyway. If you feel the real $Well-Justified-Price + $Extra is higher than what they'd pay, then obviously you're not going to be happy with any outcome, so why are you wasting your time on this deal? The whole point of $Well-Justified-Priceis that its a good amount that you would happily walk away with and $Extra is exactly that - an added bonus. If they would have paid higher, good for them, they've got a discount, but you just walked away with an amount you decided would make you happy PLUS an added bonus.

Don't worry that they might have offered more. Be happy. If you can't be happy with that amount, you did the find a price you'd be happy with part wrong.

(Obviously not directed at parent, but rather agreeing with parent)

[brk]

The point is that if you offer a price first, this is the HIGHTEST the buyer will pay

This all depends on your negotiation skills and tactics. It is almost trivial to throw out a low-ish number and then build that up to something 2x or 5x that number after you've added on all the "extras".

While I'll concede that the prototypical hacker is probably not also a keen negotiator, I'll also say that you shouldn't get so caught up in absolutes when talking about something than is in the end more about emotion and personality than absolute value.

[user2newyork]

Thanks for the details. like the $Well-Justified-Price+$Extra.

[inboulder]

0.9 to 1.6 as a multiplier is absolutely terrible, that's a crazy discounted cash flow rate, at those multiples you are guaranteed to be better off just holding onto the business unless you know it is going under very rapidly. 5x is starting to become reasonable.

[thiele]

0.9 to 1.6 multiplier seemed really low to me too. I'd love to hear some more opinions of "common" multipliers.

[bmr]

I've done grunt work on some deals and seen multipliers in the 6-14X range. But the multiple was of EBITDA, not revenue.

If you talk in terms of revenue, multipliers can vary as wildy as companies' margins do. EBITDA (or one of its zillion variations) common-sizes the multiple.

[JacobAldridge]

You're correct, the difference is multiplying by gross revenue or by EBITDA. In Accounting firms, for example, it is common to have a multiple (often about 0.9) of Revenue, which is often 3-5 times EBITDA. A property management rent roll is another example where revenue is used, often 2.7 - 3.2 times depending on the market.

Most companies, however, are sold on EBITDA multiples. Unless the new business can rapidly be plugged into existing processes (like in accounting and property management), then the buyer wants to have a better idea of profit margins. EDITDA will give them that.

[gte910h]

>I've never been in your shoes, but one small tidbit I've learned about business in general is that the first person to say a number loses.

Naw, that's not true.

While they may be thinking in a much higher price range than you'd dare ask, alternatively, they may be thinking in a very low price range as well.

Whomever sets the first price suggestion frames the conversation. It depends how good you are at framing and how much gamble you have in you if you let them do it or you do it.