What I Learned About Value From the Floor of the Trick-or-Treat Exchange

Three Crunch Bars and a Milky Way for a Six Pack of Oreos.

Sunday night, I had the fascinating joy of watching 5 pre-teens (ages 8-10) sit down on the living room floor and wrap up a great evening of trick-or-treating.  They each chose a section of floor space, poured out their bags full of candy and carefully sorted and organized the array of treats.  Then, they got down to business…the annual candy barter.

I was amazed to watch as three Crunch bars and a Milky Way were eagerly traded for a six-pack of Oreos.  It was a trade I would never have made, but I realize I appreciate Crunch bars and Milky Ways (thankfully it wasn’t a Snickers or I would have had to intervene) far more than Oreos and far more than the recipient of the six-pack.  However, both children were thrilled.  The trades went on and on, with only Milk Duds failing to raise interest, until at some point the energy faded and everyone settled on their final lot.

The whole process made me think of the power of the “eye of the beholder” and how this principle applies to practice sales and acquisitions.  Earlier this year, I was advising a partnership on an acquisition and the seller insisted on over a 1.35 multiple of gross.  I had run my pricing analysis and, based on market comparisons, found the practice to be worth somewhere between a 1.15 and a 1.20 multiple of gross.  I advised the partnership accordingly but with the caveat that I could not define what it was worth to them.  You see, this particular acquisition would have made the acquiring partnership the top firm in their market.  That didn’t mean anything in my analysis, but it meant everything to my clients.  So, they decided to pursue the acquisition at the high multiple and, only after due diligence, eventually stepped away because it turned out to be too risky.

This also applies to the seller side of the transaction.  I recently represented sellers who would not consider receiving less than 80% cash down at closing.  That was until they met their ideal buyer.  Once in dialog with this candidate, they became more comfortable with the idea of less cash down as the fit of the buyer diminished their sense of risk.  In fact, they still would not consider less down from other candidates.

How much is a practice worth?  I can talk with you about profitability, market demand, strengths and weaknesses of the selling practice, risk in deal structure and the related market comparables.  However, in the end, the value will always be defined, in part, by the eye of the beholder.

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