LONG TERM PLAN - PREPARING THE COMPANY FOR SALE

[12 Limited]

Hi,

This is my 1st post so please bear with me.

I run a succesful small to medium sized house building/property development company. I've recently been considering options for the long term - Do I want to hang on the the business until I retire, pass it to the children or sell it.

The sale option confuses me, my business has very few fixed assetts, a few vehicles, PC's, some great staff, a healthy land bank, a clonky website and a good reputation, but I wonder if that is enough to secure a good price in the future.

I can't help thinking that rather than pay me a few million (I can dream can't I!) why wouldn't the prospective buyer start there own company.

I realise that with say a retail shop business the buyer has the benefit of established outlets. With my business the land bank may last a few years, but thats it, after that it's back to square one.

Also the housing market is so fickle that house buyers don't really care who they buy from, so what use is a good reputation come resale time.

Then I look at the big house builders (some with awful reputations) quoted on the Stock Exchange and read of huge sums being paid for regional house builders by the big players.

Am I missing something or simply undervaluing/not understanding what I have.

I look forward to your comments.

Thanks for reading,
Chris

[12 Limited]

I'll get my coat shall I !
Does anyone have any thoughts on this?

Thanks
Chris

[redjim]

I have no idea about the trade (apart form various jobs as a labourer and scaffolder in my teens).
Do you have any mates that are valuers/surveyors that may be able to offer some hints without their grubby mits outstretched?

[Top Hat]

You want to look at the big quoted companies PE ratio.

Then use that to value your company. So if there PE is 6, multiply your profits by 6, that's roughly what your worth.

There are other ways to value a company but this is probably the most appropriate. I read a very good article on valuing companies, I will see if I can find it

[Top Hat]

The article was in internet works October 2004, can find it online Im afraid

[Ozzy]

Hi Chris,
Many business sectors have different ways of valuing their business. The value of business has nothing to do with its profit margin for example. To work out why the other building firms are being acquired you need to look objectively at what those firms bring to the acquirer.
It could be anything from Good Will, a name in the local community, or maybe they have a specific client base that the acquirer wants to get in with (being one of the most common).

They choose not to setup their own building firm because when money is not an issue it is more cost effective and easier to buy a ready trading company, rather than try and start from scratch competing with an already established business in that locality.

[12 Limited]

Thanks for your help guys.

I can understand why someone would buy, for example a car repair workshop or a coach company. There is existing goodwill, Health and Safety provisions and council permissions etc. etc.etc. are in place, and premises are established.

I suppose my question is specific to my industry sector.

As I said before house buyers don't really care who the developer is, so what use is goodwill, and a client base is something Developers don't really have.

Maybe after this topic is finished with I shopuld delete it in case a future buyer stumbles across it and uses it it to negotiate me down!!!

Redjim - What is it you need to know, perhaps I can help?

Chris