What number is "The Number?"

A data driven approach to evaluating acquisition offers

Considering the sale of a private company is always stressful. One of the most difficult questions for entrepreneurs to answer is also one of the most important: “How much is enough?”

Many entrepreneurs have a number in mind for which they would be willing to sell their company, but in many cases that number is based less on data and more on a general assumption of how much intuitively feels like enough. This can lead to unpleasant surprises post-exit if the net proceeds received are less than required to maintain a desired lifestyle. Similarly, if the entrepreneur believes “The Number” they need is higher than it actually is they might pass up solid offers which would provide them with the lifestyle they want years before their aspirational value can be attained.

To help entrepreneurs make decisions founded on data vs. hunches or vague mental math, our team utilizes a pre-exit analysis to provide clarity in evaluating a potential offer.

Using a stochastic analysis of 1000 hypothetical financial market scenarios, a numerical percentage is generated representing the likelihood that the entrepreneur can live the post-exit life they want based on different levels of net proceeds. Success probabilities over 80% represent a high degree of confidence the sale price will be sufficient, while percentages below 70% would likely indicate a need to either adjust post-exit expectations or delay a sale until the target valuation is reached.

To develop a pre-exit analysis we meet with the entrepreneur to learn about their post-exit financial goals in terms of income, philanthropy, legacy gifting, etc. We also determine their investing temperament through the use of an investment policy questionnaire which will inform the most appropriate mix of investment types, in turn informing the likely returns used in the stochastic analysis.

Having gathered the information necessary to perform the pre-exit analysis we arrange a second

meeting to explore potential scenarios using an interactive software modeling program. This allows the entrepreneur to see the result of alterations in exit proceeds, post exit financial requirements, and post exit investment allocation.

If you believe a pre-exit analysis could benefit your client please reach out to a member of the SKA Wealth team.

Forward looking data is subject to change at any time and there is no assurance that projections will be realized. All investments are subject to risk. There is no assurance that any investment strategy or hypothetical financial market scenario analysis will be successful.

Please be reminded that all hypothetical illustrations are not intended to reflect the actual performance of any particular security. Future performance cannot be guaranteed and investment yields will fluctuate with market conditions.

The accuracy of calculators and/or software modeling programs and its applicability to your circumstances is not guaranteed.

Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.