Reflecting Intangibles (Goodwill) in Sales Price

Relevant Background Information:

A year earlier, a multinational European company had offered $2.4M USD to our client, a Mexican auto parts manufacturer. We conducted a thorough Due Diligence, made reasonable growth projections and concluded share value (based on different valuation methods) was between $2.4M and $2.6M (USD).

Problem:

Despite the financial valuation, our client felt that the company was the main asset of his estate, that it had a lot of un-tapped potential in a market which was growing exponentially and he was not willing to sell it for less than $3M USD.

Solution:

We addressed internal Due Diligence issues in order to avoid observations from potential buyers. We focused on reflecting credible sales growth and higher utilisation of existing plant capacity in the financial projections and emphasized intangible values of the company (i.e. an excellent reputation in the market for more than 30 years). Finally, we communicated to the potential buyers that we had two other interested parties who were willing to reflect the intangibles in their offers and set a strict deadline for the transaction. Eventually, it was sold for $3.3M USD (38% more than the offer one year earlier) to the original buyers.