How a Technology Service Business Exceeded Its Appraised Value with Barker Business Brokerage

This case study outlines a successful sale by one of our expert brokers, Darren Gosse: 021 511 934, darreng@barkerbusiness.co.nz.

The Need

A client running a technology service business was seeking to sell their company. However, while the traditional appraisal showed one value, the client was confident that their business was worth more.

Why?

They had recently secured a contract generating significant recurring work and revenue, which wasn’t yet reflected in their past financial statements. And in the world of business sales, appraisals and selling prices are often dependent on historical financial performance.

The client needed a broker who could not only understand this unique situation but also negotiate a deal that fairly recognised the future growth of the business. That’s where Barker Business Brokerage stepped in.

The Challenge

The SME business sales market heavily favours using recent historical sales and profits as the primary metric for business valuation. Buyers and their advisors, such as accountants and bankers, typically discount projected earnings due to their perceived risk.

This conventional approach posed a challenge. How could the client secure a deal that reflected not only their business’s historical value but also its promising future prospects? Convincing buyers to consider future performance and mitigating their perceived risk required a creative, tailored strategy.

The Solution

Barker Business Brokerage brought extensive experience, industry knowledge, and negotiation skills to the table. Recognising the disparity between past performance and the company’s future potential thanks to the new contracts, Barkers adopted a specialised approach to bridge the gap.

The solution was an innovative earn-out agreement. This structured payout method allowed the buyer to mitigate their risk while ensuring the seller received a fair value for the business. Here’s how it worked:

• Premium Price: The buyer agreed to a premium price, reflecting the business’s current value and future potential.
• Initial Payment: The buyer paid a portion of the agreed price on settlement.
• Performance-Linked Payouts: Additional payouts were structured over the next few years, triggered only if the business met specific sales and profit targets.
• Win-Win Outcome: For the seller, the earnout ensured they were rewarded for their business’s growth. For the buyer, the structure reduced risk by tying part of the purchase price to achievable performance milestones.

The Outcome

Thanks to Barker's expertise:

• For the Seller: The business sold at a premium price exceeding the appraised value based on historical profitability. The structured earn-out agreement meant the seller could benefit directly from the business’s ongoing success, ensuring their efforts to grow recurring revenue were fully recognised.
• For the Buyer: The buyer acquired a thriving business with a promising growth trajectory while minimising risk, thanks to the performance-based payout. This mutually beneficial solution also demonstrated Barkers' hallmark ability to facilitate complex deals creatively and pragmatically.

Why Choose Barker Business Brokerage?

This case study highlights why Barker Business Brokerage is the trusted partner for business owners looking to sell for maximum value. With over 15 years of experience and a team of industry-specific experts across New Zealand and the Pacific, Barkers doesn’t just sell businesses, they craft tailored outcomes that benefit everyone involved.

Here’s what sets Barkers apart:

• Proven Track Record: A multi-award-winning brokerage with hundreds of successful sales across diverse industries.
• Tailored Marketing Strategies: Barker Business Brokerage uses time-tested strategies to connect sellers with the most qualified buyers.
• Industry Expertise: Dedicated teams understand the intricacies of sectors like technology, hospitality, childcare, aged care, and more, ensuring top-notch advice.
• Risk Mitigation Solutions: Whether it’s structuring earnouts or negotiating unique clauses, Barkers knows how to overcome the challenges of modern business sales. No Sale, No Commission: Barkers only earns commission upon a completed sale, ensuring full alignment with client goals.

Thinking of Selling Your Business?

When it’s time to sell your business, don’t settle for a cookie-cutter approach. Partner with Barker Business Brokerage to unlock the true value of your company. Whether you’re ready for a no-obligation appraisal or would like to discuss your goals, the team at Barker Business Brokerage are ready to help.

Contact us today to take the first step toward a successful sale.

Request a Business Appraisal