Selling a business is a significant milestone for any entrepreneur. After dedicating so much time and effort to build a successful enterprise, it can be exciting to finally reap the financial rewards. And, despite the high cost of borrowing, M&A activity in the Toy & Game industry is currently robust.
Determining an asking price when selling your business is a blend of art and science. Setting a price involves a delicate balance as you evaluate the true worth of your company. If you price it too high, you may not attract any interest. If you price it too low, you risk leaving money on the table. The business for sale marketplace is a dynamic exchange in which both asking and sale prices continually fluctuate. When thinking about how to price a business for sale, you’ll need to consider a buyer’s assessment of financial statements, asset values, industry comparable sale figures, return on investment, and the goodwill value of your business. This is the typical basis for company valuation and of primary interest to buyers.
However, in the toy industry, valuations are a bit more challenging to determine than for many consumer product companies. Increasing your “razor blade” market share at CVS is a different exercise than determining how valuable a “Bluey” license is, whether your STEM line is the next “LEGO” in the right hands or whether your hot new game is about to become the next “Trivial Pursuit”.
There are a lot of creative ways to come to an agreement but on all sides, you want to make sure your price is fair, and the business can support the payout and leave the buyer with a good return on their investment.
A look at the numbers shows small business acquisitions reached a milestone in the second quarter after growing 5% over the past year and 3% from last quarter. This is according to BizBuySell’s Insight Data, which tracks and analyzes U.S. business-for-sale transaction and sentiment from business owners, buyers, and brokers. A total of 2,448 businesses were reported as sold in the second quarter of 2024, representing an enterprise value of $1.9 billion, which is 20% higher than the same time last year.
Max Friar, managing partner of Calder Capital gives his perspective on the 2024 business-for-sale market, “This year continues to be marked by what is in my opinion a lower supply of high-quality (consistent, strong cash flow) businesses versus persistent demand from buyers – entrepreneurs, strategics, and private equity ‘bolt-on’ acquisitions. Despite rates remaining persistently high, valuations and deal structures are remaining strong because buyers want to transact, and they are fighting each other for the quality deals.”
So, is this is a good time to consider an exit, if you are ready? In my opinion, the answer is definitively yes as the toy business market is hungry for good opportunities. Creative deal structures, given the high cost of borrowing, can help get deals done. Some approaches can include:
- Valuing unique IP
- Seller Notes
- Earnouts
- Seller Note with the Right to Offset
- Offer a Premium Interest Rate Above Market on a Seller Note
- Boosting Seller Lease rates on Seller owned Real Estate.
- Hiring the Seller as a Consultant
As the business-for-sale market adjusts to today’s high interest rate environment, seller-accommodated deal structures have become more common. I will share more on creative deal structures in the next installment of this M&A Article Series.
Steve Velte is a licensed M&A broker specializing in the Toy & Game industry. He has sold companies such as Shrinky Dinks, Maranda Games, The Young Scientists Club, Hanz Toys, CitiBlocs and Forbidden Games among others. Steve also previously represented Hasbro’s Avalon Hills Suite of games for sale and he has also been an investment advisor on other recent sales including WeCool. For a confidential discussion, Steve can be reached at: Ph: 813/416-9684 steve@globaloyexperts.com
