Rembrandts in the Attic - Maximising the valuation of your business

I was running a workshop a couple of weeks ago with a group of founders, owners and CEOs who were looking to build their knowledge on  how to maximise the valuation of their companies and also prepare to achieve a successful exit.  One of the key themes that really struck a chord was the idea of building long term value in a business through discovering a "Rembrandt in the Attic"

So I want you to imagine you’re buying a new home and you’re on the market. The market is  super competitive and as you are searching for a great new place to live you find one that you like.

It’s listed for £1,000,000 and you’re like ‘I think this is it. This is our home’. And there’s two other bidders that are going to bid on that home. And it’s a tight market and you’ve got to act fast.

So the three of you line up and I’m one of the bidders, Bob  is one of the bidders and  Sarah is the other bidder.  You already know that it is going to be competitive!

The  listing price for the house is £1M. 

Having done an initial tour of the house, it has some great features.  I am into cooking and love the kitchen but  I am not really feeling it for the garden. So I am thinking about offering a little below the asking price at £950k.

Bob does a quick tour of the house. He likes the house’s layout, the garden, the little stream in the front, and more. Therefore, he offers to buy the house for the listing price. 

Sarah does the same as Bob but sees the basement as the perfect location to build a great home office. Therefore, she offers £1.1m, which is more than the asking price. 

Now, when I  do a detailed tour of the house I go up to the attic and look behind an old column where there is an actual, original Rembrandt painting. Being a bit of an art collector,  I  know this painting is worth £5M. The seller doesn’t know its here, and the other two bidders don’t know.

So, I am prepared to bid whatever it takes to buy the house.

Do you think I will get outbid on that home? Absolutely not because I know if we buy the house, I get the Rembrandt that comes with it and then we can sell that and make back millions of pounds even more than we paid for the house.

Here is the key point. Every company has Rembrandts in their Attic. Often that they don’t know that they have what buyers would value over and above the financial value of a business.

And there’s a tremendously wide range of what these Rembrandts can be. I’ll run through some examples. And more importantly, what’s a Rembrandt to Buyer A might be irrelevant to Buyer B, but they may value something else.

So what are Rembrandts in the Attic of business?

One thing could be your customer list. So think about your customers: who you do business with, the relationships that you have.

I’m a potential buyer of your company and I know that with my products and services, if I could just get access to a customer list like yours, I could sell so much more of my products and services. So I will value your company well over and above the financial value because I know I can unlock the value of selling more stuff to your customers.

Maybe it’s a piece of IP or software that you’ve developed, and I know if I buy your business I can use that software in my company and maybe that can unlock value.

Recognising a constraint in your industry could also be a significant way to create significant value.  One of my clients recognised that if they could hire all the available talent in their particular industry, that would mean that a larger competitor who wanted access to that talent would be prepared to pay significantly over the odds to access that talent.

The moral of the story for the business owner – buyers are looking for that Rembrandt in the attic. Therefore, as a seller, you should know what your Rembrandt is and what it is worth. Basically, your Rembrandt is what you are best in the world at or that hidden gem, maybe it’s a special process or Intellectual Property that will bring you a bigger multiple when you exit.  

If you would like help to discover potential Rembrandt's in your attic or help in maximising the value of your organisation please do get in touch.