BuzzFeed has reportedly been trying to sell First We Feast, the makers of the highly popular YouTube show Hot Ones for $70M. Buyers are interested, but not at that price. Business owners thinking about eventually selling their own businesses could learn some important lessons from the company’s challenges.
BuzzFeed’s experience isn’t unique to big online businesses. According to data from business brokers, only 20–30% of businesses that go to market end up selling. The number one reason that sales fall through is that the business owner has unrealistic expectations of the value of their business. Often a business owner has heard of others selling a business for some multiple of revenues and assumes he can sell his business for a similar valuation. Often those rumored multiples are exaggerated, and every business is unique.
The challenges BuzzFeed faces in selling First We Feast are very similar to those faced by small business owners looking to sell the business they have nurtured and grown. How much a buyer is willing to pay is based on how much cash they think the business will generate in the future and how much risk there is in those forecasts. The three biggest issues facing First We Feast are the same three issues many family businesses face when looking to exit:
– Reliance on the owner and key employees
– Limited growth potential
– Reliability of financial forecasts
It may be too late for BuzzFeed to fix all the issues impacting how much they can get for First They Feast, but it’s not too late for small business owners to take steps to give potential buyers more confidence in the cash generating potential of their businesses. Value Catalysts like myself can help identify the issues that will hurt your valuation and can work with your team to address them one by one. It takes time (typically at least a couple of years) and focus, but the investment is worth it, often dramatically improving how much cash the business generates month after month and significantly increasing the value realized when you are ready to exit.
Let me know if you’d like to talk about how your business can create more value.
Read my full analysis of the BuzzFeed/First We Feast challenges here.