The most common question that I get from entrepreneurs is “what is the value of my company?”  The answer to that question is simply what someone is willing to pay for your company at a single point in time.  That said, the primary variables to valuing a digital media company are the growth rate, competitive landscape (market metrics/trends) and the strategic buyer group. 

Just like any asset, a digital media company’s value is derived from the anticipated cash that can be  derived from owning that particular asset as well as the condition and prices of similar assets in the market.  Today, the value of most digital media companies is not derived from following the traditional corporate finance  practice of discounting the projected cash flows at a representative discount rate.  Future cash flows are difficult to predict and one buyer is going to have a completely different opinion on how to make monetize an asset from another buyer.

Comparable private company transaction values and the valuation multiples of publicly traded companies (“comps”) are a good way to ascertain a valuation range.  Unfortunately, these are only tools that can provide a business owner with a range, which are typically based on multiples of Revenue and EBITDA.  These  metrics fall short in pinpointing the actual value at which a transaction should take place.

Three of the most common statements that I get from clients that are not factors related to valuation are the following: 1) Company XYZ received $30 million and my site is better than theirs; 2) All the buyer has to do is add advertising and invest a little bit of money in marketing, then we will be an $X million company based on those revenue multiples (that’s like me saying all I have to do is lose some weight and take acting classes and then I’ll be the next Denzel Washington)…forecasting is taken into account in M&A, but buyers typically do not want to pay for what they are bringing to the table; and 3) the most common statement is “I believe my company’s value is $X million,” which is an arbitrary number that is based on external factors that have nothing to do with the business, such as this is what I want for the number of years that were put into the company, this is how much money I want at this point in my life or I can live comfortably off of this amount for however many years.  Who knows the exact psychological rationale, but many of the reasons for seller value have little to do with the asset (at first).

So, instead of asking “what is the value of my company” an entrepreneur should be asking themselves “how and when do I achieve maximum value for my company?”  The best way to maximize value is to hire an investment banker that focuses on your sector and selling to the company that needs your company the most at the time when they are motivated buyers.  Although an entrepreneur can run the process themselves, and many are successful at doing so, oftentimes hiring an advisor is money well spent.  Not only is it a piece of mind, but it saves the business owner a great deal of time that can and should be spent on running their business. 

Similar to getting a second opinion from a doctor, the entrepreneur should get the opinions of multiple bankers.  This will help the entrepreneur get a better feel for where her company is valued or its potential value.  In choosing a banker, the business owner should choose the banker that they feel most comfortable with, understands her business, and knows who the potential strategic buyers are and why they would want to own her company. 

As a banker, I clearly believe that the sell process generates the highest possible valuation and best deal structure for clients in the right environment.  Entrepreneurs that believe they will be looking to sell in the next year or two should begin speaking with advisors now.  Deal-making in the coming months is going to be done with surgical precision, meaning there will be few wide nets cast by buyers, but simple lines cast for very specific targets that complement current operations.  Having an advisor that understands your business completely will serve you well in the marketing process.