An inflated valuation does not benefit the seller. It creates unrealistic expectations, drives away serious buyers, and can delay the sale until conditions worsen.
There is a phenomenon I see repeated with concerning frequency in the Spanish middle market. An entrepreneur decides to explore a sale. An intermediary presents a valuation significantly above what the market is willing to pay. The entrepreneur is excited. Serious buyers analyse the company, run the numbers, and offer a lower price. The entrepreneur feels betrayed. Offers are rejected. The process stalls.
Months — sometimes years — pass. The company ages, the founder tires, the team deteriorates. When the deal finally closes, it is at a price below what would have been achieved at the start had expectations been realistic.
Intermediary incentives. Many brokers compete for mandates by presenting the highest valuation. The entrepreneur naturally chooses whoever tells them what they want to hear.
Un-normalised EBITDA. Some advisers value on reported EBITDA without adjustments any buyer would make — founder remuneration, personal expenses, off-market related-party rents, deferred investments. The gap can be 30-40%.
Inappropriate reference multiples. Comparing a 1.5 million EBITDA SME to a published 20 million EBITDA transaction is a technical error committed constantly.
The emotional component. Thirty years of effort have immense emotional value. But emotional value does not translate into market value. The market pays for future cash flows, not past sacrifice.
Adverse selection. Serious buyers — those with capital and management capability — are the first to withdraw from an overpriced process. Those who remain tend to be less sophisticated.
Asset deterioration. While the process drags on, the company may deteriorate as the founder is distracted, the team is uncertain, and investment is deferred.
Reputational damage. A company that has been “for sale” for months without finding a buyer generates suspicion.
Obtain two or three independent valuation opinions. Ask about methodology. Talk to real buyers. Accept market reality: the value of a company is what a solvent buyer is willing to pay. Honesty in valuation is not weakness — it is the foundation of a successful sale process.
Dirk Manuel Martens Jimenez Founder, Blue Mountain Capital
By Dirk Manuel Martens Jiménez
By Dirk Manuel Martens Jiménez
By Dirk Manuel Martens Jiménez
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