by mhkool on 5/11/21, 10:34 AM with 5 comments
The company exists for 15 years, is run by two persons and the yearly sales of URL filtering solutions is less than USD 250,000. The assets are a URL database with 53 categories and content categorisation bots with two AI engines. The URL database has "only" 16.9 million entries but covers 99.77% of all URLs used by a large Telecom in the USA. The coverage percentage varies; it depends on country and client type and is for some clients 99.90% or even 99.99%.
We consider to sell the company and start a new business in agriculture. The "burning" question is how to determine the value of the URL database and the categorisation bots, and ultimately determine a reasonable/just asking price for the company.
Thank you for suggestions.
by bruce511 on 5/13/21, 5:11 AM
Let's say I have a car. Its value is in getting me to the beach. It has x value to me. Someone else sees the car and imagines getting to work, making money as an uber driver and so on. If his perceived value is higher than my value then its likely we can find a price to agree on.
In the same way a business has value according to current revenue and profits. You may have unutilised assets with potential, but that raises the question of why the value is unrealised.
In other words, buyers pay for what is, not potential. They look for potential they can exploit, but (except in rare cases) they don't _pay_ for potential, since that is their profit. (and if the potential is in fact an illusion that would be a loss.)
If you feel an asset has potential, then by all means exercise that potential, increase the profits, and the business value.
(aside: sometimes an asset has value that a buyer is uniquly able to realise, that you cannot. In this case expect around 25% of the actual value to figure into the purchase price.)
by rahimnathwani on 5/11/21, 2:56 PM
Most people will evaluate the company based on its revenue and margins. If you think the assets have potential value outside this, e.g. for another type of business, then maybe just try to make a deal rather than sell the business?
FWIW I'm skeptical about any % coverage claims, because nowadays a large portion of traffic is encrypted. So unless you have cooperation from the browsers (e.g. a browser extension, or a certificate installed to allow MITM), you cannot calculate the denominator.