“Once you’ve established your interest in a sale, you need to have a clear idea of the true worth of your company,” says Slusser. “That includes both tangible assets, such as operating funds and owned office space, as well as the intangibles—things like the company’s location, culture, broker talent and reputation.”
That said, valuation typically begins, he explains, with establishing a multiple of a company’s EBITDA over a multi-year average—and then adjusting the number based on factors including the company’s footprint, marketshare, per-agent productivity and the synergies between buyer and seller that are expected to create added value.
Slusser says he tells his buyers and sellers that they are welcome to debate the multiple, but in the end, there needs to be agreement with what the company’s true earnings are or there is little chance for a deal.
Also, brokers considering a sale would do well, he says, to get out in front of a potential deal by a couple of years. Cutting non-essential expenses, such as travel, can make their financials more attractive.
“That $100,000 in optional travel expenses, for example, when multiplied by a factor of three to five times, could end up costing you $300,000 or more in valuation,” he says.
At the same time, he notes, with most brokerage financials at an all-time high today after two years of a hot market and soaring revenue, this may be a good time for brokers who’ve been considering a sale to make their first moves.
Brokers should consider, too, says Slusser, that the more cash the buyer pays upfront, the more risk they assume, which means they will typically lower the purchase price. For that reason, payouts are typically one third when the deal closes, with the balance paid out at intervals based on earnings over the next three years.