One of the biggest misconceptions among owner-managed businesses is that buyers value companies the same way owners do.
They don’t.
Owners understandably focus on effort, growth, pride in their people and what they’ve built over time. Buyers focus on sustainability, predictability and risk.
One of the best parallels I’ve seen comes from football, with apologies to those who know me well enough to be sick of my endless football metaphors.
I was privileged enough to spend five and a half years as a director of my hometown football club, Morecambe FC. During that time, we achieved promotion from League Two despite one of the division’s smallest budgets, while also posting one of the best xG profiles in the league.
In simple terms, the underlying metrics consistently supported the results. We weren’t simply relying on momentum, moments or a purple patch in front of goal, performance levels were fundamentally strong.
It was common for larger clubs to suggest we were “lucky” to beat them. We weren’t. Over the course of that season, we were objectively and statistically better.
After promotion to League One, we survived the first season despite operating with an even smaller budget relative to the division, helped in no small part by the remarkable performances of Cole Stockton, who scored 23 league goals while outperforming his xG by approximately 50%.
An extraordinary feat of finishing over the course of a season. But with so many goals coming from frankly unbelievable distances and angles (his 94th-minute winner from inside his own half against big-spending local rivals Fleetwood being especially memorable for us Shrimps fans), it was always likely to be difficult to sustain.
By the second year, the realities of statistical probability, budget disparity, squad depth and ownership uncertainty eventually caught up with us, and relegation followed.
That experience has always stayed with me because the same dynamic often exists in M&A.
Some businesses produce impressive short-term results, but sophisticated buyers spend a lot of time trying to determine whether performance is genuinely embedded in the business or whether the company is simply outperforming its “xG”.
In other words, are the results supported by strong underlying fundamentals?
- Recurring or repeatable revenues
- Management depth and founder reliance
- Diversified customers and key personnel
- Operational resilience
- Sustainable margins
Or is performance overly dependent on a handful of factors that may not hold over time?
That distinction is often where the biggest gap emerges between how owners value their business and how buyers assess it.
At Leith M&A, a large part of our role is helping owners understand not just what their business has achieved historically, but how buyers are likely to interpret the sustainability and quality of those earnings going forward.
Because ultimately, buyers pay premiums for predictability and resilience far more than they pay for a strong recent run of form alone.
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