About unrealistic valuations, advisors who promise what they cannot deliver, and why we prefer to say no before starting
At Bondo Advisors, we decline to work on most sell-side mandates that come our way. Broadly speaking, there are three main reasons why we decide not to submit a proposal.
First, the company is too small, or we consider it too early for it to go to market. Micro-companies or very early-stage startups have a very limited buyer universe, and the probability of an M&A process resulting in a sale is proportionally very low. In addition, as a boutique-style specialist, we can only handle a limited number of processes per year if we want to provide the level of quality service and senior team involvement we aim for. This means we have minimum success fees we need to cover, and with very small transactions, the commission percentage we would need to charge would be embarrassing—and likely insulting—for the seller.
Second, we do not believe there is a sufficient buyer universe to ensure success in a competitive process. Even if the company is large enough to be interesting, if there is no consolidation in the market, no private equity buyers interested in the category, no buy-and-build strategies, or no international players looking to enter the country, the process is likely to fail.
Third, there is a valuation gap. Companies that meet the size, maturity, and buyer-universe criteria, but whose founders or investors have a fundamentally unrealistic view of what the company is worth. And to be clear, I am not referring to cases where there is a 20% gap, but rather those where people believe the value is double, triple, or even five times higher.
That third reason is the most delicate of the three. It is the one I want to talk about today.
I have written on multiple occasions about the fact that valuation and price are not the same thing. The final price at which a company is sold depends on who buys it, the market timing, and what that specific company brings to that specific buyer.
But when you start a process, you must assume a normal valuation range. You cannot assume that you will necessarily find that perfect buyer, at the perfect moment, where you are their only option and where extraordinary synergies exist. You cannot bet everything on being the outlier. The normal range represents the majority of buyers who will receive the information memorandum and are capable of making an offer.
If the seller’s expected price is radically above that range, there is a problem—serious and, unfortunately, quite common.
When an entrepreneur or a company’s investors come with a price we do not believe in, there are basically two paths.
The first is to tell them we do not believe it. To explain why, using comparable transactions, listed-company multiples adjusted for size and liquidity, and our own experience and judgment. If the expected valuation is not completely extravagant, I usually say something like:
“The most likely range we see is an EV of €20M to €30M. The €50M minimum you are willing to accept is possible with the right buyer and a very competitive auction, but frankly unlikely. If your minimum price depends on that outlier scenario, we will not be able to work together.”
In other cases, when the expected valuation is, in our opinion, simply unrealistic, I tend to say:
“We do not believe the company can be sold at the valuation you expect. It is possible there is something we are missing or have not fully understood. It would not be the first time we have been wrong about the range, which unfortunately is not an exact science.”
Saying no is the difficult path when we like the mandate. However, going to market with a minimum price that is unlikely—or in some cases virtually impossible—almost always results in wasted time and effort for everyone involved. For us, who primarily live on success fees, going to market with, for example, only a 10% probability of closing a deal is not viable. Sometimes the entrepreneur goes with another advisor who tells them what they want to hear, and that hurts because you lose the mandate.
The second path is to take the mandate while accepting the valuation as the target, with the idea that once offers come in far below the seller’s expectations, they will realise the true market price and eventually sell at that level. You win the mandate, beat the more realistic competitor, and bet that the market reality check will do the job you avoided doing. I do not like this option. I do not know if it is my character or the American side of me, but I find it very difficult not to be clear and direct.
It is not an exact science, but there are fairly clear ranges.
For every type of company, in every sector and at every point in the cycle, there is a distribution of deals. Most cluster within a range. There are outliers above and below, but they are just that—outliers, not the norm.
An industry specialist advisor who has spent years selling companies in a given sector knows these ranges. Not because they run highly sophisticated models, but because they have seen enough deals to develop a calibrated intuition—a mix of science, accumulated knowledge, and pure induction. Each company is unique, of course, but market ranges are more stable than sellers tend to believe.
Many entrepreneurs and investors we speak with do not have a fixed number in mind when we first meet them. They ask us to help define a valuation range, and that conversation is usually straightforward. But in some cases, they already come with a price in mind, and when that price is far above what the market would pay in our experience, it usually comes from one of five sources.
First, venture capital rounds. When a startup raises capital at a 15x ARR valuation, founders and investors internalise that number as a reference. The problem is that VC rounds value high-growth companies, only buy a minority stake (usually via a capital increase), and typically include downside protections through preferred rights. A strategic buyer or private equity fund is buying cash flow and profitability, not a hockey-stick growth story. They are completely different animals.
Second, listed companies. Comparing your company to the multiple at which, for example, a Nasdaq-listed firm trades is an exercise in creativity, not valuation. Listed companies have liquidity, scale, leadership, and a market premium that private companies do not. That does not mean listed comps are useless—we always use them in valuations—but we typically rely on small caps rather than Fortune 500 companies, and we discount for risk and size.
Third, and very common, outliers. Whenever I talk about SaaS valuations, someone inevitably mentions Holded. Holded was acquired by Visma in 2021 for €120 million upfront, exceeding €190 million after the earn-out period. At the time, it had approximately €3.35 million in ARR, implying an extraordinary 57x ARR multiple. “If Holded sold at 57x and my competitor just raised a round at 15x ARR, surely my company could sell at at least 20x, right?”
Fourth, the “my company is different” narrative. It probably is—every successful company has strengths and differentiators. But it is almost never as special as the founder believes, nor different enough to escape normal market ranges without finding that perfect strategic buyer.
Fifth, a very common argument that basically sounds like this: “If I sell my company, it has to be for €50 million, otherwise it is not worth it for me to sell.”
No further explanation—just the price that would make the effort worthwhile or allow for retirement and a comfortable financial outcome for family or partners. It is difficult to counter with data because it is not a data-driven argument. In reality, people who use this argument often do not truly want to sell, or they will need to wait and grow the company until that valuation becomes justifiable.
That said, one important point must be emphasised: predicting the sale price of a company is not a science—it is an art. There is no perfect algorithm where you input financials, projections, and KPIs and it outputs the market price. We use discounted cash flow models, regression models, comparable transactions, listed comps adjusted for size and risk, and combine all of that with market knowledge and intuition to establish a range that anchors expectations.
Of course, nobody wants to go to market without an idea of what the company might be worth, and there must be an implicit agreement between advisor and owners that within that range, under reasonable conditions, a transaction should be achievable before starting the process.
But because defining that range is part science, part intuition, and part estimation, we can be completely wrong. I am 100% sure we have turned down mandates we should have accepted. But frankly, I would rather be wrong and miss an opportunity occasionally than be wrong and promise something we cannot deliver—with all the frustration that creates for everyone involved.
By Joshua Novick, partner at Bondo Advisors
cloud technology axon
Since Suma Capital’s entry in 2020, Gestcompost has quadrupled its E...
