This is a frequently asked question as we meet owners considering their exit. The truth is, there are no easy answers to this question. We frequently see deltas of 50% or more between offers for the same business!

Why so difficult? Why the volatility? The short answer is “strategic intent.” The motivation of the acquirer and the neatness of the business being acquired, against the buyers’ objectives and preferences, drives volatility.  Two offers, 50%-100% apart are not uncommon, different parties see different things. Both offers are legitimate, yet significantly different!       

This is not limited to the mid-market, where we work. Take Google – I recently asked some people, who are also finance professionals, what they though Google was worth, effectively what the price to earnings ratio was (or the total value of the business based upon a multiple of the current earnings). 50 times and 35 times came the replies, both wrong! Google as of 16 June 2025 can be acquired for 15 times their earnings! In fact, according to Jonathan Shapiro in his article on the ASX, Google’s core business, Search, YouTube and network – is valued at just 2 times its future earnings!        

As of 16 June, the price earnings ratio of the total ASX is 19.42, 33% better than google. As a by-the-way, Google’s market cap is bigger than the total ASX at 3.3 trillion!

Now, there are varying views for this apparent bargain basement price of one of the world’s most dominant businesses of all time. One view, articulated in the AFR, is that Google is about to face its Kodak moment. This is a reference to the way Kodak went from completely dominant to defunct, following the advent of the digital camera and in particular the fact that a camera was included in all smart phones. The advent of AI is seen by some as the equivalent moment for Google.

Others are very bullish about Google’s prospects, not least of which is Brian Novak, the US internet analyst for Morgan Stanley. He thinks the price ought to be 20 times earnings! Yet, Sydney’s Pella Funds Management recently sold out of its Google holdings completely. They cited the rise of AI, regulation and the potential removal of Google as the default search function on the Apple mobile phone browser, along with rising expenses associated with AI.

So, what’s my point! My point is, I’m right!  It is impossible to price a business with certainty, even Google. One professional think’s it undervalued, the another thinks it’s about to tank – both have the same access to the same information. The take-out for a business owner is, if you are selling Google it pays find a Brian Nowak and stay away from Pella Funds.

Reference:

https://www.afr.com/markets/equity-markets/is-google-facing-its-own-kodak-moment-with-the-rise-of-ai-20250613-p5m7