Assessment: Why Fair Market Value Is Destroying Your Exit Strategy
From $5.2M Floor to a $9M Ceiling, Find Out How!
MULTIPLE CHOICE QUESTIONS (1-10)
1. According to the post, what is the primary purpose of Fair Market Value (FMV)? a) To establish the maximum price you should expect in a transaction b) To establish a conservative baseline for tax, estate, and legal purposes c) To determine what strategic buyers will actually pay d) To predict future business value
2. In the Jacob Thompson case study, what was his original EBITDA and FMV multiple? a) $2.4M EBITDA at 2.0x multiple b) $2.6M EBITDA at 3.2x multiple c) $2.4M EBITDA at 3.0x multiple d) $5.0M EBITDA at 2.0x multiple
3. What was Jacob’s unsolicited offer, and what percentage premium did it represent over FMV? a) $5.2M, representing 8% above FMV b) $5.0M, representing 4% above FMV c) $6.0M, representing 25% above FMV d) $4.8M, equal to FMV
4. According to the post, which type of buyer typically pays the highest premiums above FMV? a) Financial buyers like private equity firms b) Strategic buyers who can realize significant synergies c) Individual buyers d) Search fund operators
5. How long did Jacob spend de-risking his business before going to market? a) 6 months b) 9 months c) 12 months d) 18 months
6. What was Jacob’s final sale price and premium percentage above his original FMV? a) $8.4M, 75% premium b) $8.32M, 73% premium c) $9.0M, 88% premium d) $7.8M, 63% premium
7. According to the post, what is the FMV definition’s assumption about parties being “under no compulsion to act”? a) It accurately reflects real market conditions b) It’s a realistic assumption in most transactions c) It’s a fiction because every real transaction involves some form of compulsion d) It only applies to small business transactions
8. In Jacob’s competitive process, how many qualified buyers did his M&A advisor contact? a) 5 buyers b) 7 buyers c) 9 buyers d) 12 buyers
9. What were the annual synergies the winning buyer identified in Jacob’s business? a) $2.5M cost synergies and $1.5M revenue synergies b) $1.1M cost synergies and $2.8M revenue synergies c) $3.0M cost synergies and $2.0M revenue synergies d) $1.5M cost synergies and $3.5M revenue synergies
10. According to the post, how long does it typically take to position a business for premium pricing above FMV? a) 3-6 months b) 6-9 months c) 12-24 months d) 24-36 months
EXPLANATORY QUESTIONS (11-15)
11. Explain why the FMV assumption of “informed and prudent parties” with equal information never exists in real M&A transactions. Provide specific examples of information asymmetries.
12. Describe the three-phase process Jacob Thompson followed to transform his $4.8M FMV into an $8.32M sale. What were the key actions in each phase?
13. The post states that FMV is designed to be your “floor, not your ceiling.” Explain what this means and why understanding this distinction is critical for business owners preparing to exit.
14. What are the key differences between how strategic buyers, financial buyers, and search fund operators evaluate businesses and pay premiums above FMV? Use examples from the post.
15. Jacob’s buyer stated they “would have paid $9M if necessary” but the competitive process forced them to show their cards earlier. Explain the psychology and mechanics of how competitive processes extract premium pricing from buyers.
Multiple Choice Answers (1-10)
