MULTIPLE CHOICE QUESTIONS
1. According to Fair Market Value definition, “open and unrestricted market” means: a) Only strategic competitors should participate in your business sale b) All potential purchasers should have access to bid without artificial barriers c) Private equity buyers should be excluded due to unfair capital advantages d) International buyers create too much complexity and should be avoided
2. Why are competitors often the worst-priced buyers for your business? a) They don’t understand your industry well enough to pay premiums b) They focus on cost elimination synergies rather than value creation opportunities c) They are legally prohibited from paying above-market multiples d) They always have less available capital than financial buyers
3. What role do private equity buyers play even when they don’t win your auction? a) They provide free financial due diligence for other buyers b) Their presence forces strategic buyers to bid more aggressively c) They are required by law to participate in competitive processes d) They always offer the highest price in any business sale
4. Geographic expansion of your buyer universe can create value premiums because: a) Foreign buyers always have unlimited acquisition budgets b) Currency exchange rates always favor international transactions c) International buyers value strategic advantages domestic buyers already possess d) Government regulations require premium pricing for cross-border deals
5. The “control factor” in opening borders means: a) You lose negotiating control when multiple buyers are involved b) Buyers gain more leverage when competing against each other c) Multiple buyers give you control over timing, terms, and information access d) Single buyer transactions are always easier to control and manage
EXPLANATION QUESTIONS
1. Explain how opening your borders relates to Chapter 6’s fundamental valuation formula (Value = Income ÷ Required Rate of Return). How does buyer competition affect both components of this equation?
2. Using the four buyer categories discussed (competitor, strategic, private equity, international), explain why the same $1M EBITDA business might receive dramatically different valuations from each buyer type.
3. How does the concept of “geographic arbitrage” create value premiums for sellers who expand beyond domestic buyer markets? Provide specific examples of what international buyers value that domestic buyers already possess.
ANSWER KEY
Multiple Choice Answers:
1. B - All potential purchasers should have access to bid without artificial barriers The FMV definition specifically requires an “open and unrestricted market” where no one is prevented from buying your company.
2. B - They focus on cost elimination synergies rather than value creation opportunities
Competitors already have similar market access and distribution, so they focus on synergies through cost elimination rather than value creation.
3. B - Their presence forces strategic buyers to bid more aggressively Even if PE doesn’t win, their participation with deployment mandates creates competitive pressure that raises the floor on all offers.
4. C - International buyers value strategic advantages domestic buyers already possess International buyers often pay premiums for market entry, technology access, or distribution infrastructure that would take years to build.
5. C - Multiple buyers give you control over timing, terms, and information access With multiple buyers, you control progression through stages, set timelines, and determine information sharing schedules.
Explanation Question Answers:
