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Cadbury Loves a Sweeter Deal and Gains From Competition

Recently we wrote about how competition can boost the price of a business (Competition Boosts Your Price) - Kraft had made a $16.7 billion bid for Cadbury, with Hershey, Nestle and Ferrero also giving the chocolate maker the "once over".  We used this as an example of how competition in the sales process can really boost the price you can get for your business.

Well now it's official - Cadbury have agreed to a revised offer from Kraft of $21 billion - that is a lot of chocolate!

And whilst there are a lot of other issues about the takeover (job futures, rationalisation issues, loss of a British sweet-tooth monument), the fact remains that having more than one bidder helps boost the price you can get for your business.

Of course competition isn't the only reason Kraft made a higher offer - although it certainly helps:

1. The Cadbury business was in a financially strong position.
  • A buyer will often feel more comfortable taking over a well run and financially successful business than one that is performing poorly.  So strong performance in the past can increase the value of your business.
  • In a recent survey we conducted, we found that 70% of businesses that were meeting their financial goals had received an offer for their business in the last 12 months.
2. The merger created market strength.
  • The merged entity would create a global market leader with over 40 confectionary brands and annual global sales exceeding $107 billion.  To Kraft this dominating market position was worth paying for.
  • This highlights the critical importance of understanding the BUYER'S perspective - they are the ones paying for the business.  Understand what it means to the buyer for them to have your business and what it is worth in their hands.  After all the fair price to a buyer is the value of the business to them - not to you or your retirement fund.
3. If you are confident with your business model, don't sell to the first offer.
  • Cadbury knew they had a successful business and they understood the implications of the deal.  This gave them the confidence to refuse the first deal and wait for the next one.  They had armed themselves with information that told them a higher offer was justified. 
  • The clear lesson here is to understand what your business is worth and have the confidence (and the information to back it up) to wait for the fair and best offer.
Cadbury gained a 25% increase on the first offer by holding back and being confident that they knew what the value of their business was to Kraft. 

So who would be in a position to buy your business and what benefits would they gain?  What would it be worth to them?  What is the value of your business now and what could you do to increase its value?

Maxell Consulting can help you answer these questions through our SaleReady process - tailored one on one workshops that help you understand what others would pay for your business and how you can increase the price.

Contacts us now to discuss how you would benefit from knowing the answers to these questions.