While some advisors might disagree, I generally do not price deals at this stage. Providing a price early assumes that you and your advisor understand the entire value that your company has to every buyer. Also, it assumes that every buyer will value your company at the same level. Both of these assumptions are unrealistic.
Instead of pricing a deal, your advisor (and you) should be conveying your company’s value propositions to potential buyers so that they can make their own decisions on the price they are willing to pay. While your company provides obvious benefits (products, revenue, etc.), there are often synergies that might be available to potential acquirers. Are there purchasing benefits? Cross-selling opportunities? Other synergies? These value propositions can increase a deal price greatly, but can’t always be anticipated. My best advice is to remain flexible and to listen to potential targets’ needs.
Indications of Interest
At the end of the first round of discussions (which can last for a month or two), you’ll want to separate the lookie loos from the serious buyers. I prefer to do this by requiring non-binding indications of interest. Indications of interest are usually one to three page letters introducing the buyer, describing its interest in your company, and setting out general valuation and deal parameters.
Frankly, indications of interest have virtually no real meaning, except that they require buyers to put in a little bit of work thinking about the company and its value. Consequently, they are a good way to separate the wheat from the chaff and decide who to include in a more thorough second round of discussions.
Your M&A advisor should analyze the indications of interest and make recommendations as to how many and which potential buyers to go forward with. I generally advise clients that four to six targets at this stage is a manageable number and usually allows a fair sampling of appropriate financial and strategic buyers, without overwhelming you at the next stage.