Purchasing an existing production company?

mjjason

mjjason

Well-known member
Has anyone here ever purchased an existing production company? I am curious as to what issues to look out for and what areas to focus on when reviewing the business.

I have already asked the broker to provide P&L sheets for the last four years but the response I got back was somewhat worrying. He pretty much said that actual numbers are difficult to gather as what is reported is not actual. I know many business fudge their books a little to get around taxes but when laying out money to purchase an existing business I want to be sure I am buying a good business.

What is a good way to get a clearer picture of a production companies business and value?
 
broker's first answer ought to be a pretty large red flag. what generated your interest in them and what do you perceive to be their assets?
 
I am looking to start my own production company and just happen to come across one for sale within my price range. I figured instead of trying to develop a client base I can tape into an existing one. Their stated asking price and cash flow seemed reasonable so I decided to look into it further.

I agree 100% that the broker response is a huge red flag. For someone to lie on tax returns shows poor business trust and I would normally walk away. That is most likely what I will do in this case but before I make my ultimate decision I would like to dig deeper into the company. Maybe I can force them to sell at a much lower price.

I am trying to piece to gather a plan of action to gather more data. I have already have asked for access to accounts receivable and billing though i haven't asked for a breakdown of their assests yet. I am just curious to know what other pitfalls would there be in purchasing an existing production company?
 
I would also do some investigating as to what their current client base is - they are selling the business for a reason...
 
Yes I will be doing that. One of my biggest concerns is that if the owner leaves would the clients leave as well. For something like a production house where clients sign up because of talent that is the biggest issue.

I guess my question is how would you value a production company? How do you set a price? I have worked on purchasing other types business before (stores, fast food, etc...) but this is the first of this kind, i.e. one where the owners talent is the product?
 
There are professionals that do valuations of any company or business. You probably need to hire a firm to do this, or follow a detailed protocol and do it yourself. You'd also want some non-compete clause in the contract ensuring that none of the principals in the firm are going to snatch clients from the stable. Unless to get to see the tax returns *and* books of the company, I wouldn't proceed.
 
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