Why would a company as large as PayPal consider selling itself?
That is the question business owners should be asking as reports emerge that Stripe and private equity firm Advent International have been exploring a potential acquisition of PayPal.
The reported proposal valued the company at more than $53 billion, with PayPal reportedly viewing the initial price as insufficient while discussions continued around a potentially higher valuation.
What makes the story particularly interesting is that PayPal is not a struggling company desperately looking for an exit.
The company continues to generate billions in revenue, process enormous amounts of payment volume, and produce substantial free cash flow. It is also actively investing in its businesses, reorganizing its operations, and pursuing growth opportunities across areas including Venmo, Braintree, checkout, financial services, and artificial intelligence.
So why would a company like PayPal even consider a sale?
Because the value of a business can look very different depending on who owns it.
That is a lesson every privately held business owner should understand.
Your Business May Be Worth More To Someone Else
Most owners naturally evaluate their businesses based on what they have built.
They look at revenue, EBITDA, margins, customers, employees, assets, and future growth opportunities. They know what the business produces today and what they believe they can accomplish over the next five or ten years.
A strategic buyer may see something entirely different.
They may look at the same company and see an opportunity to eliminate duplicate overhead, cross sell products to an existing customer base, expand into a new geography, add a service line, or acquire a capability that would have taken years to build internally.
Private equity buyers can view a business as a platform around which they can build through additional acquisitions.
A competitor may see customers it desperately wants.
Another company may see employees, technology, licenses, contracts, distribution, or market access that would be difficult or expensive to recreate.
That means the value of your business is not necessarily limited to the cash flow it produces under your ownership.
The right buyer may be able to create more value from your business than you ever could on your own.
That difference is often where strategic premiums come from.
Selling Does Not Mean Something Is Wrong
Business owners sometimes have a strange relationship with the idea of selling.
If someone offers an attractive price for a stock or piece of real estate, investors generally have no problem considering the opportunity. But when someone wants to buy their company, the emotional reaction can be very different.
"Why would I sell? The business is doing great."
But that may actually be when buyers are most interested.
A buyer does not necessarily want a distressed company. They may want a successful company because they believe they can make it even more successful.
Selling a business is not necessarily an admission that the business has peaked or that the owner has failed. In many cases, it means an owner has created something valuable enough that someone else is willing to pay a substantial amount of money to take over the opportunity.
That is a very different way of looking at an exit.
Future Growth Comes With Risk
One of the hardest parts of evaluating a potential sale is comparing guaranteed value today with potential value tomorrow.
Imagine an owner has built a company generating $5 million of EBITDA. The business has significant growth opportunities, and the owner believes they could potentially double EBITDA over the next five years.
That may be true.
But getting there will require additional investment, hiring, equipment, acquisitions, new locations, new technology, and years of continued effort. There is also the possibility that the economy changes, competitors become more aggressive, customers leave, or the growth simply does not materialize as expected.
This is particularly relevant when considering a company undergoing a turnaround or transformation.
PayPal is investing heavily in its future, and those investments could create significant value. But future growth always comes with execution risk.
Business owners face the same calculation every day.
How much additional value can I realistically create, and how much risk am I taking to get there?
A large check at closing removes a significant amount of that uncertainty.
Don't Just Ask What Your Business Is Worth
When owners begin thinking about selling, the conversation often starts with one question:
"What multiple would I get?"
That is an important question, but it is not the only one.
A more interesting question is:
"Who could make more money owning my business than I can?"
The answer might be a competitor that can eliminate redundant expenses. It could be a private equity backed platform that can acquire several complementary companies around yours. It could be a strategic buyer looking to enter your market or expand its geographic footprint.
The more potential buyers can identify opportunities that you cannot pursue independently, the greater the potential strategic value of the business.
This is why identifying the right buyers is so important in an M&A process. The goal is not simply to find someone willing to purchase the company.
The goal is to find the buyers who can see the most value in what you have built and create enough competition to make them pay for it.
Every Owner Should Know Their Number
The reported PayPal discussions also highlight another important concept: knowing what would actually make you willing to sell.
Most owners do not have a specific number in mind until someone puts an offer in front of them.
By then, emotions can take over.
An owner may become anchored to an arbitrary valuation, focus exclusively on the headline purchase price, or reject an attractive offer because they believe the business will eventually be worth more.
It is much better to think through those questions before a buyer ever arrives.
What is the business worth today?
What would you actually receive after taxes and transaction expenses?
How much money would you need to feel financially secure?
What could that capital potentially earn if it were diversified outside the company?
How much additional value could you realistically create by continuing to own the business?
And perhaps most importantly, how much additional risk are you willing to take to pursue that future value?
There is no universally correct answer.
An owner who is 40 years old, growing rapidly, has a strong management team, and still loves running the business may have every reason to keep building.
Another owner may be approaching retirement, have most of their net worth tied to the company, and have an opportunity to diversify a substantial amount of wealth while buyer demand is strong.
The right decision depends on the owner.
But every owner should understand the decision before they are forced to make it.
The Strategic Buyer May See Something You Don't
This is ultimately what makes the PayPal situation so interesting.
A company can be enormous, profitable, and still potentially be more valuable in combination with another company than it is on its own.
The same principle applies to privately held businesses.
You may have built the best roofing company in your market, but a larger platform may be able to put five more companies around it.
You may have built an exceptional paving business, but a strategic buyer may be able to combine your geographic footprint with its existing operations.
You may have a strong healthcare business, but another company may see the opportunity to add your customers, employees, locations, or capabilities to an existing network.
You know what your business has accomplished.
A buyer may see what it could become.
That difference is worth understanding.
Conclusion
The PayPal story is not really about PayPal.
It is about a question that eventually confronts almost every successful business owner:
Am I still the best owner for this business for the next five or ten years, or has someone else reached a point where they are willing to pay me more than I am willing to risk by continuing to own it?
You do not have to sell.
In fact, deciding not to sell may ultimately be the right choice.
But you should understand your options while you still have the luxury of choosing.
At Exit Stage Left Advisors, we help business owners evaluate what their companies could be worth, understand how potential buyers may view their businesses, and determine what needs to happen to create the strongest possible outcome.
The best time to decide whether you would sell is not when a buyer suddenly calls.
It is long before that happens.
You should always know what would make you say yes.
