Often when a serious buyer gets ready to make an offer to acquire a business, he/she begins to question just how low of an offer can they make and still succeed.
Certainly, every buyer is entitled to negotiate the best possible deal for themselves. And it is certainly true that many businesses sell below their initial Asking Price.
However, if you’ve determined that the Seller’s Asking Price is in the range of fair market value based on an analysis of market comparables & sold comparables, and therefore is not unreasonably overpriced, let me suggest another way a serious buyer should look at this question.
In most cases you’ll need the Seller’s continuing cooperation after closing to teach you the business, or to retain his key customers, suppliers, and employees, or to use his license(s) to qualify the business until you can secure your own license(s);
In most cases – and particularly in today’s tight credit market — you may not be able to make an all cash offer, and may instead require, or would at least appreciate, some Seller financing, and/or some earn-out component, and/or some mid-term employment/ consulting agreement with the Seller;
In most cases, you’ve probably thoroughly researched the market and concluded that this particular business is uniquely well suited to your needs & your future business plans, and no other competing business would fit quite as well;
Finally, once you’ve reached the point of making an offer, time is frequently of the essence in getting this deal closed and moving forward under your ownership; IF ANY of the above conditions are met, then I’d recommend that you seriously consider making an offer at – or very close to — the Seller’s Asking Price, and do your bargaining over more favorable terms.
I advise my clients that the PROCESS of acquiring a business bears many similarities to buying a home, with inspections and appraisals, and mortgage notes and closing documents; but the ACT of acquiring a business is much more like getting married, in that in most cases you need the whole-hearted support of the Seller to make this venture successful, and no expectant groom ever achieved that kind of success by bragging about how little he paid for the ring.
If you know of a business owner who’s thinking of selling or buying a business and who might benefit from a free consultation with us, have them contact me, or any of the M&A professionals at www.bradwaygroup.com
By: Mike Ertel, Transworld M&A Advisors