2.5 times SDE for a modest sized business but seller isn't sold

by a searcher from HEC School of Management, Paris

3 years ago

Context:
Entrepreneur started an equine products business 10 years ago and now wants to sell 90%.  Revenues are stalled and dipped during 2020.
I have initially offered 2.5x SDE but this was rejected - as I expected it might be - but the seller says I'm nowhere near the right ballpark. However, they can't tell me where the ballpark might be.

Question:
We're still corresponding but I wondered if anyone has had a similar experience dealing with an entrepreneur and getting a deal over the line after starting with such a large gap to begin with. Or should I put this fish back?

Thanks,
Ollie

1 like
418 views
23 comments

professional from University of Southern California - Marshall School of Business

Why should the owner budge if you don't have a good enough story that your offer is the right offer? It's common for sellers to disagree on the buyer's opinion of value.

5 months ago | like reply | 0 likes

searcher from Carnegie Mellon University - Tepper School of Business

This is when we appreciate the business brokers and investment bankers. They are the ones take the time to do seller education with their authoritative knowledge about the market and back that with vast amount of market data. In most of the proprietary deals the owners of a good business think ‘if I keep the business for another - years’ or ‘I read in an article you can sell your business for 3x revenue, so... ‘. I had my share once with a technology company (which needed a complete overhaul of 25 year old codebase) where I offered at 4x and owner was at 24x! If the seller is yet to learn about the market and there is a huge gap it’s most likely not worth the time negotiating.

2 years ago | like reply | 2 likes

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