How do you work with an owner to lower their asset valuation?

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March 16, 2020

by a searcher from California Maritime Academy in Seattle Metropolitan Area, WA, USA

I am searching for a deal in an asset-heavy industry. Currently, one of the deals I have come across is a great deal, except for the owners' valuation of the deals assets. According to brokers and other comparable sales, the assets are overvalued but they don't agree. How would you recommend entering a negotiation to reduce the asset value to a comparable market value?

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commentor profile
Reply by a searcher
in Seattle, WA, USA
Asset value per se is an accounting matter. The big picture question is whether the asking price is what you're comfortable with. The seller isn't likely to change what's in their head, they will always think they know best because it is their business, and telling them they're wrong, even with iron-clad proof, isn't going to get you very far.

So if the total deal structure is top heavy, see if you can spread things out a little to make the numbers work. The seller can pretty much have whatever they want as long as you have say in the time-frame...
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Reply by a searcher
from Ohio State University in Chicago, IL, USA
Hi Nicholas. Can you bridge the valuation gap with structuring, like with a revenue/EBITDA based earn-out, a royalty arrangement, have the seller retain any real estate in exchange for a lease, a consulting agreement that provides additional cash flow, or have the owner invest some proceeds along side you to share in upside later? Not all of these options may be applicable to your deal, but I have seen others apply them when the Seller's value expectations were high.
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