HOW TO APPROACH PRICE, ETC. WITH AN OFFER

Hello all -- I'm looking at a deal currently and am likely to make an offer (I'm planning to go straight to an LOI). However, I find myself torn over a couple things, so I'd appreciate any thoughts on the following questions. For context, I'm a self-funded searcher looking for a relatively small ($400k-$1mm SDE) business. I'm not necessarily thinking of this particular opportunity as a company I'd sell in 5-7 years; I could see myself sticking with it longer term or hiring a manager and building something of a portfolio in the region. The business is a specialty contractor in the residential construction industry. I've had fairly extensive conversations with the broker and a couple in-depth discussions with the seller, including a lengthy site visit. And this is my first go-around so apologies if these questions lack sophistication.

1) The deal I'm looking at is brokered. Is there usually much room on price with brokered deals, or are they generally fairly firm?

2) I think the deal works at the ask price (a couple banks I've been talking to agree at first glance) but obviously some cushion is always preferable, particularly considering industry volatility and that I'd be looking at a 10% equity structure if possible. At the same time, I don't want to be greedy and alter my relationship with the seller, as he seems exceptionally committed to a smooth transition. There is a heavy relationship component with the firm and I'd need the seller to make introductions to clients and help ensure those relationships survive the transition. The seller's also willing to provide financing (seemingly up to around 20%). Considering all this, is pushing for the best possible price the right approach, or should I instead focus on ensuring the seller financing is meaningful to keep interests aligned and that the transition is smooth? I know this is ultimately something of a judgement call, but I'm just wondering how I should be thinking about the dynamics at play.

Thanks in advance for any thoughts.



share: