Insights on sharing the price and terms of the LOI with the seller

by a searcher from INSEAD

10 months ago

Update: Thanks for the insights everyone - I meant doing an in person meeting to walk the seller through my LOI and terms in the presence of the Broker instead of sending via email - I didnt intend to circumvent the broker but rather was just asking about whether I should do it in person or via email :)

Hi Searfunder community,

 My offer price is about 20% less than what the seller is asking because of the below reasons:
1. Inventory worth 50% of revenue is included in the asking price and many of it is old inventory not being used regulary. With the high cost of capital I dont feel very comfortable paying for so much inventory and would prefer to negotiate better terms on the inventory.

2. The asking price is 6.5 times the last years EBIDTA - Which i feel is quite high for manufacturing. 

I would lik to walk the terms of the LOI with the seller and understand his perspective rather than send an email via the broker. Any insights on how best to approach this.

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5 comments

searcher from University of North Carolina at Chapel Hill

How does the inventory mismatch compare in increasing the sticker price vs. the elevated 6.5 multiple? My *guess* is the 6.5x is a much bigger problem than overvaluing inventory. I would consider focusing on the issue that's going to get you to a deal price you're comfortable with and potentially ignore the other issue in discussions with broker and seller.

How big is the deal? I feel like most deals discussed on here land in the 3-4.5x range so 6.5x feels steep unless you're further up market.

Agree with others on not going around the broker unless the seller/owner reaches out to you directly first. Good luck!

10 months ago | like reply | 0 likes

searcher from University of Virginia-Darden - Darden School of Business

If it's a situation where it doesn't make sense/ would be illegal or immoral to speak directly with the seller, I see 2 top ideas that solve your issue: 1) Ask the broker for an all-hands call where you can meet with the owner with the broker present 2) Meet in-person with the owner (broker present or not) and do it then. Negotiations/ explanations like this are always best in-person or second best over a video call. Good luck!

10 months ago | like reply | 1 like

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