M&A Monday: Every Offer Starts with the Seller

Last week my client, an Independent Sponsor called me to tell me about a deal. He just met with the seller and was very excited. He talked me through his proposed offer.

When he was done I said, okay, but what is important to the seller?

He paused. Thought for a moment and said, I don’t know.

In a two-hour meeting, my client asked the seller about everything from revenue dips, the condition of machinery, to key employees. But, he never asked the seller what he values in a sale.

As a buyer, every offer, every LOI, should start by asking, what does the seller want?

Too often buyers start with the type of offers they want to make. but, the best deals will be won by constructing offers that are crafted to meet the seller’s needs.

Every conversation with a seller's broker should start with, tell me about the seller? What do they care about? Why are they selling? What is their family situation and motivations? What elements of an offer are they most focused on?

If possible, ask the seller directly in a pre-LOI introduction call.

Seller is retiring, and wants some cash at closing, but is not tight on money? Offer a large promissory note paid over time.

Seller wants the proceeds to start a non-competitive business? Offer more cash at closing.

Seller wants credit for pro forma cash flow? Offer earn-out or forgivable promissory note?

Seller wants to sell now, but wants potential upside? Offer rollover or parent equity roll.

Seller cares about continuity of key employees or has a nephew in the business? Include offers to retain certain employees for a period of time.

Seller needs a quick sale? Offer lower price with short exclusivity period.

There are an infinite number of ways to structure a deal, but each structure must start with meeting each seller’s unique needs. That is how we win deals without the highest purchase price.

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