Need advice navigating a price gap with a seller

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by a searcher from Columbia University - Columbia Business School
in Washington, DC, USA

2yrs ago

Need advice navigating a price gap with a seller

Hi all,

I'm negotiating price with a seller but no surprise, they are insisting on a much higher number. Basically I bid 3.5x but they want close to 5x. Could really use some advice - if you've dealt with this and would be willing to chat please reach out!

Thanks a lot,
David

3 Likes

459 Views

reply by a searcher 2yrs ago
from ESADE in Valencia, Spain

As a rule of thumb, any valuation below 20% of expected price is normally accepted, specially if the seller is retiring. That lands you in 4-4.5x. That makes the gap much easier to close. Earn-out and reinvesting are good ones.
Also depends whether you will have external investors or only banks to finance the deal. Should you be sole owner of the company, and you want it so bad, paying 0.5x-1x more is a year of cash flow, which is what you may end up spending searching for a new opportunity!

reply by a searcher 1yr ago
in New Jersey, USA

Great responses , Adding here what everyone think would be the best :

Earnouts (tying price to future performance), though not viable with SBA financing.

Seller Financing, potentially with low interest or extended terms to manage debt service.

Clawbacks or Forgivable Seller Notes, where parts of the payment are contingent on the company’s performance.

Equity Re-investment from the seller as a way to align incentives.

Deferred Payments, allowing part of the purchase price to be paid over time, to reduce upfront costs.

FOMO strategies and behavioral finance to create urgency.