Negotiation tips (via broker)

August 11, 2024

by a searcher from Johns Hopkins University in Melbourne VIC, Australia

I'm in discussions, via a broker, to acquire a business. I've got a gap to close between what the seller wants and what I think the business is worth (the business has declined in last 2 financial years, but the seller has a figure in mind, largely based on previous performance).

Question:
1) what are ways that you've used successfully to close that gap (including deal terms, earn-out, etc.)
2) how have you successfully navigated the process with the broker in the middle.

Reply by an intermediary
from Université de Montréal in Montreal, QC, Canada

^redacted‌, one approach I've found helpful is bringing in a business valuator to set realistic expectations. It provides a solid basis for negotiation. Have you also considered a seller’s note (Balance of sale) ? It can help close the gap by spreading payments over time. An earn-out tied to future performance is another way to align on price. During due diligence, make sure to include clauses that allow for price adjustments if any issues pop up.

Reply by a searcher
from University of Michigan in Bay City, MI, USA

This sounds easier than most valuation gaps. If the issue is truly one where the multiple is agreed upon but the revenue / profit basis is not, then this is where an earn out would seem to be an appropriate bridge. If the seller is just anchored on a number without any objective reasoning, that's essentially impossible to negotiate. Time-on-market is the only reliable force to move these folks.

+3 more replies.

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