Overpriced Business Ideas?
October 02, 2024
by a searcher from New York University in Cranford, NJ, USA
Currently looking at a really great business that checks a lot of boxes for me, but Sellers are not budging off a price that is just too high for it. They are looking for###-###-#### 6m and it's probably worth###-###-#### 5m really. I understand they are hoping PE Firm swoops in and doesn't care about paying###-###-#### 6X EBITDA, but that is just not realistic for an individual buyer using an SBA loan (ie. Me). Are there any suggestions of ways to bridge the gap to not over tax the cash flow of the business, but still maybe get them closer to where they are looking to be based on future performance or something along those lines? Understand they would have to be open to it, but I honestly would like to have some ideas to propose and I don't know what is possible/allowed/smart, etc. Thanks so much in advance!
from Emory University in Tucson, AZ, USA
You'll never regret not overpaying, and new opportunities will present themselves. Even if the sellers initially entertain other offers or sign a LOI with another party, these deals often fall through due to unrealistic expectations.
Sellers may experience fatigue, and if you've established trust and demonstrated your ability to close, they may re-engage with your original offer. Patience can pay off,
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
I have seen many buyers use a partial business acquisition and keep the seller in for part of the transaction. Because the seller stays in and you are not borrowing additional money for that portion of the purchase, it does not impact cash flow. It also gives a seller that is interested a second bite at the apple down the road. If using SBA financing, so long as the seller retains less than 20% of the deal, they will not be required to guarantee the loan.
The other option is to bring more equity to the table. There are plenty of individuals and funds looking to invest with searchers. However, keep in mind raising equity will likely dilute your potential earnings and may require you to pay some returns, which can impact your cash flow in the end.
Unfortunately it can sometimes be hard as an independent searcher to compete if sellers are really holding out for a large multiple from a PE firm. I would still suggest making an offer you think is fair and if you cannot come to terms move onto the next one. You never know, they may come back to you if no one else comes to them at their multiple. I have seen that happen multiple times. Also, anyway you can differentiate your approach by keeping key employees and showing your plans can help sell them on you as the buyer versus PE. But if at the end of the day all they care is about the largest paycheck, it will be hard to compete as a self-funded searcher.