Purchase Price Adjustments

by a searcher from Babson College - F.W. Olin Graduate School

3 years ago

Looking for input and advice from those who have successfully closed, despite a purchase price adjustment down from the LOI.   

Hypothetical scenario: 
FYE '19 EBITDA = $1M
LOI Purchase Price = $4m (4x)
Diligence reviewed TTM EBITDA = $700k
Adjusted PP = $2.8 (using the 4x)

Not an actual deal, but how many private deals go to diligence and actually show larger earnings?  For those who successfully have negotiated through close, despite an adjustment down (for whatever reason) I'd like to connect for a brief call, please.  Thanks. 

3 likes
176 views
5 comments

searcher from Insper Instituto de Ensino e Pesquisa

I’d stick to the most unquestionable factors/criteria to use to make adjustments. “Gray area” numbers and P/L lines tend to lead to trouble.

3 years ago | like reply | 0 likes

investor from University of Notre Dame

My experience has been this is where the "art" of the deal comes in and it will depend on many factors such as your relationship you have built with the seller but probably more importantly the sellers motivation. The example you gave is a 30% price reduction which in my experience would be a pretty dramatic change. As other said you could try to get creative to bridge the gap with seller financing or even an earn out.

3 years ago | like reply | 1 like

More on Searchfunder

Just Closed on My First Deal! Reflections and Takeaways for other Searchers

45,152 transactions are available on Searchfunder (now searchable by keyword)

Now everyone has unlimited IBISWorld access

Family office looking for traditional searchers

Examples of self-funded searcher websites

Investor seeking Self-Funded Search Deals

What are market terms for Seller Notes?

2 Best Ways To Find Motivated Sellers, Off-Market Deals

Searchfunder is an online community and toolkit for searchfunds. Over 80% of those involved in searchfunds maintain a Searchfunder.com account to help them network, problem solve challenges, and keep up with the industry.

We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.