Apex Success Stories #4: Getting to the Right Deal
One of the things we strive for as advisors is for our sellers to be in conversations with multiple buyers. An exit is a significant life event, and we want there to be various options with their upsides and downsides so the seller can revisit all the points he/she said really mattered. In this article, we will discuss a few situations in which our sellers had multiple options and share why they went the way they did.
A Main Street business we were representing was priced at $505k and two full priced offers and one nearly full priced offer ($487k) came in around the same time. Someone might look at the gap and consider it crazy to give up almost an additional $20k, but our seller was not solely motivated by price. Indeed, he decided to go for the lower offer because he thought his business had a better chance of success with that acquirer. It was an add-on business for that buyer and would be part of a large organization.
The seller had developed a better connection with that buyer and ended up with only 2.5 months of diligence before closing. Because we’ve had experience in which a lower offer ended up being a better offer, we were able to encourage our seller’s instincts, which turned out to be dead on.
In another situation the gap was even larger: our seller was looking at a full price $1.5M offer vs $1.35M.
Again, at first blush, the difference seems obvious. But the full price offer needed 12% of it financed over a 5 year period, whereas the $1.35M offer was fully paid. While 12% wasn’t a great deal of exposure and 5 years is not a lot of time to wait, the seller really wanted to move on to the next chapter in his life, and settled on the lower offer. Again, higher price doesn’t always win for any number of reasons.
Some time ago we had a limousine transportation company for sale that went nine months from listing with no inquiries. During that time, the business continued to do really well and become even more attractive from a listing standpoint. We counseled patience, as we knew such a good business would eventually find the right suitor. We were right, and all of a sudden three different full price offers materialized, all of equal attractiveness.
Had the seller tried listing on his own, he may have gotten discouraged and had doubts about the value of the company. Because he had engaged us, we were able to revisit through his financials, his processes, and his team and verify that yes, he did have a great business and that it was just a matter of market timing.
A Family Affair
We had a seller that had a family business that really wanted to sell to the son. Not only could the son not offer the asking price, he was offering $600k less, and would need his parents to cosign the note for the financing. The son was 30 years old, so it’s understandable that he didn’t have the necessary assets to finance a $1.5M asking price, but the seller did have to deal with the resentment from the son when a full price offer was accepted. The situation was smoothed over eventually, as the son did enjoy working at the company and realized he was a key piece in the transition, but it was also important for the seller not to give in to family pressures and resentment from a child. While you may see this as a fairly open and shut case, we have definitely seen situations in which the decision went the other way, and the overwhelming majority of the time… there were negative consequences.
Selling your business and having the exit you want is anything but straightforward. Thankfully, we’ve been down that road thousands of times. Let our experience help you!