Be Very Wary of Multiple Sellers And Take These Mitigating Actions

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April 20, 2023

by a professional from Georgetown University in Maryland, USA

During my years representing tens of private equity transactions, I’ve learned tips and tricks that can help searchers.

Lesson #13 from the private equity trenches: Be Very Wary of Multiple Sellers and Take Evasive Maneuvers.

I have seen lots of deals die for lots of reasons.

I was asked if there is one thing kill the most deals.

The answer is, multiple sellers.

Whenever there is more than one seller, the risk of the deal dying skyrockets. The more sellers the higher the risk.

Don’t let this deter you from pursuing a good deal, but identify this risk factor early and try to mitigate it. Here are some ways:

  1. At the beginning of the deal, determine each seller’s reason for selling. Ask each sellers if they are excited to sell and what is motivating them. If you find out that Jim is motivated by cash now, while Bob wants a steady cash flow for the next ten tears, and Mary wants a piece of the upside, you can construct a better offer.

  2. Speak to each seller. If there is an absentee seller, ask to speak to them. If the response is, “don’t worry about Jimmy, he’s on a yacht, he’ll come around”, know that Jimmy may not come around. Jimmy is going to be a major issue and may cost you a lot of time and money. You’ll want to get in a room with Jimmy as early as possible.

  3. Have each seller sign the LOI. Seems obvious, but I’ve seen LOIs signed by the Target Company or just one seller, as a representative. Make sure they all sign.

  4. Move quickly. You will be herding cats.

    Don’t let multiple sellers deter you, but identify this as a major risk factor and plan your mitigation strategy.

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Reply by an investor
from University of Pennsylvania in Charlotte, NC, USA
Great insight and advice here. It may also be worth considering requesting that sellers appoint a seller representative. It's not common in small deals, usually doesn't occur until later in the transaction process and is most frequently an appointment with respect to post-closing matters. Also there are plenty of arguments as to why it's not highly effective in practice with unsophisticated sellers...but, if you can get it done, it may help mitigate the multiple seller risk. Proposing it also opens up a conversation about the risks to seller, and how a seller rep appointment can help. After all, the sellers don't want to see their deal blown up either. Eli, have you had experience, good or bad, with this approach?
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Reply by an intermediary
from Royal Melbourne Institute of Technology in Sydney NSW, Australia
I agree 100%…I’ve been representing the sellers when deals have imploded due to vendor disagreements. I’ve even had a vendor blatantly lie to me, then sink a deal that was 25% over their ask price, It’s not that it happens all the time, it’s just that multiple sellers adds
complexity with the potential for more emotions. But this post provides good advice on how to address it.
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