Business appraisal

May 08, 2026

by a searcher from Georgia Institute of Technology in San Francisco, California, USA

The bank’s third-party appraisal just came back at ~$1.3M, while the negotiated purchase price is closer to ~$2.6M (inclusive of seller note/earnout structure). Business is profitable with recurring revenue, but growth has been relatively flat the past few years. My thesis is based more on strategic upside (AI modernization, installed customer base, distribution, cross-sell opportunities, etc.) rather than purely historical financial performance. For those who’ve gone through acquisitions before: 1) How much weight would you place on a bank appraisal coming in materially below purchase price? 2) Is a ~50% delta a major red flag, or relatively common in lower middle market deals where operator upside exists? 3) What specific things would you dig into further before moving forward? Would appreciate candid thoughts from operators/lenders who’ve seen this before.

Reply by an intermediary
from San Francisco State University in San Francisco, CA, USA

There is not enough information provided to give an extremely detailed answer (i.e. geographic area, industry type, SDE/EBITDA, customer type/mix, age, etc). However, while banks tend to be somewhat conservative, a 50% difference is concerning. Unless this is a strategic bolt-on to an existing platform where you can realize multiple arbitrage almost immediately, it is worth pumping the brakes a bit and reevaluating. There is no shortage of successful businesses out there to acquire, so no need to rush into something or have FOMO. It is also best practice to never price potential into a business. While it is great that you have strategies to grow the business, you want to pay the best price possible for the current value of the business. It can be okay at times to overpay slightly for a great business, but paying 2x is a bit rich. If you are still hot and heavy on the business, I would use this appraisal as leverage to re-trade and/or renegotiate deal terms w/ the Seller. Do not be afraid to walk, any potential Buyer will likely run into the same issues as you just have.

Reply by a lender
from University of Missouri in Denver, CO, USA

Yeah it sounds like you need to negotiate the price. Having a plan for the future is great, but you need to pay the seller for what they've done for the business historically, not what may happen in the future.

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