Business Valuation

searcher profile

January 13, 2024

by a searcher from University of California, Berkeley in Sausalito, CA 94965, USA

I have had an initial conversation with a pair of gym owners. They are 50/50 partners in ownership. The older one (early 60s) would like to retire, while the younger one (early 50s) is a little less sure about selling the business although she is definitely burned out after 25 years of ownership. They have not engaged a broker and have not set themselves up for a proper sale at this point. I would love to hear some stories or advice that people may have around:

1 - Buying from partners that are not necessarily aligned
2 - Getting the owners comfortable with appropriate valuations

0
4
168
Replies
4
commentor profile
Reply by an intermediary
from Boise State University in 800 W Main St, Boise, ID 83702, USA
When a business is a 50/50 partnership,, and one party is not ready/willing to sell, there is a stalemate. My first thought is it might be easier and less frustrating for you to find another prospective business to consider buying especially given the current cirumstances. When two partners aren't aligned, you as the buyer can't necessarily help them solve it. You are an outsider and aren't a trusted advisor. They need to work with their CPA, attorney, or an exit planner to get to a point that they've resolved those issues.

Regarding valuation, again, as the buyer, you will not be trusted with your advice. They need to hire their own business valuation expert/business broker to help them understand what a likely value/price might be. Even then, it may be tough for that valuator/broker to help them reach agreement and understanding.

Regarding having your banker order the valuation, it has been my experience that those valuators hired by lenders are not necessarily going to do a thorough analysis because they typically just verify or dispute the value described in the purchase agreement. I've had several situations where the calculations performed by the lender's third-party valuators were incorrect and didn't follow proper valuation theory. Because I am a certified business valuator/appraiser, the lender listened to my argument regarding the appraisal reports. In fact, two banks that I worked with later terminated their relationship with this particular nationwide valuation company because of its calculation errors and unwillingness to fix them..
commentor profile
Reply by a searcher
from University of Kansas in Kansas City, MO, USA
As to the first question, I don't have direct experience with this so take it with a grain of salt, but I'd want to ensure total transparency of my conversations and interaction between the two partners. This could be a challenging process given what you've described, and I'd want to do what I could to not jeopardize the trust and rapport between the two owners.

As to the second question, this could be tough, but it you're going to borrow money to finance the purchase, I think you could lean on the bank's valuation and amount they're willing to loan as support. Let the bank's determinations support an appropriate valuation. You can tell the owners that regardless of what they believe the business is worth and, frankly, regardless of what you think, if the bank will only lend based on a 3x multiple (for example), it is what it is.
commentor profile
+2 more replies.
Join the discussion