Deal Too Good To Be True? (skeptical)

December 19, 2023

by a searcher from University of South Carolina - Darla Moore School of Business in Charleston, SC, USA

I found a medical-related company for sale and the terms seem too good to be true. After I made my initial offer, her "counter" was even better than what my offer was. I have a feeling that I'm dealing with a seller who is very inexperienced or something. The broker is sort of unknown and also does not seem to be fully aware of the sales process. Broker sounds like a nice lady, but is not on LinkedIn and has a very basic website with no other listings. Almost makes me think it's a scam or I'm missing something really important. Here are the terms offered:

- $800,000 sale price
- Seller will finance $600K of the sale price over 10 years at 3% interest. I only need to put in $200K down.
- $470K-600K SDE for 5 years straight (around 1.6x SDE valuation)
- Seller wants to stay on for a full year to help with the transition.
- Seller claims to work full time at a hospital as an employee and manages this after hours.
- Seller is about 45 years old and says she's over worked and wants to focus on her main job at the hospital.

She Will sell real estate of the business for around $450K using a commercial loan. This is an asset sale, but there are many contracts which need to be transferred over.

Even as we are close to the LOI, she keeps making things more attractive without me even asking. For example, she just offered to include all the company cars used for personal use on the sale for no additional cost ($60K value in total - one is a relatively new Tesla). There are repairs to the real estate which need to be done and she said she will knock off $30K in price without me asking.

I met the seller in person and she seems perfectly nice and reasonable. Company has a good reputation and no pending lawsuits. Am I being paranoid to think this is too good to be true and to be highly skeptical of this deal? What sorts of monsters could be hiding in the closet on a deal like this?

Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

From time to time I have seen situations where business owners are so overwhelmed and burned out that they just want out. In those rare cases, you can sometimes find a good deal. There can also be personal things going on in their lives that can make them aggressive in getting a deal done, often something you would not be aware of going through the process. Two concerns I think you need to watch out for are as follows:

1) Is the business really stable? Sometimes a reason someone wants out and fast is because there are some underlying issues in the business. Maybe they know they are about to lose a major customer. However, since they are willing to take a large note back, that seems less likely.

2) Will the seller really stay involved in transitioning the business, or do they want out so bad they will disappear post closing? Again, seems less likely with a large seller note because the seller stands to lose if they do not cooperate, but I have seen cases where sellers agree to transition and do not really do what they said they were going to do up front.

If you are doing proper due diligence, you ought to be able to figure out of the business is legitimate. You would be out the expense and time of doing all of the proper verifications and due diligence, but with a good attorney you ought to be able to get comfortable with the business. I would proceed with caution, but I would verify everything. I hope this helps. Happy to assist if we can. You can reach me here or directly at redacted Good luck!

Reply by a searcher
from Michigan State University in Los Angeles, CA, USA

You need to understand the true reason why she's selling. Assuming there's no scam here and this is a legit business with legit offer, then she very well may need hard cash in her pocket for something asap and she's willing to sell at a discount. The hard part is finding out if her reason is true. You need to keep picking away to find the true answer. Find different ways to discuss what's going on in her life today, what's important to her in life, what life after selling will look like, etc. Come at it from different angles at different times. Learn if she has any other ventures or business interests. For example, if she's underwriter on a real estate investment then she has a cash number she needs in her pocket asap. She might not tell you she's underwriter but if you can learn about what she's invested in you might connect the dots. More examples...she needs to fund her kid's college tuition. She needs to support a sick family member's expenses. Understanding the psychology of the seller will often tell you the reason for their ask and also give you leverage when negotiating.

+14 more replies.

Join the discussion