Deals with no asking price?!

May 31, 2024

by a searcher from The University of Chicago - Booth School of Business in Greenwich, CT, USA

hi all,

Second deal this week, when there is no asking price on the business, and also no detailed financials (they have a SDE calculation in the CIM, but can't rely only on that). They ask for LOIs with evaluation.

Is this common? Are they doing this for price discovery, hoping there will be a bidding war?

Thoughts?

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Reply by a professional
from Embry in Orlando, FL, USA

That sounds like the seller does not have an idea on what the business is worth or the seller wants someone else to set the price and negotiate. This might be a direct sale with no broker involved. Recommend acquiring a quick evaluation from a 3rd party (qualified for the industry). Use the MSP business evaluator Accelerator and go to seller. If the business is in the IT Services Space. Use the MSP Business Evaluator Accelerator and present the Business Valuation Report as a 3rd party valuation to the seller. You will need to get answers to only 4 questions to get a valuation in the ball park (you can get these 4 questions answered in conversation) 1. how many years in business? 2. how many employees 3. average yearly cost per employee. 4. Total revenue for the year.

This tool is specific to MSPs but can also privide a close valuation for MSSP and VoIP (almost any IT Services) That has 70%+ of thier revenue recurring on a monthly basis.

Reply by a searcher
from Stanford University in Tampa, FL, USA

I agree with much of what has been said thus far. This is much more typical for 1) larger deals and 2) typically deals that have some sort of strategic angle. Investment bankers will almost always run an auction process without providing a target asking price. "The market will tell you what your business is worth" rings true in this scenario - your business is only worth what a buyer will pay for it. Having no asking price also allows for greater flexibility in how you structure your initial offer.

It seems like the LOIs they're looking for are really more like Indications of Interest (IOIs) in the typical sense, given you have so little information to work with. They're likely trying to help management only spend time with "serious buyers" who are putting a compelling valuation forward in their LOI.

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