How do you bring seller's expectations to a realistic level?

searcher profile

December 20, 2022

by a searcher from IMD in Lausanne, Switzerland

A few sellers have told me very early on, on a casual way, their selling price expectation. Oftentimes this is coming from some valuation they got from an M&A boutique or some friend who knows something about M&A. Most times those valuations tend to be based on future cash flows resulting from overly-optimistic plans.
From my time in sales, I avoid talking price until I've seen the product and they have gotten to know me. However, it becomes an important issue to start lowering their expectations in order to avoid a shock.
How do you get sellers to understand that their base-case is your best-case?

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commentor profile
Reply by an intermediary
from Boise State University in 800 W Main St, Boise, ID 83702, USA
The seller is not going to take advice from you as a buyer. You don't hold a position of trust with the seller. You are looking out for your own best interests, not the sellers. The best thing a seller can do is to hire a professional firm to value the business and represent him in the sale. Professional business intermediaries work on a contingency fee basis and will advise their clients on the "best" presentation given the circumstances. Also, keep in mind, the past is the past and if the future doesn't show positive expectations, why would you buy this business? Like in all things, you must dive into the reasons "why" for the valuation amount and "why" the owner is selling. Then if both parties can negotiate a reasonable deal that satisfies most of the criteria on both sides, then a transaction will occur. Neither side is going to get everything they want and if one party does, the other side was taken advantage of.
commentor profile
Reply by a searcher
from University of Queensland in Brisbane QLD, Australia
Another tip I've used is use their own multiple in your attempt. If they're asking 5x multiple and you think it's just 3x then explain it's worth around 3x multiple, so will take you an entire 3yrs of hard slog and hoping the "business as usual" lasts that 3yrs and you lose no staff over 3yrs, so that at 3yrs you might break even after paying the loan. So with 5x multiple it's going to take you 5yrs of all that just to break even. And that half a decade is a long, long time to take that chance. Which obviously can't work for you. By this stage if they still don't get it nor the other examples listed in this post, the MOST important thing to do in your process, is to walk from a bad deal. Walking from a bad deal is infinitely better than fixing a bad deal!
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