How to close the price gap from 3.5 -5.0 x

intermediary profile

August 26, 2023

by an intermediary from University of Wisconsin-Eau Claire - College of Business in Lawrence, KS, USA

I don't seem to know how to response to his question in the string itself, so I will just post this.
Where business intermediaries earn their money is in the deal structure, not the marketing, due diligence management and so forth. The goal is to bring two parties to the table and leave happy. The purchase price can be the deal killer, however, And having a gap is common. Although there are many mechanisms we employee depending on the transaction, one of the best to bridge the gap is with a portion put into an earn out, with an adjustable ratchet base on either your 3.5x or their 5.0 x. If it performs as a 5 , then you can pay that. but if it performs like a 3.5x the seller should not expect more. Another common method is to accept the 5.0 x or split it in half, but require a higher amount of Roll Over Equity (ROE). There are as many ways to skin a cat as their are cats, but these are a couple we use. Drew Eckman's response is on point. Get the best terms with possble upside to bridge, not focusing only on the purchase price.

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commentor profile
Reply by an intermediary
in New York, NY, USA
Gaps often happen because sellers and buyers view the value of a business differently. The buyer makes a bid based upon current and expected future performance. The seller sees all the work and sacrifice it took to get the business to where it is today, and often sellers view buyers who make 'low' bids as lacking real commitment to keep the business going after the sale. When gaps happen, a good intermediary needs to communicate between both buyer and seller to understand the reason for the gap, only then can we find the right solution to carry the deal forward.
commentor profile
Reply by a searcher
from Columbia University in Washington, DC, USA
Thank you!
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