Managing unsophisticated vendor expectations on valuations of smaller deals
March 04, 2023
by a searcher from University of Manitoba in Vancouver, BC, Canada
Have noticed that many vendors of smaller businesses (say $300K-800K SDE) have overly inflated ideas about valuation multiples. Obviously it'll depend on the industry, etc but while the comps might suggest a 3x multiple of SDE, many sellers have it in their heads that they should achieve 5x or higher. Perhaps their friend/lawyer/financial planner told them, or they've seen other higher value deals go for these multiples, but they're often not making valid comparisons. Even certain business brokers (vs lower/mid-market M&A types who do higher value deals) will list these businesses at higher multiples, presumably to get the listing. While negotiation is always crucial, how can one level-set expectations early in the process without having the vendor take offense to what they may consider a low-ball offer?
from Duke University in Tulsa, OK, USA
My experience is that the seller will reject but if you present yourself well then you may get additional opportunities in the future. In one case the broker presented me with an off-market business that became available. In another case, the broker reached out to me 6 months later asking if I wanted to submit an offer since the buyer/offer they accepted couldn't close the deal, presumably because it was significantly overvalued.
from Princeton University in Lenexa, KS, USA