Negotiation techniques and best practices when dealing with a sellside broker?
October 13, 2024
by a searcher from University of Massachusetts at Lowell in Worcester County, MA, USA
I'm close to finishing the q of e on a deal I'm working on. The financials still look good, up from prior years, but they fell short on EBItDA forecasts. I stretched the multiple based on a specific EBITDA target in the LOI, but now that its short, I don't think I can justify the multiple anymore. We're talking about a difference of 5x versus###-###-#### 8x EBITDA. I think theres grounds to negotiate the price down.
I am concerned that retrading the deal at this point will cost me a good business and all the Due Diligence costs to date. But I'm willing to walk away if they aren't able to come down on value. On the flip side I want to retain the relationship if we can negotiate the value down because there is an equity roll component and I don't want to leave the sellers with a bad taste in their mouth by negotiating to agressively. My first time negotiating something of this scale.
I am dealing with a broker on this deal and they seem fixated on a 6MM valuation which seems frivolous given where we are.
I want to poll the people here on some best practices as far as negotiating value. This is less a conversation around structure (i.e. seller note/equity/earnout etc.) and more around the multiple and EV value given a lower than expected 1.09TTM EBITDA number VERSUS A 1.2TTM EBITDA ( approx a 10 percent miss.)
I have questions like:
1) Should I just send a counter offer in writing given the findings or should I reach out to the brokers first and try to verbally negotiate first on a video or conference call. (I live in a different state so in-person negotiation isn't possible)
2) Best time of day or day of the week to negotiate to my advantage? Or does it matter? I was going to reach out to them tomorrow morning. But in their minds, due diligence is on track so I don't want to catch them off guard so that they are defensive.
3) At this point should I try to negotiate with the seller directly? Or continue to work with the sellers broker to communicate a counter? I do have a line directly to the seller. Or is that a faux pas?
4) should I negotiate point by point? I.e. discuss and agree on ev first? Then move on to structure? Cash at close ? Etc. Or should I just lay out the full offer and structure at the same time and pitch it over to the sell side team and let them react to it and respond?
Anything else I should consider?
from Columbia University in New York, NY, USA
In terms of how to present, you can emphasize your LOI’s contingency of the price on QoE results. If you want to show flexibility, consider sharing two offers - with varying levels of cash-at-close and total price. For example, one offer with the same % cash-at-close as your LOI, but with the new price given lower EBIDTA; a second offer that’s higher in total than the first, but a lower amount of cash-at-close. Let the seller choose what matters to them while you make it clear that the original price is now too high. Just make sure you can live with either structure.
from Cornell University in Toronto, ON, Canada