Negotiation tips (via broker)

August 11, 2024

by a searcher from Johns Hopkins University in Melbourne VIC, Australia

I'm in discussions, via a broker, to acquire a business. I've got a gap to close between what the seller wants and what I think the business is worth (the business has declined in last 2 financial years, but the seller has a figure in mind, largely based on previous performance).

Question:
1) what are ways that you've used successfully to close that gap (including deal terms, earn-out, etc.)
2) how have you successfully navigated the process with the broker in the middle.

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Replies

Reply by an intermediary
from Rochester Institute of Technology in Toronto, ON, Canada

This is from the standpoint of the broker in the middle: Some sellers are hopeless and will die before they successfully sell their business, as they will not accept reality and market valuations. The fact that the broker represents this business should be a positive signal. Brokers make their many through success fees, and they would have vetted the seller as they can't afford to work on deals that will never close. I would ask the broker how they came up with the valuation; maybe what they say makes sense - and it is possible that you are not the best buyer for this business, and someone else would pay the higher price, and this is who they will eventually sell to. It is also possible that no one in the world would be prepared to pay more than you for this business, and the seller will miss out on not accepting your offer. State your case, explain how you came up with the valuation and see what the broker says. My experience is that the sellers usually accept that declining income means a lower price and are willing to accept earn-out in those cases. Another thing to ask is why financials have declined and whether there is a realistic way to get them where they were. Would the owner be willing to stay on and stir the ship to get it there? It is easier for owners to accept earn-outs when they have some control over the outcomes.

Reply by a professional
from University of Michigan in Detroit, MI, USA

Hi ^redacted‌, if the business has been in decline for the past two years, you may struggle to secure financing. Even if this isn't an issue for you, that will make it harder for the seller to sell, which gives you leverage. Ask for increased seller financing and, in addition, tie the purchase price to an earnout (or the seller note to forgiveness, if relying on SBA financing). The broker shouldn't be an issue unless she is actually the one pushing for the larger purchase price the seller would except less but the broker is telling the seller the business is worth more. There is nothing much you can do about it either way. Stick to your guns: If you have a valuation, bid on the higher end but don't exceed it. Sometimes, you just have to walk. Happy to discuss further. Feel free to DM me here or reach out directly at redacted

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