Seller Slips Away

December 04, 2024

by a professional in Las Vegas, Nevada, Estados Unidos

Hi, everyone , I wanted to share my almost first Acquisition story with you so hopefully the same thing doesn't happen to you .
Last year I was working on my first Business purchase in Texas, it was a Dumpster roll off business. The business was run by a son and his father who was 30 years in construction , so the dumpsters business was a perfect addition. The sale price was aprx###-###-#### to start. During the process which took about###-###-#### months the business was still growing, however the financials from the previous year were determining the price , and I was trying to get it lower. we agreed on 1.9 and I was excited to make it happen. The banks took there time, and in the end asked me if I had a foreclosure after 4 months of paperwork , and I did. It prevented the loan, in 1 week I found a different bank and they approved it. During the waiting time the seller had a lot of time to look at his growth and profit and in the end, he walked away. I'm not sure if there would have been something in the LOI , or contract that could have prevented him from walking away , but that was a real kick in the Nads. If anyone has some input on how to prevent the slip, Id love to hear it.
Good Luck , Quentin

Reply by a searcher
from London Metropolitan University in Kuala Lumpur, Federal Territory of Kuala Lumpur, Malaysia

I agree with some comments here. Firstly, the fact that you reduced the multiple of a growing business from 2.6 to 1.9 after 6 months must have been a kick on the seller’s nads. The valuation was based on the previous years number so that didn’t change and you did not mention any material issues arising from the financial due d. With the business proving itself to continue to grow , what is your justification for dropping the multiple by 27% ? I doubt a seller of a growing business would accept the inclusion of a break up fee and allow a 26% discount to the valuation on the above facts. You cant have your cake and eat it too. One possible comeback is for you to negotiate the payment of 3x multiple subject to financial performance meeting the 1-2 years projections plus /minus 5%. It might incentivise the seller to return to the table. 1.9x is just too low and Seller’s friends in the business community must have also advised him to pull the plug cos he could do better with another Seller who would respect all his hard work over the years and not change the goal posts like the way you did. Think about it. .

Reply by a searcher
from University of Calgary in New York, NY, USA

Determine why he is leaving, and solve for that. Assuming he wants a higher valuation given the growth, and you're discounting it using last years numbers. There are probably other reasons he walked away as well, but hard to determine based on this info alone. If he sees a lot of future growth coming, you could offer more equity to give him a second bite in a few years, but you need to sell your ability to grow it. Bringing a group like us in on this with deep M&A and operating experience can help you get the deal done and grow the company. Happy to connect and discuss: redacted

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