Should I avoid submitting a valuation range for a brokered process?

searcher profile

September 01, 2021

by a searcher from Ivey Business School at Western University in Toronto, ON, Canada

When submitting a bid for a brokered process - has anyone received a lot of push-back if they submitted a valuation range (e.g. $12-14M). This is for an IOI - we would be happy to pay at the higher end of the range once more information is shared and diligence checks-out

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commentor profile
Reply by an intermediary
from The University of Chicago in Chicago, IL, USA
The answer depends on the quality of the information prior to submitting the IOI. Information includes financials and other relevant information for valuing and structuring. The other times a range us used is if there is an auction. In these situations however the asset is of high quality and multiples are on the high side.
The more specific a buyer is in an offer (price, structure, seller involvement, lease, etc.) the better the chances of success.
A buyer has no obligation to buy the business if the DD results in lower or higher or as-expected profit. Neither is the seller obligated to sell at the LOI price or even higher if the buyer raises the price after DD. Both parties have thousands of reasons to not go through the deal. (Example: 1) 20 years ago, a $1.25 M dental prosthetic deal fell apart b/c of 3 words in an agreement. 2) Recently I was approached to fix a healthcare deal of $40 M that had fallen apart b/c the parties could not agree on filling in one amount in a sentence. We fixed the situation and the deal closed.)
So Searchers, focus on the a bigger picture if you like the business,
commentor profile
Reply by an intermediary
from Naval Postgraduate School in Bellevue, WA, USA
Many times you encounter a seller (without broker representation) that has no experience with the M&A process including IOI's, LOI's etc. If I were approaching a seller, I would try to get to know him/her as well as possible and then explain that you are very interested in his company and are considering making an offer subject to access to financials and other materials needed for your price analysis. With this information and answers to follow-on questions, you should be able to generate a single value suitable for an LOI and skip the IOI (and a range).

One problem with a range is that an inexperienced seller is going to target the highest number in the range which can lead to "disappointment."

If the Seller has a broker, then you should be able to informally ask him about the best approach with his client.
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