When does it become counterproductive to keep negotiating?

December 05, 2024

by a searcher in Toronto, ON, Canada

I'm looking at a deal with $20M revenue and $1.7M EBITDA. I offered $6M and they countered with $6.5M is it even worth pushing back given the business seems relatively high quality and the difference represents only a few months of EBITDA essentially? I was planning to split the difference and put $250K in cash, $250K in incremental seller note.

At the same time, they came back with various other requests and I essentially gave in on all of them, so don't know if I should be pushing back at least on something.

Update: Thank you to everyone who shared advice - I'm now under LOI, we landed on $6.3M including $900K total seller financing (2 year standby) and a giveback of $200K from the NWC, which is pegged conservatively at $4.5M. Fingers crossed we successfully make it through diligence now!

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Reply by an investor
from University of Pennsylvania in Charlotte, NC, USA

Thanks, ^redacted‌. Anonymous, you're asking whether you should accept their proposed price or negotiate it. That question is highly situation-specific, so you'd have to share much more information for anyone to give an informed opinion. However, I'm not following how you've framed this to begin with: you negotiated a bunch of terms already but had not at that point settled on a price? That's unusual. Or, if you agreed on a price at the time you were negotiating terms (you say you gave in, so implies those negotiations were finalized) and then the seller proposed a different price, that's probably not a good sign for how things are going to go as you work through due diligence and the purchase agreement. Clarify and share more info to enable people to help you.

Reply by an intermediary
from Arizona State University in Houston, TX, USA

It would be helpful to know the industry, but 3.8x of $1.7m doesn't seem to be a ridiculous ask. If the deal is the right deal for you. Then it is worth it to keep negotiating. Like Brandon mentioned, you should understand the motivations of the seller in this scenario to bridge the gap. Before you counter on money determine if there is a cultural fit between both parties, i.e. can you work together post close to achieve the results you want. I do not recommend telling the seller how you are going to grow it under your ownership as they may turn around and do it themselves. But see if you can work something out to keep the seller engaged in the business post close and close the gap. Another point, does your seller have a good financial and tax advisor? Often times a seller's desire for cash at close is not in their best interest.

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