The wisdom contained in this familiar old adage was brought into sharp focus again on one of my engagements. After this particular business had been on the market for six months we were fortunate to have four separate offers to present to the owner. The face amounts of the offers ranged from $3M to almost $13M. It wasn’t until we really took a look “under the hood” of each offer that we could determine which was really the best offer for the Seller.
The two highest apparent offers included all of the cash in the corporate checking account (~$2.3M); the two lowest apparent offers left all cash with the Seller. The highest apparent offer included all of the accounts receivable, but still required the Seller to pay off all of the Accounts Payable. The lowest apparent offer allowed the Seller to keep all of the cash and accounts receivable, and still assumed all of the payables.
The highest apparent offer included an earn-out with a maximum payout of $2M, which upon closer inspection could only have been realized if sales doubled the day after closing and remained at that level for four years.
In the end, after additional adjustments for risk, the time value of money, and the impact of taxes, the best offer for the Seller turned out to be the 2nd lowest apparent offer by a wide margin, and the next best offer was actually the lowest apparent offer. All of which underscores the value of seeking the assistance of an experienced M&A intermediary, in addition to your own qualified M&A accounting firm, when it comes time to sell your business.
It also highlights another reason why we typically take a business to market initially without an Asking Price: How can we possibly anticipate all of the various scenarios that a prospective buyer might have in mind, which will ultimately influence what we would consider to be a fair price?
If you know someone who’s thinking of selling or buying a business and who might benefit from a complimentary, confidential, consultation with us, have them contact directly me at mertel@transworldlma.com
Mike Ertel, CBI, M&AMI, CM&AA
Managing Director, Broker
Transworld M&A Advisors
813.299.7862 Direct
© 2024, J. Michael Ertel, PA